Thursday, May 14, 2015

Yay for Daley

A 'dull and routine' budget that relies on group denial

That John Daley really has a knack for clear writing and explanation on the economy.  (OK, there's another Grattan Institute co-author on this as well.  Sorry Danielle.)

This article confirms what virtually everyone - except this chronically dissembling "say anything" government - knows:  this budget forecasts a return to surplus on a timetable that would be a fluke if it's achieved.

It also shows a government that has incredible inconsistency.  What a great summary Daley and Wood give here:
As well as asking people to accept these rosy assumptions, the budget
also requires impressive mental gymnastics to reconcile this year’s
budget with last year’s rhetoric.
Last year the government said everyone should contribute to the task
of budget repair through a range of unpopular budget measures. One year
later and many of those measures have either been abandoned (GP
co-payments, pension indexation and six-month waiting periods for
Newstart allowance) or are unlikely to pass the Senate (changes to
Family Tax Benefits and higher education reforms). Some groups –
particularly small business – are simply winners.

Last year Tony Abbott was the “infrastructure Prime Minister”. In
this year’s budget, Commonwealth spending on transport infrastructure
falls from 0.5% of GDP in 2015-16 to 0.3% in 2018-19. The largest
addition to infrastructure spending is for the Northern Australia
Infrastructure Facility, which will only cost .02% of GDP per year, and
even that relies on the government finding commercial partners yet to be

Last year, a “gold standard” paid parental scheme was a “signature
policy”. This year, parental leave payments are in effect being cut for
those who already receive them from their employer.

Last year, we were told that government was too large and spending
was too high. This budget proposes four years in which Commonwealth
spending will be a greater proportion of GDP than all but the two years
of financial crisis under the Rudd-Gillard governments.

Last year we were told this government would fix the budget through
spending reductions, not higher taxes. This year, budget repair is
supposed to result primarily from the tax take increasing by 1.7% of GDP
in four years.

But the greatest cognitive dissonance comes from the government’s fundamental approach to budget repair. While doing nothing was not an option in the face of the “debt and deficit disaster” a year ago, the government has done precisely that. This budget recognises that 2014-15 will be much worse than forecast in last year’s budget. It is probably sensible to slow the pace of budgetary repair in the face of a weakening economy. However, if the recovery forecast for 2016-2018 is as strong as the budget forecasts, then there needs to be substantially more budget repair in these later years. Australia cannot afford otherwise.


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