In the end, it was the corporate sector that killed off Labor's quest for a surplus in 2012-13, today's final budget outcome shows.
The financial year 2012-13 was meant to be the year Labor returned to surplus, "come hell or high water", as then-treasurer Wayne Swan said. Labor even prematurely announced it had been "delivered" after the budget in May 2012. By December, the surplus had been abandoned, despite the government holding the line on spending. A predicted surplus last May of $2.5 billion became a deficit of $18.8 billion.
The results from 2012-13 show it was corporate tax revenue and the minerals resource rent tax that killed the surplus. The government's biggest revenue source, revenue from taxation of individuals, came in a little under par compared with the 2012 budget forecasts (the final budget outcome only includes comparison with forecasts back in May this year, not May 2012): $160.6 billion to $163.1 billion. It was the next biggest source, company tax, that mugged Labor: an estimated $75 billion in the end became $68.2 billion, then the MRRT – only a small item in the overall mixed, but a big fall; it was predicted to yield, along with the petroleum resource rent tax, $7.4 billion; in the end it produced only $1.9 billion. That's over $12 billion lost right there. Other smaller sources like customs and excise duties also came in a under forecast, as did carbon pricing revenue. In fact, carbon pricing revenue fell significantly even on estimates in May, due to lower-than-predicted emissions.
The net result: a predicted $343 billion in tax revenue turned out to be $326.4 billion. Just to help, non-tax revenue fell by a billion on forecasts as well.
Faced with collapsing revenue, in December Wayne Swan announced the government would no longer risk the economy by further cutting spending. As it turned out, spending increased a little on 2012 forecasts: $364.2 billion became $367.2 billion. Spending in the crucial areas of education and health actually came in a little below forecasts, while transfer payments were over by a trivial amount; the only substantial "blowout" was in payments to states, territories and local governments, of over a billion dollars.
But government spending actually shrank in 2012-13, from $371 billion. Spending has fallen in real terms before (indeed, it did in 2010-11), but hasn't shrunk in cash terms as far back as Treasury's current records go, to the start of the 1970s. Yes, it was aided by plenty of pea-and-thimble tricks involving bringing forward and delaying expenditure, but the Howard government never came close to hacking expenditure in real terms by 3.2 per cent, as Swan did.
In attacking Labor's fiscal record today (including the downright weird statement that Treasury's nominal GDP forecast was a "promise" by Labor), Treasurer Joe Hockey and Finance Minister Mathias Cormann failed to answer the basic question: what would they have done differently? Faced with a $17 billion-odd writedown in revenues, should Swan have slashed spending by a further $17 billion on top of the historic cut he'd already inflicted on the budget? And done it when the economy was growing below trend despite the Reserve Bank bringing interest rates down to record low levels? How would the economy have fared with another $17 billion ripped out of it? How many jobs would it have cost to address the Coalition's debt'n'deficits rhetoric?
And of course there's the other question of where the "budget emergency" is, and why the Coalition isn't rushing to address it with a mini-budget to slash spending and bring Australia's debt under control. Instead, the government has been making noises about stimulating the economy. Indeed, apparently the government is considering adding to Australia's debt to fund infrastructure construction. If so, the Coalition would be demonstrating a welcome maturity on the issue of government debt – and complete hypocrisy.
Perhaps, like corporate tax cuts or low interest rates that are bad when Labor's in power, government debt suddenly becomes a good thing when the "adults" are back in charge.
This story first appeared on www.crikey.com.au on September 27. Republished with permission.