Federal Budget 2013
Federal Budget includes little in the way of surprises with the usual promise of big savings and big spending, though not this election year.PT5M5S http://www.canberratimes.com.au/action/externalEmbeddedPlayer?id=d-2jkj6 620 349 May 14, 2013
In the face of enormous pressure to return the budget to surplus quickly, Wayne Swan has run the other way.
Extra spending this financial year and the next will boost the 2012-13 deficit by a further $2.4 billion and the 2013-14 deficit by $720 million.
Only in the following two years will the cuts in the budget overwhelm the extra spending, pushing down the 2014-15 deficit by $6.2 billion (to a small projected surplus) and pushing down the 2015-16 deficit by $12.3 billion (to a substantial surplus).
The Treasurer has adopted what he calls this "sensible, calm and responsible approach" in part because of a fear the economy could not take a sharp shift to surplus, a concern shared by shadow treasurer Joe Hockey, who told an investment conference last month the Coalition would not "go down the path of austerity simply to bring the budget back to surplus".
Mr Swan puts it this way: "Just because the global economy took an axe to our budget does not mean we should take an axe to our economy."
Changed economic conditions have ripped $60 billion from the four-year total of expected tax collections since the last budget update in October.
The budget papers include a graph making the point that if tax collections had remained as high as in the final year of the Howard government (23.7 per cent of gross domestic product), the budget would still be roughly in balance.
Swan is clawing back two-thirds of the missing $60 billion by making $43 billion of savings, most of which increase over time instead of biting now when the economy is weak.
Emblematic is the freezing of the thresholds beyond which Australians can't get the family tax benefit. The freeze will hurt no one in the coming financial year but then will raise $207 million in 2014-15, $400 million in 2015-16 and $609 million in 2016-17. The $94,316 cut-off for the family tax benefit part A seems generous now, but it will seem less generous over time as income growth pushes more and more people beyond it.
The decision to increase tobacco excise in line with average weekly earnings rather than the much slower growing consumer price index is another measure where the impact will start low and then grow.
The extra Medicare levy, to be locked in a fund labelled DisabilityCare Australia, won't bite at all in the coming financial year. But from mid-2014 it will take $3.3 billion from incomes, then, two years later, $4.2 billion. Set at 0.5 per cent of incomes, it will climb as incomes climb.
The phasing out of the net medical expenses tax offset as recommended by the Henry tax review will save only $175 million in its first year. But it will save $510 million per year by 2016-17.
So much do the measures Swan has put in place grow over time that he reckons he can fund 10 years' worth of the national disability insurance scheme and the schools improvement program with them.
But the projections aren't worth much coming from a Treasurer who, more than most, is acutely aware of how much things can change in just one year.
The budget documents make clear that any numbers produced beyond the next years are "projections" rather than forecasts. The difference is that "projections" assume standard rates of economic growth rather than forecast what it will be. By definition, "projections" don't encompass the possibility of recessions. If Australia did manage to last another 10 years without a recession, on world-record 21 it already lasted, it would indeed be a world-beating economy and would certainly able to afford DisabilityCare and the Gonski education payments.
Much depends too on an assumption that as mining investment fades mining production will ramp up to fill the gap. Investment detracts from tax collections, production builds them. But it is a guess about what will happen assuming demand from China remains high.
The projections assume an Australian dollar "around US103¢".
This was where it was when the budget was being finalised, but it isn't where it is now. It fell below US100¢ on Tuesday and may well stay there, highlighting how difficult it is to forecast a week ahead, let alone a decade into the future.
And some of the measures involve guesswork. Tightening the tax rules to prevent multinational corporations shifting profits offshore and related tax measures are said to raise $4 billion over the next four years. But the assumption is multinationals will agree to pay the extra tax and won't find new ways not to.
If all goes as planned, government debt will peak at $192 billion, instead of the previously forecast $145 billion. The total is 11 per cent of GDP, instead of the previously expected 9 per cent. Net debt would be eliminated in 2021-22, one year later than previously expected.