The budget trick that’s fooling no one

Never before will a mid-year budget and economic update be as completely irrelevant, meaningless and just plain wrong.

Treasurer Josh Frydenberg is set to deliver MYEFO this week. Photo: Getty Images

In this coming week we will get the mid-year budget and economic update from Treasurer Josh Frydenberg and his Treasury department – never before will it have been as completely irrelevant, meaningless and just plain wrong.

It will be hailed as showing that both the economic and fiscal outlooks have dramatically improved ‘since the budget’.

It will predict a – bigtime - smaller deficit this fiscal year and smaller deficits over the next three years than were predicted in the budget. It will predict stronger economic growth this year and next than had been predicted in the budget.

Now normally, these ‘mid-year’ updates – now that in itself might seem an odd term for something that comes right at the end of a year, but that’s because we are talking ‘fiscal years’ that run June-to-June – are fully seven months after the actual budget in May.,

This year though, the update – formally called MYEFO or Mid-Year Year Economic and Fiscal Outlook – is coming barely two months after the budget, in early October; thanks of course to the virus and the ‘government’, all nine of ‘em, responses to it.

That’s to say: savage mandatory lockdowns that forced us into recession ‘offset’ by massive government spending.

Now in the budget, Treasurer/Treasury predicted the deficit this year would be a completely unprecedented – and even those two words seems so totally inadequate - $213.7bn.

This week’s update is going to predict it will be less – significantly less – than $200bn; very effectively announcing the utter incompetence of Treasury.

Not to put too fine a point on it, the update will announce that all the way back – just ten weeks ago in early October – Treasury, the supposed repository of broad and deep economic analytical competence, didn’t have a clue.

If treasury secretary Steven Kennedy had the slightest sense of self-awareness or even just basic personal embarrassment, he would submit his resignation with MYEFO.

In contrast, Frydenberg is going to hail the ‘improved numbers’ – just to be clear, still only predicted, not yet actually delivered - as a triumph for himself, perhaps also the government, and maybe even a generously kind word for Kennedy and Treasury.

Let me spell out just exactly how badly wrong Treasury got the forecasts - and more importantly than the forecasts, an understanding of what is actually happening in the economy.

Ahead of the budget Treasury saw no recovery in the national economy in the September quarter. In fact, it had already actually grown – as it was always going to bounce-back – 3.3 per cent.

In the budget itself Treasury expected 2.2m workers still to be on JobKeeper in the December quarter. As Treasurer Frydenberg rather sheepishly admitted a week or so back the actual number in October was 1.5 million.

Hey, so a bunch of economists in an ivory tower in Canberra got their – real-time – prediction wrong by 33 per cent. That’s no proof they haven’t a clue. Nobody’s perfect.

So, anyway, they didn’t have a clue in October; now they are predicting better times ahead for both the economy and the budget. So that must be good news?

The only problem is that you have to be an idiot to think that you know. The ‘big thing’ we do not know is the efficacy and the timeliness of the ‘Godot Vaccine’.

If it works, if it is deployed quickly and universally, that’s great – indeed, made spectacularly ‘greater’ for the economy and investments by all the massive stimulus out there, from government spending and central bank money-printing and zero interest rates.

If it does not work - and just to be very clear, I am talking about it ‘working’ in an economic sense not a medical sense; that it enables us to totally reopen the global economy; to go back to international flights and tourism as they were a year ago – well, 2021 will be ‘different’.

Even the blinkered idiots in Canberra should be able to see that in the contemporary reality of Europe.

What is going to make this week’s MYEFO especially idiotic is that once again we will see the ‘utter idiocy of the decimal point’.

The budget deficit forecast was not $214bn or a ‘round number’ $215bn, far less a range of say $210-215bn or (better) $200-220bn.

Oh no, it had to be $213.7bn – as if that exactitude had the slightest validity far less the slightest relevance to anything.

If you had been told instead that the forecast was $213.9bn or even $213.1bn would it have made the slightest difference to anything? Quite apart from the utter ludicrousness of pretending you can make a sensible forecast anywhere within $10bn of the outcome anyway?

Now it’s going to be trashed, not by decimal points but by tens of billion, just two months later – and it will still be wrong.

It’s probably time to trash Treasury as well.