29 Apr The Deficit We Had To Have…???

Everyone remembers Paul Keating’s famous remarks about the recession we had to have – not surprising at the time as business borrowing rates were > 20% pa. Now we have the “Deficit We Had To Have”.

Today Julia Gillard has declared that decisions about the nation’s finances are so “grave” and “urgent” every option is on the table at the Budget – even those previously off the table.
Ms Gillard told a forum in Canberra today the government’s revenue had slid $12 billion since the last budget update in October. But the PM went further, saying that “everyone” had to cover their share of the burden although she insisted the Government would not “cut to the bone”.

Everyone hears political rhetoric, but it is time to call a “Spade A Shovel” – the Government has spent consistently more than it earns with spending increasing by > $100 bn over the last 5 years or an increase of 46% including the GFC stimulus. Revenue actually increased 9% in 2011/12 but short of the forecast of 12% (wouldn’t everyone like to have this problem !!!). Spending rose 7% in nominal terms over 2011/12.

So now we have had 2 adjustments – the mid year economic update & also the announcements today that revenue has fallen $12 bn & this causes the grave & urgent option for the Government…??? The Government has already made announcements with the Disability Insurance Scheme & Education reforms which are going to add a further estimated $20 bn to costs in 2013/14. If their updated forecasts released today (revenue is down $12 bn on 2012/13 forecasts are right THIS STILL MEANS THAT REVENUE FOR 2012/13 WILL BE SOMEWHERE BETWEEN $350 – $360 bn (THIS IS STILL $20 bn – $30 bn > 2011/12 OR a 6%+ INCREASE IN REVENUE) – YES THAT IS RIGHT AN INCREASE NOT A FALL IN REVENUE.

Now let me say here that “not every deficit is bad & not every surplus is good”. It all depends on the state of the economy & where monies have been spent. Let’s just look at the numbers provided by Treasury to show what the Government’s Federal Budget has looked like over the last few years

So the answer isn’t REVENUE FOREGONE BUT INCREASING EXPENDITURE. As an Australian I am appalled that this has happened to OUR MONEY. Australia has had a massive free kick in terms of the mining boom, all to no avail. We have gone from having net $20 bn in savings to now apparently owing $300 bn (again a debt isn’t a bad thing as long as the monies are used for productive uses). Some economists are predicting (& I love the predictors) that Australia’s Federal Budget will remain in a structural deficit for the next 10 years – this would mean future governments spending more than they earn FOR THE NEXT 10 YEARS, which will be financed by more borrowed monies. Please also note that these Budget forecasts do also not include the NBN which is considered an off-budget item (An asset which is being financed & a commercial return is expected on the investment at some future point)

Whilst we are not at the stage of some Southern European countries, we do need to be more responsible & our Politicians need to be held accountable for spending OUR MONEY.