Boiling down MYEFO to two simple variables
UPDATED: Reflecting ABC story that the cumulative budget deficits will be $120 billion over the four years from 2013-14 to 2016-17.
It is possible to boil down tomorrow’s MYEFO to a couple of simple points to see just how the budget deficit widening that will be reported has come about.
The starting point for MYEFO comparisons are, of course, the last Treasury estimates of the fiscal position which were published in August in the PEFO. That fiscal position was for total cumulative net budget deficits of $54.6 billion over the four years of the forward estimates from 2013-14 to 2016-17.
The key point almost always overlooked in the so-called ‘blame-game’ narrative is that there can only be two reasons for changes in these budget numbers:
- Policy decisions taken by the government of the day.
- Changes to the economic forecasts or the so-called parameters that are the foundation of estimates of government spending and revenue.
There can be no other factors that have changed the budget bottom line between PEFO and MYEFO.
I’ll repeat for emphasis – there can be no other factors other than policy decisions and changes to economic parameters that can influence budget bottom line estimates in the MYEFO results.
According to the ABC, it looks like the aggregate budget balance for the four years from 2013-14 to 2016-17 will be a deficit of approximately $120 billion, some $65 billion more than was estimated at the time of PEFO.
This $65 billion budget blow out can be due to only two things, government policy decisions and changes in economic parameters.
The good news is that Treasury have always published the dollar value of these components. I assume it will again tomorrow.
These two numbers should be the key big picture take on MYEFO:
- how much of the budget blow out was because of decisions like spending $8.8 billion on the RBA, abolishing the carbon price and changes in education funding, to take a few on that side, and
- how much is due to Treasury changing its view on economic conditions, especially GDP growth, inflation, employment and wages?
On the second point, the chatter is that Treasury has taken the lower bound of the consensus forecasts for the economy and that this is adding a few tens of billions to the aggregate deficit. This is sheer dumb luck and has been a factor driving budget changes for decades.
The other number – the change in the budget balance due to policy changes – will be the more interesting. What decisions has the Abbott government taken to change the budget balance? Has its decisions added to or reduced the budget deficit?
It is that simple and there is, or should be, no blame game. Just facts.
- February 2014
- January 2014
- December 2013
- November 2013
- October 2013
- June 2013
- May 2013
- April 2013
- March 2013
- February 2013
- January 2013
- December 2012
- November 2012
- October 2012
- September 2012
- August 2012
- July 2012
- June 2012
- May 2012
- April 2012
- March 2012
- February 2012
- January 2012
- December 2011
- November 2011