Crikey’s Bernard Keane has delivered a nice dummy spit today over the Treasurer embracing a MB view of the economy. From Crikey:
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.
Voters, with the aid of the Coalition’s media cheerleaders and journalists not smart enough to look through the numbers, may well come to believe that Labor somehow bequeathed the Coalition an extra $70 billion in debt, although such tasks are harder now than they were in the analog media days. If it happens, good luck to Hockey — that’s politics, and we shouldn’t expect anything less from politicians. But the real issue is whether Hockey can use the numbers within his party to build support for hard decisions.
…If he doesn’t, yesterday’s numbers will just be crass politics and nothing more.
What poppycock. Whether political or not, yesterday’s MYEFO was the first forecast we’ve seen in two years from Treasury that has a chance of coming true. 2.5% growth for this year and next is hardly gloom and doom. It’s a realistic assessment of prospects for an economy facing the greatest business investment downdraft anyone can remember, falling terms of trade and national income, as well as peak (or close to it) debt in its household sector, all at once.
The challenge is not going to be how to find the cuts to repair the Budget now that a line has been drawn in the sand about economic prospects, it’s going to be finding enough growth to make any cuts at all.
I have no idea if Hockey thinks he’s been politically clever by slashing forecasts but he’s right to have done so even if for the wrong reasons. Under-promising and over-delivering is a far better confidence management strategy as well.
I’ve been told that Crikey has made a deliberate decision to “be positive” on the economy to counter a perception that the main stream press is too gloomy. If it’s true it would at least explain why our national current affairs daily keeps getting the economy so horribly wrong.
