Alan Kohler: A beautiful, lucky, meaningless budget
Every budget has amnesia – no past and only a future, writes Alan Kohler. Photo: TND
The central claim of this budget is that the government is only spending 18 per cent of its revenue windfall and “banking” the rest.
And that’s kind of true if you go along with the idea that predictions can be referred to in the past tense.
Treasurer Jim Chalmers said in his speech: “This budget, we’ve returned 82 per cent of the extra revenue windfall that’s largely come from lower unemployment, stronger jobs and wages growth, and higher prices for key exports.”
See? Past tense about the future, a glitch in the matrix that is peculiar to Treasurers at budget time: He’s talking about the sum of the forward estimates.
Having covered 40 or so budgets I realised quite early on that the “forward estimates” are about the future, and that, as Yogi Berra said, it’s hard to make predictions, especially about the future.
Remember last year?
Bear in mind that Jim Chalmers’ first budget seven months ago predicted a deficit for this financial year, which was already about a third of the way through at that point, of $37 billion. It has turned out to be a surplus of $4 billion, a $41 billion mistake, so pass the grain of salt.
Every budget has new decisions and new “parameter and other variations” (budget speak for luck and misfortune), and nobody ever says: “Hey wait a minute, you said … last year!” Still less does anyone say that about a budget three or four years ago.
Every budget has amnesia – no past, only a future.
So I’ve learnt that the only true budget is last year’s. As for next financial year’s numbers, which is the purpose of every budget – that is, to tell each minister, department and other supplicant what the government has decided to give them – I have another quote for you, this time from Harold Wilson: “A week is a long time in politics”.
And having spent years doing business budgets, I’ve learnt that future expenses are real and future income is a dream.
Anyway, let’s deal with Jim Chalmers’ past-tense forward estimates, and his 82 per cent.
Table 3.2 in the budget papers predicts that over the five years from 2022-23 to 2026-27, parameter and other variations will increase the cash balance by $146.5 billion.
Policy decisions made in this budget covering those same five years add up to minus $20.6 billion ending in 2026-27: $22 billion in extra receipts, offset by $42.6 billion in extra payments. I make that 86 per cent “banked”, by the way, not 82 per cent.
But anyway, these are from policy decisions made this year and predictions by Treasury this year; next year there will be a whole new set of decisions and predictions, and a new set of circumstances, so the forward estimates are meaningless.
In fact, the point is circular: The reason Jim Chalmers is predicting that $104 billion worth of windfall gains will simply be added to the budget is so that he will have sufficient political credibility as a solid fiscal guy to start doing something different, for example, cancel the Stage 3 tax cuts and give the unemployed a decent pay rise instead of the miserly $40 a fortnight in this budget.
In other words, he is banking 82/86 per cent of the future windfall so he can change his mind next year and not be quite so pilloried as he might have been before.
To that extent this is a very fine budget: Chalmers has produced a document that beautifully navigates the difficult terrain of economics and politics, between providing some cost-of-living relief but not too much that would result in even one more rate hike, in my view. The cash rate will stay at 3.85 per cent, possible for years.
And most important of all, it is a budget with a surplus in it, albeit a brief one, which the Treasurer and his colleagues can downplay with a half-smile (shucks, it’s nothing).
Like all budgets, it might have the half-life of francium-223 (22 minutes, apparently) but for now it shines brightly, and can be marketed confidently by ministers wearing their austere responsibly caring faces over the coming days.
My personal focus on actual past numbers rather than forward estimates is based not just on the scars that come from wrestling 40 of these things, but also long experience of dealing with company results, which are all about the past, with a bit of mumbled, nervous forward guidance usually thrown in.
Let’s call the current financial year – 2022-23 – the past, even though it has 51 days to run, and given the past performance of Treasury at predicting the future, anything can happen in that time.
The $4 billion surplus is an astonishing turnaround from the $134.2 billion actual deficit that was incurred just two years ago in 2020-21.
Most of that improvement in the government’s finances came in the first of those two years, when the Coalition was in charge, not Labor, and about half of it – $62 billion – simply came from the removal of COVID-19 stimulus and pandemic lockdown relief measures.
The other half – $64.8 billion – came from increased taxation: $26 billion from individuals, $24.5 billion more from companies, and a surprising doubling of tax from super funds to $26.5 billion.
There’s been another, smaller, increase in tax revenue under Labor since 2021-22 of $37 billion, plus $8.3 billion in extra GST from the bump in spending.
In other words, and to summarise, the turnaround in the budget over the past two years is due mainly to the Coalition’s excessive pandemic stimulus measures, which boosted employment and spending and then stopped, as well as the Ukraine war which boosted commodity prices and therefore Australia’s terms of trade.
One final point: Between 2020-21 and 2022-23, the cost of NDIS increased by $10.4 billion and of aged care by $3.2 billion, but these were more than offset by a $17.1 billion drop in the cost of JobSeeker, because of the decline in unemployment.
Alan Kohler is founder of Eureka Report and finance presenter on ABC news. He writes twice a week for The New Daily