Prepare for an early election

In whipping up a surplus without including any politically painful ingredients, Wayne Swan will be hoping his budget soufflé rises in time for an early election.

We knew the Government would have to cook the books to some extent to stay in surplus this year, but the scale of the culinary exertion in this week’s mini budget deserved three stars from Michelin.

The change to "large company” (that is, those with $20 million revenue or more) tax payments from quarterly to monthly has smacked gobs across the business world, although it won’t help this year’s balance. Its main effect is to provide a one off $6.2 billion pull forward of company tax for the 2013-14 budget and keeps the forward estimates in the black.

Most companies will have to borrow for this and yesterday many were ruefully referring to themselves as the Government’s cash flow bankers.

The Government’s immediate pre-election problem – the 2012-13 budget – is made surplus by four main menu items and lots of smaller ones: scooping up lost super accounts after one year instead of five ($515 million this year), pausing some grants and "targeting” others ($283 million), investing $390 million in the Tax Office bureaucracy for an assumed 300 per cent ROI over four years ($300 million) and making the most optimistic economic forecasts in the land.

The first three dishes add up to $1.1 billion, which is the new 2012-13 surplus.

The final item is the most significant. Most forecasters reckon the Australian economy will grow at little more than 2.5 per cent this year, and some are forecasting less than that.

The Government’s forecast has been held at 3 per cent growth. It that was cut to the consensus, at least $5 billion would disappear from the budget modelling. But we won’t know who’s right or wrong on this until well into 2013.

It is what the corporate world would call a stretch budget, not a worst-case budget, or even a conservative one.

The Government has thus avoided any real politically painful cuts to expenditure, apart from cutting the baby bonus by $2000 for second and subsequent children. CEOs around Australia are being forced by the boards to go through their costs, line by line, and cut whatever they can; the Federal Treasurer, meanwhile, dons the chef’s hat and heads into the kitchen.

The lost super shift is an especially tasty dish: sudden death now applies to superannuation accounts, and if you are out of the country for more than a year or are not paying attention for other reasons, your retirement savings will be swiftly confiscated by the Tax Office and booked as revenue by the Government.

That is $515 million of real individual retirement savings in this financial year alone that the government will simply acquire and account for as current revenue.

In addition to that, the MYEFO includes $109 million from unclaimed bank accounts and $98 million from unclaimed company funds held at ASIC, also booked as current revenue.

Pausing and re-targeting grants is a good wheeze because it means you don’t have to announce their cancellation, but money comes out anyway.

As for the "investment” in the Tax Office, you wonder when diminishing returns might start to appear. This week’s MYEFO books $1.6 billion across the forward estimates in revenue, in return for extra spending on Tax Office resources of $390 million, but why stop there?.

If every new ATO employee brings in four times his or her salary, the Government should obviously fling far more than $390 million at the ATO. Another $1 billion would produce a 2012 surplus of $5 billion; a vast new $10 billion tax bureaucracy would result in a Norway-style sovereign wealth fund sufficient to secure the nation’s future.

On the whole this MYEFO definitely looks like a pre-election effort: prepare for an early Federal poll.

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