THE DISTILLERY: Measuring MYEFO

The most consistent word used in this morning's commentaries on the Mid-Year Economic and Fiscal Outlook (MYEFO) is "fiddling”. There are a few measures in place to reduce spending, but the Wayne Swan fiddle is doing a lot of the work returning the budget to surplus.

These narratives fly in the face of those calling on Canberra not to cut in tough times – the economic data doesn't lend itself particularly strongly to those calls either.

The Australian's George Megalogenis writes quite simply that "history is against” Swan because "no previous treasurer has asked the taxation system to do so much with so little margin for error”.

The Australian's economics editor Alan Mitchell makes the argument that there's "something for nearly all the major players” in this MYEFO.

"For economists and business, who winced at the thought of tightening fiscal policy when falling commodity prices and the terms of trade are weakening the economy, there is the reassurance that a good deal of the repair work on the budget is in the form of cash account fiddles, which should substantially reduce the budget's negative impact on spending and economic activity.”

The Australian Financial Review's Laura Tingle says the government has taken some encouraging steps towards reducing the legacy payments of past vote buying drives.

"The best part of Wayne Swan's latest budget moves sees Labor taking commendable steps to dismantle unsustainable Howard era entitlements: pruning the baby bonus and subsidies for private health insurance and daring the coalition to oppose them. But it is more than usually tempting to say all the rest is window dressing, given the monster bring-forward involved in changes to company tax collections; the plethora of short-term delays in spending until the election year; non-tax revenue props like big dividends from the Reserve Bank and an unprecedented dip into the contingency reserve.”

But The Australian Financial Review's Chanticleer columnist Tony Boyd says the budget should not be seen as having no negative impact on the economy.

"NSW Treasurer Mike Baird says the latest moves will pull about $900 million in revenue out of the NSW economy over four years. Revisions to Special Purpose Payments and National Partnerships will mainly affect the state's share of federal spending on health and education.”

Business Spectator's Stephen Koukoulas argues that the government is delivering a classic example of counter-cyclical fiscal policy settings.

"Here is the context. Around four years ago, when recession or even global depression beckoned, the government delivered a massive fiscal stimulus which saw real government spending surge 12.7 per cent in 2008-09 with further growth of 4.2 per cent in 2009-10. The stimulus was big. Recession was avoided and the budget went into deficit hitting a peak of 4.2 per cent of GDP in 2009-10. In the next two years, government spending was cautiously scaled back, with real growth averaging just 2.4 per cent in each year. The budget deficit fell to 3.0 per cent of GDP in 2011-12. Today's MYEFO confirms that government spending, in real terms, will fall by a record 4.4 per cent in 2012-13. By itself, the Commonwealth government fiscal measures will cut around 1 per cent from GDP. In 2012-13, nominal government spending will fall by around $7.8 billion, the first time there has ever been a such a decline. The government is using the return to trend growth as a reason for it cutting expenditure so sharply.”

Fairfax economics correspondent Peter Martin explains just how delicate the budget situation is in relation to export prices.

"A statement of risks published with the budget update shows that if Australia's terms of trade were to fall another 4 per cent (on top of the 8 per cent now forecast), the government would lose an extra $2.8 billion in tax revenue – enough to obliterate what is now a wafer-thin $1.1 billion forecast surplus. It would lose the $2.2 billion surplus expected for the following year as well, suffering a revenue hit that year of $6.7 billion.”

The change that the business pages are focusing on heavily this morning is the shift from quarterly to monthly tax payments for some 13,350 companies. Fairfax's Malcolm Maiden isn't alone when he says the affected parties will "hate it”.

"The shift from the present system of quarterly corporate tax payments to monthly tax payments will occur selectively, and in three stages: 350 companies that collect revenue of $1 billion or more a year will begin making monthly payments on January 1, 2014; companies with revenue of between $100 million and $1 billion move on to the monthly payment system on January 1 2015; and companies with revenue of between $20 million and $100 million will make monthly tax payments from January 1, 2016. This change pulls $5.5 billion of corporate tax revenue forward into 2014-15, and pulls $1.6 billion and $1.2 billion forward in the following two years, for a total of $8.3 billion.”

The Australian's John Durie has a crack at quantifying the burden that Swan has just placed on these businesses.

"On Goldman figures, big company interest costs now amount to about 9 per cent of earnings, and while this will increase, the impact will differ depending on the company debt profile and earnings. The Business Council was right to say: ‘Given the current circumstances there is no need to get caught up in the delivery of a surplus in 2012-13 at all costs.' Cynically, the good news is the mini budget was more an exercise in number-shuffling but on balance it was negative for the economy by further raising costs at the wrong time. The Treasurer has also moved Future Fund expenses off the budget to save it around $417 million this year.

So is this just a revenue grab? The Australian's Judith Sloan has a few chuckles at the historical grounds the government has used for such a move.

"A small number of insignificant countries are cited as being other examples in which company taxes are paid monthly. And there are supposed gains from aligning the period with GST payments. Please...Treasury must think we are stupid to fall for this ploy. While the new arrangement will initially apply only to large companies with turnover of $1bn or more, over time it will apply to quite small ones.

While Fairfax's Elizabeth Knight agrees that some companies will be annoyed, the Business Council of Australia might be thanking its lucky stars that Swan didn't hit big business any harder.

"Those companies that have highly seasonal or lumpy earnings won't like this move – these have wild variations in revenue from quarter to quarter. Those with steady cash flows will be less affected. All large companies in the firing line will see cash move out the door more regularly and will not have the benefit of earning interest on their cash reserves, or will need to borrow for tax during some periods. This will bring forward $5.5 billion in revenue – and not lose the government a vote. In this respect Swan has pulled one out of the hat.”

Meanwhile, Fairfax's Tim Colebatch contends that the most important part of the MYEFO is actually on page 56.

"It shows that unexplained variations to the budget estimates will cut spending in 2012-13 by almost $3 billion. By definition, these variations are not due to changes to policy, the state of the economy, or in the costs of individual programs. Yet they are the reason why we will have a budget surplus of $1.1 billion, rather than a budget deficit of $1.9 billion. But what are they? No information is given. We the taxpayers provide the money for this, but are kept in the dark about where and why $3 billion of planned spending suddenly will no longer happen. These unexplained spending cuts are the reason why the battered 2012-13 budget is still expected to end up in surplus.”

The Australian's Glenda Korporaal says the superannuation industry "heaved a sigh of relief” on the news that the federal government is not conducting another round of tinkering.

Fairfax's Michael Pascoe says we should keep an eye on the Reserve Bank of Australia to see if fiscal tightening in Canberra becomes a larger influence on its rate cutting instincts, rather than the slowdown in Asia (which is starting to bottom, it should be pointed out).

And Fairfax political columnist Phillip Coorey explains how the federal government may need the approval of the opposition, with the Greens and independents showing signs of unease at some of the cuts.

And finally, Fairfax's Adele Ferguson explains how something else did actually happen yesterday aside from the MYEFO. The writer looks at the mining services industry and its penchant for excessive executive pay levels that were in some way inspired by legendary Leighton boss Wal King.