The Distillery: Budget bloopers

Jotters slam Labor’s budget update, with one saying the latest GDP figures are a bluff.

The federal government’s mini-budget left some business commentators utterly infuriated. With the election campaign now officially up and running, the arms race between the parties of rubbery figures will grow all the more.

The Australian’s economics editor David Uren notes the “absurdity” of the government’s latest economic statement, where the unemployment rate drops from 6.25 per cent next year to 5 per cent in the each of the following two years.

“The same table shows a similarly inexplicable leap in the measure of nominal GDP (from 4.5 per cent to 5.25 per cent) which governs how much taxable income the economy generates.”

This is bluff. It’s a point reinforced by The Australian’s Judith Sloan.

“Recall that Treasury secretary Martin Parkinson said he would be happy to stand by the figures were the Treasury to release its own forecasts. Can we assume he is happy with the next iteration? Recall also that, 12 weeks ago, the terms of trade were only going to fall by 0.75 percentage points in 2013-14 and a further 1.75 in 2014-15. GDP would grow by 2.75 per cent this financial year and the rate of unemployment would be 5.75 per cent in the June quarter next year. Now we are expected to believe the terms of trade will fall by 5 per cent this year (although the effect will be offset, at least in part, by a lower dollar), growth is down to 2.5 per cent and unemployment will be 6.5 per cent in the June quarter.”

The Australian Financial Review’s Chanticleer columnist, Tony Boyd, notes that economists have been warning that Australia’s unemployment situation has been worse than figures show for some time.

The Herald Sun’s Terry McCrann notes that the entire budget is predicated on the Australian dollar staying flat at 92 US cents a share for four years.

“On Friday it was already at 89 US cents and heading down, perhaps sharply and quickly. It could well get a kick-along when the Reserve Bank cuts its official interest rate on Tuesday. The RBA has an honest and far more realistic view of both the economy and the damage the government has done and continues to do. The critical thing for the Reserve Bank is business confidence. That’s what builds businesses and creates jobs. It’s been in the toilet all year. On Friday, the government effectively said: We might as well flush it away. All in the cause of giving us another three years of Kevin Rudd.”

Of course, honesty when it comes to budgetary matters is hardly a characteristic that only the Labor Party is lacking, as pointed out by Fairfax’s Ross Gittins in an article on the manoeuvrings of opposition treasurer Joe Hockey.

“For months Hockey’s been saying he couldn’t possibly release his costings until he’d seen the pre-election economic and fiscal outlook statement. This convenient excuse for delaying the release of detailed policies until the last possible moment before the election wasn’t justified by his need to use the statement to cost particular promises. No, it was justified by the need to see Treasury’s most recent stab at the expected budget balances over the next year or two so the opposition would know how much it could afford to spend. It would also allow the Liberals to commit to achieving Treasury’s forecasts or bettering them by $X billion. Penny dropped yet? By claiming the fiscal outlook statement couldn’t be trusted, Hockey was freeing the opposition from having to make anything but the vaguest commitment about when it would get the budget back to surplus, even though its opponents had nailed themselves to a hard and fast target.”

Fairfax’s Malcolm Maiden believes that notwithstanding the disastrous mini-budget, the dollar’s huge slide and the bank tax, last week was actually a good one for investors.

Good week or not, The Australian’s John Durie isn’t letting go of Treasurer Chris Bowen’s claim that the International Monetary Fund supports the government’s bank deposit tax because the report that’s being drawn on notes that the “authorities” rejected the proposal.

“They include the Australian Prudential Regulation Authority, the Reserve Bank of Australia and the Australian Securities and Investments Commission, all of which are well aware of some shortcomings in the Australian financial market, such as the lack of a deep corporate bond market. The practical effect of this is that the banks have limited options to invest in ‘liquid’ assets, as required by Basel international rules, so they tend to invest offshore. Bowen’s plan to raise a deposit insurance fund would add a new distortion and in the process make the market even worse. No wonder the bank boffins have come out screaming and for once there is more than obvious self-interest involved.”

The Australian’s Robin Bromby takes both the major political parties to task for their mining policies.

And finally, Fairfax’s Michael West goes way back to the 1850s for the frugality and commitment of Chinese gold miners in the fields of New South Wales and Victoria for his opening on the misfortune that’s currently engulfing Newcrest Mining.