The Abbott Fact Check & Other Matters
The Leader of the Opposition Mr Abbott gave his response to the Budget a short while ago and while there were few facts relating to matters of the economy, there were a few assertions and judgments that should be put through the fact-check machine.
The lack of any detail about how the aspirations would be paid for is another matter, but at a quick glance, here is what came out:
ABBOTT: People who work hard and put money aside so they won’t be a burden on others should be encouraged, not hit with higher taxes.
FACT: The tax to GDP ratio of the first 5 Labor Budgets averaged 21.1%. The lowest ever tax to GDP recorded under the Howard government was 22.2% and the average was 23.4%. The last time a Coalition Government delivered a tax to GDP ratio below 21.1% was in 1979-80. Cannot see where the “hit with higher taxes” statement fits these facts in the current Budget context.
ABBOTT: And people earning $83,000 a year and families on $150,000 a year are not rich, especially if they’re paying mortgages in our big cities.
FACT: Average annual earnings are around $53,500 in NSW and $51,500 in Victoria. Maybe they are “not rich”, but someone on $83,000 is earning around 60% above the average wage whether they have a mortgage or not.
ABBOTT: Madam Deputy Speaker, from an economic perspective, the worst aspect of this year’s budget is that there is no plan for economic growth; nothing whatsoever to promote investment or employment.
FACT: After registering a 19th straight year of economic growth in 2010-11, the Budget shows Australia growing at 3% in 2011-12, 3.25% in 2012-13 and 3% in 2013-14. Having risen a Chinese-type 18% in 2011-12, business investment is forecast to rise a further 12.5% in 2012-13. Employment is forecast to rise by 1.25% in 2012-13, which will see the creation of around 175,000 new jobs from now until June 2013.
ABBOTT: With a growing economy, it’s possible to have lower taxes, better services and a stronger budget bottom line as Australians discovered during the Howard era that now seems like a lost golden age of prosperity.
FACT: Despite the unbroken economic growth during the Howard Government era, which was a worthy achievement, the tax to GDP hit a record high of 24.2% of GDP, some 3.2% of GDP higher than in 2011-12 (that’s about $40 billion of extra tax in a single year!)
ABBOTT: I applaud the Treasurer’s eagerness to deliver a surplus – but if a forecast $1.5 billion surplus is enough to encourage the Reserve Bank to reduce interest rates, what has been the impact on interest rates of his $174 billion in delivered deficits over the past four years?
FACT: The official cash rate set by the RBA averaged 5.42% during the Howard government. Since Labor were elected in November 2007, it has averaged 4.73% and is currently at 3.75%. The futures market, having seen the Budget, is pricing in a cash rate below 3% by early 2013.
ABBOTT: The forecast surplus relies on the continuation of record terms of trade even though growth in China is moderating and Europe is still in deep trouble.
FACT: The Budget forecasts are for the terms of trade to fall by 5.75% in 2012-13 and to fall a further 3.25% in 2013-14. Based on Treasury’s sensitivity analysis, if the terms of trade were to continue at a record high as Abbott asserts, the surplus would be over $5 billion in 2012-13 and over $10 billion in 2013-14.
ABBOTT: I know what it’s like to deliver sustained surpluses because I was part of a government that did; indeed, sixteen members of my frontbench were ministers in the government that delivered the four biggest surpluses in Australian history.
FACT: As a share of GDP, they are not “the four biggest surpluses in Australian history”. The two biggest surpluses as a share of GDP were actually delivered by the Gorton and McMahon governments, followed by the 3rd largest surplus from the Howard Government, the fourth largest at 1.9% of GDP was delivered by the Whitlam government.
The “four biggest surpluses in Australia’s history” in dollar terms, which fit Mr Abbott’s claim, were in fact driven by the highest tax to GDP ratio in Australia’s history plus there was an extra $5.2 billion in dividends in those four years from the RBA.
ABBOTT: If the budget really was coming into surplus, it stands to reason that the government would have no further need to borrow. If the government really thinks that a surplus can be delivered, as opposed to being merely forecast, why is it proposing to add a further $50 billion to the Commonwealth’s debt ceiling?
FACT: The debt ceiling is rising due to the requirement to main a deep and liquid bond market and to allow for intra-year cash flow lumpiness in government accounts. See also: http://www.marketeconomics.com.au/1286-gross-debt-gross-ignorance-2