Labor’s budget booby trap springs

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From The Australian today the budget rhetoric is flying as Joe Hockey finds $17 billion per annum in new spending for 2017/18:

Following the Coalition’s partyroom meeting, the Treasurer told parliament Labor had “buried a tsunami of spending” in 2017-18. This was one year beyond the standard four-years of budget projections and, as a result, did not have to be included in the pre-election forecasts, but now has to form part of Mr Hockey’s first budget in May.

Mr Hockey said spending on defence would jump by 13 per cent in 2017-18 as costs for big equipment purchases fell due. The Gillard government’s agreement with the states on hospitals would contribute to health costs rising 4.2 per cent faster than inflation, he said, while school funding would rise by 3 per cent more than inflation.

Mr Hockey said the national disability insurance scheme’s costs would jump by 125 per cent in 2017-18, with the mid-year budget update showing they would rise from $2.2 billion to $5bn in that year, before reaching almost $10bn in 2019-20.

Another area of spending growth is foreign aid where if Labor’s objective of 0.5 per cent of GDP were to be met, outlays would double in 2017-18.

There is no reason to doubt the Hockey figures. This is pretty typical political behaviour. Of course, Hockey himself is busy massively boosting spending in defence which lends a little credence to the Labor reply via PBO analysis:

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The analysis shows that if the Coalition had retained Labor’s fiscal strategy of keeping spending growth to 2 per cent (after inflation) and holding taxes at no more than 23.7 per cent of GDP and had not made new spending commitments, the budget would be back in surplus by 2018-19, instead of the $29.1bn deficit implied by the Coalition’s mid-year budget update. The surplus would rise from $1.8bn in that year to $45.8bn by 2023-24.

It’s really a case of both parties doing the same thing. Aligning spending priorities with their own ideological preference and blaming the other for the cost blowouts.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.