The yawning gap between promise and delivery is fatal for Labor.
AS STAND-UP comedy, it was a pretty good line: "The four years of surpluses I announce tonight . . ." And Wayne Swan got the predictable guffaws and laughter with the opening remarks of his budget speech.
A luxury of making promises on the never-never is that you can't be held accountable. As Swan will not be around to deliver a budget in four years' time, he can claim what he likes. By the time we get to 2016, no one is going to care two hoots about what Wayne Swan said on May 8, 2012.
Over his first four budgets, he has averaged deficits a little over $43 billion a year. He tells us that his next four budgets, if he were to deliver them, would average surpluses of $4 billion a year. At that rate do you know how long it would take to pay back the money he has borrowed to finance those four deficits? It would take 43 years! The longest journey begins with the first step, but this is such tiny progress!
And here's the worry. That projected surplus is so small 0.1 per cent of GDP or 0.4 per cent of revenue that the slightest variation to revenue or expenses will blow it out. And then for all the hoopla, the budget will be in deficit anyway. What will be the 2012 budget outcome? The truth is we won't know until September 30, 2013, and the chances of Swan making that announcement are very slim.
The government has been foolish to claim its forecast outcome will make all the difference on interest rates. If that is true - if a $1.5 billion surplus means interest rates can be cut - the converse must also be true, that all those $40 billion deficits kept rates higher in the past four years than they needed to be and we have been struggling with the dead weight inflicted by this government.
It is quite possible that the Reserve Bank will cut interest rates further - if the economy weakens further - and if that happens, the fragile "surplus" will disappear as well.
This "surplus" is highly contingent on and captive to developments in the economy, not the driver of them.
In any event, the best indicator of whether the government is taking money out of the economy (a surplus) or putting it in (a deficit) is whether net debt is rising or falling. If it is truly in surplus then a government will be saving and net debt will be falling.
But as this budget makes clear, net debt will rise in the forthcoming year. After bringing all those off-balance items to account, the government is not in surplus at all. The rest, ladies and gentlemen, relies on a bunch of accounting tricks.
On May 2, 2010, when Swan announced the resource super profits tax (which he described as the greatest economic change of his lifetime), he said it would share the benefits of the mining boom by, among other things, funding company tax cuts from July 1, 2012, and letting Australians over 50 contribute more to superannuation.
That company tax cut was abandoned on Tuesday night - before it applied to one company for one day. The concessional cap was delayed to July 1, 2014, after the next election. And that gives plenty of time to announce further delays.
In the 2010 budget, Swan said people would get a 50 per cent tax cut on earned interest income from July 1, 2011. Later that year, in the mid-year review, he pushed the start date back to July 2012. Last year's mid-year review pushed the start back another year to 2013. On Tuesday, the cut was abolished altogether.
Or take the standard tax deduction heralded in the 2010 budget speech as easing the cost of living for 6.4 million people and freeing them from the need to fill in a tax return. It was to start on July 1 this year. In the mid-year review last year the date was pushed back to 2013. On Tuesday night the start date was abolished.
Or take the 2009 defence white paper, which committed the government to increasing defence spending 3 per cent a year in real terms. In fact over four years to 2015 it will barely increase 1.5 per cent.
Or take aid spending, which Labor has been promising to lift to 0.5 per cent of gross national income by 2015. For the first time it had to include estimates for that year in the current budget. So have a guess what happened? The target was deferred to 2016 - a year that is not in the budget - at a saving of $2.9 billion. And have a guess what will happen to the target next year.
Anyone familiar with politics has always known that the closer we got to the year of the target, the further Labor would push the promise out.
Such a large part of this budget consists of reversing decisions of previous budgets: one step forward, two steps back. The government didn't have to make these promises. As it had no idea how to deliver them it should not have made them. Once it made them, however, it was obliged to keep them. It has developed the habit of over-promising and under-delivering. It is always looking for the next big headline - the "greatest" this and the "biggest" that.
It is the yawning gap between promise and delivery that has killed this government. The chasm shows no sign of closing. The best the government can hope for is to be off the scene before reality catches up with the latest set of expectations it has inflated.
Frequently Asked Questions about this Article…
What surplus did Wayne Swan announce and is that budget surplus likely to be reliable?
Wayne Swan announced projected surpluses averaging about $4 billion a year over the next four budgets. The article says that figure is very small (around 0.1% of GDP or 0.4% of revenue) and therefore fragile — the slightest change in revenue or spending could turn it back into a deficit, so investors should treat the surplus claim as highly conditional.
How does the projected $4 billion surplus compare with the government’s recent deficits?
Over his first four budgets the government averaged deficits a little over $43 billion a year. At the projected $4 billion average surplus rate, it would take roughly 43 years to repay the money borrowed to finance those earlier deficits, highlighting how modest the new surplus is compared with past shortfalls.
Why do everyday investors need to care about whether the federal budget is truly in surplus or not?
For investors, a genuine surplus can affect interest rates, government debt levels and economic confidence. The article points out the best indicator of whether the government is taking money out of the economy (surplus) or putting it in (deficit) is whether net debt is rising or falling — and this budget shows net debt will rise next year, which matters for market expectations and borrowing costs.
What does the article mean by the budget relying on 'accounting tricks' and off‑balance items?
The piece argues the headline surplus depends on adjustments and off‑balance items rather than clear cash savings. When those off‑balance items are taken into account, net debt is forecast to rise — suggesting the apparent surplus is partly an accounting outcome rather than a clear reduction in government borrowing.
Which promised tax cuts and personal measures were delayed or cancelled in this budget?
According to the article, several previously announced measures were delayed or abolished: the planned company tax cut was abandoned before it took effect for any company; the 50% tax cut on earned interest income was abolished; the standard tax deduction was abolished; and the change allowing people over 50 to contribute more to superannuation (the concessional cap timing) was delayed to July 1, 2014.
What happened to defence and international aid spending promises in the budget?
The defence commitment in the 2009 white paper — to increase defence spending by 3% a year in real terms — will instead barely rise by about 1.5% over four years to 2015. The pledged lift in aid spending to 0.5% of gross national income by 2015 was deferred to 2016, producing an estimated saving of $2.9 billion in the budget period.
Can a small projected surplus really influence interest rates, as the government claimed?
The article argues that claim is dubious. If a tiny surplus (about $1.5 billion in one line of argument) were enough to justify lower interest rates, then conversely past large deficits must have kept rates artificially higher. The piece says the surplus is more likely to be captive to economic developments — if the economy weakens and the Reserve Bank cuts rates, the fragile surplus could disappear.
What broader message does the budget send about government credibility and the risk for investors?
The article describes a pattern of over‑promising and under‑delivering: many past commitments have been pushed out, reversed or scaled back. For investors, that creates policy uncertainty — which can affect markets, expectations and long‑term planning — so it’s sensible to be cautious about taking headline budget promises at face value.
Call 1300 880 160
Start a chat
Schedule a call
