It’s a curious platform from which to launch into an election campaign. Growth projections revised down, unemployment rising and accumulated Rudd-Gillard-Rudd deficits that will, if all goes well, reach about $275 billion before the budget is balanced.
In the space of about 2½ months alone, the deficit for this year has blown out by more than $12 billion.
The projected fall in revenues – relative to the May budget forecasts rather than in dollar terms, where they are expected to rise by about 5 per cent, or about $18 billion this financial year and by slightly more in 2014-15 – is the primary driver, with revenue over the forward estimates period projected to be about $33.3 billion lower than in the May budget.
Rather than trying to meet Wayne Swan’s revised promise of a surplus in 2015-16 Chris Bowen has decided, despite the desperate scramble for cash in recent weeks, to push the promise out an extra year.
Given the dramatic changes in the forecasts for this year alone since May, and the Rudd-Gillard-Rudd governments’ inability to produce a surplus even when the economy was experiencing the best terms of trade and the biggest investment boom in well over a century, you wouldn’t put your house on the odds of that occurring.
And given slowing of the economy, where growth has been revised down from 2.75 per cent to 2.5 per cent and unemployment revised up from 5.75 per cent to 6.25 per cent, and the scale of the budget blowout, Bowen probably had no politically viable option but to let the near-term deficits swell while scheduling the largest impact of the forecast savings and revenue-raising into the final two years of the forward estimates period, well beyond the election.
The big items there are the punitive tax increase on tobacco, which will raise $5.8 billion over the next four financial years, the controversial change to the fringe benefits tax treatment on employer-provided vehicles ($1.8 billion), a crackdown on unpaid tax and superannuation ($827 million), the tax, sorry levy, on bank deposits ($733 million) and increases in the threshold below which inactive superannuation accounts are handed over to the Tax Office ($582 million).
(As an aside, the "levy" on bank deposits, which is designed to create a fund to insure against future bank depositor losses, is treated as revenue even though it wouldn’t be available to fund government expenditures. Very creative. As is the treatment of other people’s money – small inactive super accounts – as if it were the government’s).
There’s also an increase in the rate of the "efficiency dividend" required from the public service, which is supposed to raise close to $2 billion over the forward estimates and about $2 billion saved through changes to the pricing policy of medicines covered by the Pharmaceutical Benefits Scheme.
The blowout in deficits wasn’t all about a slowdown in revenue growth relative to the expectations less than three months ago, although that is by far the larger part of the explanation (along with the inability of the Rudd-Gillard-Rudd government to stop announcing new spending programs). The cost of moving from the carbon tax to an emissions trading scheme a year earlier is, as previously announced, $3.8 billion while Rudd’s new offshore asylum seeker policy and the associated extra "aid" to PNG will cost about $1.5 billion, offset by a $423 million reduction in operating the existing onshore detention network and a slower-than-planned rate of growth in the foreign aid budget.
Bowen’s eventual surplus is projected at $4 billion in 2016-17. That would represent 0.2 per cent of GDP.
Given the current government – and Treasury’s – record on projecting economic outcomes even a few months ahead, whatever the 2016-17 outcome is it is most unlikely to be a $4 billion surplus, or anything close to it. If the economy continues on its current trajectory, it is equally unlikely that the forecast of a $30.1 billion deficit this year will prove to be either accurate or conservative.