It’s all care and no responsibility at Crikey today as Bernard Keane and Glenn Dyer lash Joe Hockey for missing his Budget forecasts:
The government was committed to “more realistic long-term assumptions on the economic and fiscal outlook,” said Treasurer Joe Hockey last December when he released the Mid-year Economic and Fiscal Outlook. Finance Minister Mathias Cormann chimed in: “It is a matter of record that the previous government invariably overestimated revenue and underestimated expenditure. They kept promising surplus budgets and kept delivering more deficits. Our core commitment with this budget update is to draw a line in the sand as the Treasurer said and to provide a believable set of figures.”
As we’ve since seen, the line in the sand has already had to be redrawn at least once, and now we know it will be redrawn yet again in next months’ MYEFO.
Crikey doesn’t rate the much-quoted consultant Stephen Anthony as highly as most other media outlets seem to. If we want a self-promoting economist flogging their own fantasy budgets we’ll stick with Chris “the mining boom is about to end” Richardson. And we were underwhelmed with Anthony’s description of budget critics as “girly men” – a joke you can barely get away with if you sound like Arnie and not at all if you’re a former Treasury official trying to create a reputation for credibility. Nonetheless, the media’s penchant for taking Anthony and his budget forecasts seriously did have the effect of flushing out that the Treasurer expects a significant deterioration in revenue but won’t pursue offsetting savings in MYEFO for fear of further undermining demand.
Let us recall what the dynamic duo said when Hockey released his MYEFO last year:
As con jobs go, Treasurer Joe Hockey’s MYEFO yesterday wasn’t particularly subtle. But then the Coalition in “budget black hole” mode rarely is. The $10 billion “Beazley black hole of 1996″ was a fiction cobbled together by Finance bureaucrats and flogged remorselessly by the Howard government.
But it’s Treasury bureaucrats who are complicit in this one, because the invention of nearly $70 billion worth of extra budget deficits is, after you take out the surge in expenditure this year since Hockey became Treasurer, almost entirely the product of a big downward revision in nominal GDP growth forecasts and thus of revenue.
In the Pre-Election Economic and Fiscal Outlook released by Treasury and Finance in August, untouched by political hands, budget deficits were expected to total about $55 billion over the next four years, with a small, almost notional, surplus in 2016-17. That’s now turned into $123 billion worth of deficits under Hockey. In PEFO, nominal GDP growth was forecast to be 3.75%, 4.5%, 5.25% and 5.25% for this year through to 2016-17. Now nominal GDP is forecast to be 3.5%, 3.5% 4.75% and 4.75% for the same years. They are the lowest nominal GDP forecasts since the global financial crisis.
This has a massive impact on revenues, which are very sensitive to changes in nominal GDP growth. Revenue will be $6 billion lower this year, $10 billion next year, $16 billion lower in 2015-16 and $19 billion lower in 2016-17. That’s $50 billion extra in deficits, right there. The rest is additional spending Hockey committed to yesterday, like rural infrastructure projects promised by Labor that the Nationals refused to give up.
…you can see where all this is heading: the economy may well perform better than the dire predictions of Treasury in MYEFO, gifting Hockey the claim of economic and fiscal wizardry. Only, bookmark the independently prepared PEFO and come back to it later, because that’s the standard against which Hockey should be judged in the future, not this confection.
As MB said at the time, the confection was all Crikey’s. Hockey was exactly right to be bearish on nominal growth given the looming terms of trade shock and if he has been proven insufficiently bearish he was at least on the right track. Stephen Anthony (who I don’t know) has meanwhile come out smelling like roses.
Unlike Crikey, where the tendency to privilege point scoring over analysis is a constant handicap.
