Sunday, May 04, 2014

Spending and revenue

It's the debt, not the spending: why the budget is bleeding

Peter Martin's column above contains these useful figures:
Two years beforehand in 2010-11, Treasury forecast revenue equal to 24.1 per cent
of gross domestic product by 2012-13. It was a low forecast by the standards of the previous Howard government. But what the Gillard government got was 23.1 per cent of GDP, billions of dollars less.

By a staggering coincidence, government spending that year amounted to exactly 24.1 per cent of GDP, precisely the same figure as the revenue it had expected to get.

If revenue had rolled in as expected, the past financial year’s budget wouldn’t be in deficit in all. Wayne Swan would be crowing about his success in eliminating the deficit on time, as promised.

No one is too sure where the revenue has gone. It’s a murder mystery with multiple suspects.
Small government ideologues, who have been entertaining themselves at some "We Hate Tax" love in this weekend*, like to concentrate on absolute figures for spending and revenue rather than "relative to GDP" figures.  Unless someone cares to correct me, I take it that this is done as spin to try to portray spending as being out of control by ignoring factors that indicate why government spending would have some "natural" growth over the years.

With respect to looking at it compared to GDP,  I see that even last week's National Commission of Audit report - with as fine a Right wing pedigree as one could expect when appointed by a Coalition government - contains the graphs which put in clear perspective the "it's all Labor's overspending" line.

First:  Chart 4.1 in the report - Commonwealth spending as a share of GDP

Second:  Chart 4.2 - Commonwealth taxes as a share of GDP

Labor governments that spend and tax like there is no tomorrow?  Hardly.

*  I note a guest speaker was notorious climate change denying Patrick Michaels - anti tax libertarians (with few exceptions) must attack climate change as not really being a problem because the most sensible policy to address is a tax.  Eek - a tax!  

1 comment:

nottrampis said...

Steve I have blown Sinclair's reason why spending is out of control out of the water.
As I love to point out HE actually said the tightest budget we are ever likely to see which contained a FALL in nominal spending was expansionary!
for one thing if Spending was out of control the RBA would be raising rates and the market expecting further rises.

As for the Cof A. It assumes the Nominal GDP does not get back to trend at all.

If nominal GDP does get back to trend levels guess what. No Deficit!