Wednesday, May 04, 2016

Budget reaction


A bit more detail:

*  is the Murdoch press in the can for full on support for a Coalition win in July, or what?

*  a significant danger for the Coalition in the election campaign should be the deferral of a decision on university fee deregulation and HECS support.   But will that get swamped by the "big picture"?

*  the IPA and small government types are not going to be impressed with this budget, but seriously, how many of them would really manage to vote without at least preferences going to the Coalition?  (Bolt has already put the boot into it to a surprising degree - but he tends to take his economics talking points straight from the IPA.  I would bet a pile of money that he will not, however, endorse a vote for Shorten.) 

*  the danger - the big, big danger - for Labor will be things like that downwards revised estimate for revenue from tobacco taxes.   People are too easily convinced that Labor is too optimistic on revenue to justify its spending.  

*  listening to Richard de Natale on Radio National this morning - he's really the best Greens leader we've ever had.   Sounds extremely reasonable.

*  why did aged care have to take such a hit?  Have we got too many nursing homes now?

*  politically, it's not great; but on the other hand, it looks fantastic compared to the dire first attempt by Abbott.

Update:   hey, hell is about to freeze over:  I will now quote Judith Sloan as making a useful contribution in economic commentary:
Why should we believe this when none of the other budget projections have come to pass? We are expected to believe that nominal GDP growth, the key driver of revenue, will jump from 2¼ per cent this financial year to 4¼ per cent next year and 5 per cent per annum thereafter. Note that nominal GDP grew by only 1.6 per cent in 2014-15.

The reasoning behind this optimism is Treasury’s view that the economic output gap (the difference between actual and potential output) must eventually narrow. However, any significant hiccup in the world economy or China means the assumptions on ­nominal GDP growth are out the window.

And just take a look at what is expected to happen to revenue. Next financial year, general government revenue is expected to come in at 24.2 per cent of GDP. By the end of the forward estimates, revenue will be bringing in 25.9 per cent of GDP.

In historical terms, this would be an extraordinary outcome. In the period since 1996-97, there have been only two years when revenue as a percentage of GDP exceeded 25.9 per cent, in 2000-01 and 2005-06. Now many of us would agree that we live in extraordinary times, just not the sort of extraordinary times that would generate the surge in government revenue assumed in the budget.

And there are a number of breathtaking assumptions. Capital gains tax revenue is expected to go from $13.4bn this year to $17.5bn in 2019-20. And superannuation taxes will rise from $6.6bn this year to $10.9bn at the end of the forward estimates, an increase of 65 per cent.

Even taking into account the changes to the taxation of superannuation contained in the budget — a series of measures that will no doubt induce anger among the ­Coalition’s base and negate the Treasurer’s pledge to spare current retirees — the increase in superannuation taxes looks implausible. There is a long history of appalling forecasting of super­annuation taxation receipts on the part of Treasury.
In other words, it is quite on the cards that the Budget will suffer the same fate as those under Swan - based on cheery Treasury forecasts which don't sound all that likely, and will have to be revised downwards.

Update 2Peter Martin really praises the good bits of the budget.

Yeah, I agree up to a point.   The bigger issue, and one for which I blame both sides of politics, is that a moderate increase in GST (I was arguing for 2.5%)  would have given a substantial, and pretty much dead certain, boost in revenue.  Instead, we get changes which are of uncertain revenue impact over many years.   Both sides aren't really being serious about revenue measures.   And the Coalition is especially profligate when it comes to defence.  There has also been no serious discussion about the Coalition's climate change spend - when a modest carbon tax would make much more sense.

*  I see the "correct" spelling is "meh", but I always have the urge to put in an apostrophe.  I can't see why both can't be right.


Not Trampis said...

I gave you a plug today on this

Steve said...