Thursday, 15 May 2014

For all the cuts in the 2014 budget the Government isn't spending any less

In Abbott's Fiscal Churn, 13 May 2014 Stephen Koukoulas has taken a look at the Abbott Government's first budget and he's not impressed:
The 'tough' decisions in the Abbott government budget are obvious and will have a high impact on those effected, but they do little more than fund a raft of its pet spending projects. The paid parental leave scheme, defence, the Medical Research Future Fund, roads, airports and infrastructure are big ticket items that receive the bulk of the money saved from elsewhere in the budget.

This shows that the rhetoric of the budget crisis and need for fiscal repair was, and still is, without foundation. A truly tough budget would have made the tax hikes greater and the spending cuts would have been made without spending offsets elsewhere. The spending cuts would have been broader.

Now to the tax and revenue side.

The budget does confirm that tax and other government revenue will be the driver of smaller deficits.

The budget shows that the tax-to-GDP ratio will rise from 21.4 per cent in 2012-13 to 23.2 per cent in 2017-18. This is a tax take that no Labor government has ever bettered in the 45 years back to 1970-71.

The end point is that this is a budget where the government has squibbed on the decisions needed to return to surplus in a timely fashion.

There have been some tough and inevitably unpopular policy decisions, but they should have yielded a more favourable return to the budget bottom line. Alas, the government has seen fit to use the money saved from these tough policy decisions to pump into other parts of the economy and it has relied on a higher tax take to make a few baby steps along the way to an eventual surplus.

In terms of fiscal consolidation, the first Abbott budget is a very small down payment.

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