Don’t be fooled by Jim Chalmers’ budget spin but keep an eye firmly on the headline balance
Jim Chalmers is bowling unorthodox spin at the mid-year budget update.
The Treasurer is changing profiles and time horizons, hoping the punters can’t pick up his sleights of hand. The pitch, too, is tricky, a minefield of acronyms rolling easily off the tongue of the ultra-smooth custodian.
Wondering what MYEFO stands for? Try mid-year economic and fiscal obfuscation.
We could get bogged down here like Marnus did in Perth, but the game must go on.
The budget update will not be one of Labor’s better days: a sea of red as far as the eye can see.
Still, Chalmers claims the budget is in “better nick” by $200bn across the six years from the 2022 pre-election fiscal reading all the way to 2027-28, which would cover Labor’s entire second term if it wins the 2025 election. All that improvement, however, is behind us, locked and loaded in the amazing post-pandemic revenue miracle the custodian lucked his way into.
In each of the Albanese government’s first two years, revenue collected was at least $100bn higher than Treasury and the Department of Finance expected in the run-up to the May 2022 poll.
How could that be? Good management? Not exactly.
Treasury’s forecasts for commodity prices were customarily too tame (although the estimation method has now been improved).
No one in Canberra – or at the Reserve Bank, to be fair – anticipated the Big Inflation, the record migration bounce-back and the employment miracle that have driven the revenue bonanza.
Chalmers also claims Labor’s six-year record (that is, two down, four in the beautiful tomorrows) is superior to the first six years of the Coalition’s recent time in office, using the 2013 pre-election case as a baseline for their performance.
That six-year period of Coalition musical chairs leadership was also when our export prices were in the doldrums, but the budget edged back to balance because of bracket creep. And then in the May 2018 budget, treasurer Scott Morrison announced a three-stage plan to return the proceeds of this fiscal drag to taxpayers, a move that could not have been plugged into the 2013 calculations.
Long-range budget forecasting must be done but it’s like a mug’s game of darts after five pints.
What about spending restraint?
Chalmers and Finance Minister Katy Gallagher were on a good line and length in their first year in charge of payments, but their cost control has suffered since then.
Last year, spending was 4.8 per cent or $31bn higher than the pre-election outlook.
The fiscal fraternal twins have made much of their savings, the “unavoidable spending” pressures and their world-beating budget discipline.
But the fine print in Wednesday’s update will reveal the weakness of their claims to prudent management.
There has been slippage, most of it because of the government’s choices to provide bill relief and expand the size of the welfare state – more services and public servants, higher wages for care sector workers. One aspect that will be subjected to greater scrutiny is the explosion in hidden off-budget activity. Think student loans, National Broadband Network, Snowy Hydro and the housing funds.
There’s no problem here if these things don’t make losses.
But economist Chris Richardson says “politicians on both sides have realised the loopholes in our budget accounting rules make this the best spot to stash their trash – all the stuff that isn’t actually paying its own way”.
The budget sage is urging commentators and taxpayers to watch the lesser-known measure known as the headline balance rather than the underlying cash balance.
A gap has opened up between the two measures that he estimates is now a cumulative $87bn across the budget’s four-year horizon, or six times bigger than it was in the past four years.
Richardson fought the fiscal transparency wars a generation ago and says the headline balance “has gone back to being a much more accurate measure of what’s going on in our national social compact”.
It’s our best chance of picking up the Treasurer’s spin before it lands and shatters our stumps.
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