No-one cares about the budget

Last year (see Who cares about the budget?) I made the point that it was silly for us to get excited about budget forecasts (and surpluses) that were likely to be horribly wrong. My guess was that there was an error factor of plus or minus $50b with a likely revenue shortfall of $20b based on recent experience

Now that we're a year on we can see that the range was about right and the shortfall underestimated. Ignoring the politicians' shifting goalposts, the latest guess is that revenue will come in about $30b shy of the original forecast ($350b vs $380b).

The following table (an updated of last year's analysis) shows how we keep getting it consistently wrong. In business terms, our Government is like a company that keeps on forecasting a return to break-even whilst actually operating on a negative margin of 10%.

FEDERAL BUDGET - ESTIMATES VS ACTUAL
Forecast
Forecast
Actual
Difference
Forecast
Forecast
Actual
Difference
Forecast
Actual
Year
Revenue
Revenue
Revenue
($b)
Expenses
Expenses
Expenses
($b)
Operating
Operating
(Last Year)
(This Year)
($b)
(Last Year)
(This Year)
($b)
Margin
Margin
($b)
($b)
($b)
($b)
(%)
(%)
2008/09
319.50
298.90
(20.60)
292.50
324.60
(32.10)
9%
-8%
2009/10
294.20
284.70
(9.50)
343.10
336.90
6.20
-14%
-15%
2010/11
321.80
302.00
(19.80)
354.60
346.10
8.50
-9%
-13%
2011/12
356.40
338.10
(18.30)
364.60
377.70
(13.10)
-2%
-10%
2012/13
383.10
350.40
?
 
380.50
367.30
?
?
1%
-5%
2013/14
405.20
376.00
?
?
399.00
391.20
?
?
-4%
?
2014/15
425.80
401.20
?
?
414.10
415.70
?
?
-3%
?
2015/16
428.90
?
?
425.00
?
?
1%
?
2016/17
453.60
?
?
443.70
?
?
2%
?
Average margin
-2%
-10%

 

So back to last night's budget and I have to admit to being even less interested than usual. I checked in briefly as I wanted to make sure there had been nothing unusual on the superannuation front (which there hadn't). But you just never know when the Government might reduce voluntary contributions to zero or round up everyone with a balance greater than $500,000 for a public flogging. I was also interested to see if Andrew Robb might answer a journalist's question (no) or whether Wayne Swan could beat last year's record for the number of times someone could say 'Party of Menzies' (I don't think so).

But overall, although I only watched it briefly, I got the sense that everyone had lost interest in the actual numbers. Sure, Wayne and Penny harped on about it being the second largest revenue shortfall since the Great Depression (which technically it might have been, but when you're consistently running in the top five you shouldn't be surprised by the occasional second).

Everyone else, rather than focusing on wafer thin, way off in the distant future, surpluses seemed focused on whether Labor has done the Coalition a favor, stitched them up or neither, and how things are actually going to be funded into the future.

Which raises the question: has half a decade of getting the budget forecasts hopelessly wrong jaded people to the point they've stopped caring? Or perhaps they're just all busy doing their own mental arithmetic, lopping $20-30bn off the numbers to get a more accurate result?

The Government's financial position is of critical importance to superannuation investors, given the likelihood they'll end up footing a decent chunk of any future shortfalls. So the optimistic (perhaps naive) side of me hopes that the last half a decade of atrocious budget forecasting might make us start to recognise that we can't actually predict the future with any accuracy.

Instead we might start to focus on more important factors such as structural deficits, base line revenue/expenditure and the quality of our inflows and outflows. A predictable $100 of revenue funding infrastructure or education is not the same as $100 of highly volatile revenue funding fixed cash handouts. It just looks the same in the budget tables.

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