Budget reality takes a Swan dive

There is a growing discrepancy between original federal budget forecasts and the end reality. We seem to be charting a Greek course – not that currency traders are noticing.

Don’t show the graph below to the central banks and currency traders who are buying the Australian dollar as a safe haven currency. Former BHP chairman and NAB chief executive Don Argus sent it to me.
In the middle of one of the biggest mining booms Australia has ever seen, we decided to go on a Greek style spending spree. It’s worth taking time to look at the graph. Go back 10 years and you will see that each year the dark blue line, which is the budget prediction, was bettered when the final numbers were counted. That is until the Swan era arrived on us. In fairness we encountered a global financial crisis and we used the Swan spending spree to lower the impact. But in most of the Swan years what was said in the budget had only a casual relationship to what actually happened. Wayne Swan and Penny Wong last week indulged in self praise over what happened in 2011-12 when the deficit estimate they made with six weeks to go turned out to be right. Who cares that the deficit was about twice the original budget forecast.
Argus makes the point that if any chief executive regularly presented budgets that were so consistently wrong they would be sacked.

But as we saw in Europe last night reversing big spending is very hard work. Voters, whether they be Greek or Australian, do not like it as Tony Abbott is finding out. The current government is thinking about taxing people’s retirement savings via superannuation and giving the miners another kick.

They have not woken up that the mining boom is well and truly over and the looming lower interest rates will attack retirees very hard. You will see the government is budgeting for a surplus in the current financial year.

The only way it will achieve that is to shoot most of the expenditure across into the next financial year – a classic Greek strategy.

Australia needs more unemployed Greek economists to show us the way forward. It is not a good look but if only the overseas central bankers and currency traders studied the graph and current iron ore and coal prices, the consequent lower Australian dollar would help.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles