Coalition enjoys fictitious surplus boom

Via The Australian:

An unexpected budget bonanza has doubled the projected sur­pluses over the next four years to more than $30 billion in a dramatic improvement to the bottom line in what the Coalition will today claim is the best set of numbers since the final year of the Howard-Costello government.

The Australian understands that next year’s long-awaited ­return to surplus for 2019-20 will be revised up in today’s budget update from a wafer thin $2.2bn to just over $4bn following significant cuts in spending and higher company tax revenues.

This is forecast to snowball over the current forward estimates to reach accumulated surpluses of $30bn by 2021-22, which is twice the projected aggregate of $15.3bn revealed in the last budget.

David Uren sums it up:

The budget update will show company tax rising almost 20 per cent, reaching about $100 billion this year, which would be about $8bn more than expected at the time of the May budget.

Soaring resource company profits are mainly responsible. The iron ore price has ­averaged $US68 a tonne compared with a budget forecast of $US55 while the price of coal for ­steelmaking has been ­almost double the budget forecast of $US120 a tonne.

The danger is next year’s election will repeat the error of 2007, with both parties promising tax cuts and spending that ­consume a large share of the ­ surplus, only to see that surplus disappear in the face of a global downturn.

My outlook is for the windfall to end next year and prices to return overall to the Budget averages with iron ore below and coking coal still above, netting out to neutral.

No doubt that will not stop an election party, as Alan Kohler notes today.

Comments

  1. Would also be nice for media and duopoly to stop with the uncritical acceptance that a ‘surplus’ is a desirable outcome. By definition a surplus means Government is taking MORE money OUT of the economy than putting IN. Given the economy is rapidly weakening, level of private sector debt, ongoing wage stagnation, low inflation, and deteriorating housing market…you would have to view the prospect of further reducing the money supply and adding to the economic headwinds with deep concern. Apparently however both the major parties are equally deluded along with the Corporate media tasked with keeping them in power. Bring on the political revolution, before a real one gets going.

    • Even if the RBA drops rates would the banks pass it on…don’t think so. The system works on credit creation, and we’re all pretty much out of ability to borrow, so even demand via population growth would blow eventually. I don’t see any of the pollies who recognise any of this, but only seem to know boost GDP via demand for housing and services. We’re very close to an energy roadblock and them any manufacturing we have would have no hope. Just what will the next government do to fix the mess? I’m sure they don’t know.

    • Jumping jack flash

      The surplus is a furphy at best. To generate Howard’s surplus, which is curiously lauded at the greatest thing ever, the government sold everything off which not only allowed them to spend less money for provision of services, it also had the effect of increased taxes from the private companies now providing the services. Win/win for the government. But not for the people because what was actually performed was a clever transfer of public debt to the private sector.

      The only way the system worked after privatisation was with a ton of debt to keep it all running – so people could afford the increased costs of basic and essential goods and services.

      The result of this is what we have now: A hopelessly indebted private sector and gouged essential goods and services with a government that has no control over it.

      The cycle of privatisation is well and truly over and in this environment it is starting to cause a lot of damage.

      The only solution is for the government to step back in and masterfully provide these services in order to control the markets that are now well and truly broken. However, years of no responsibility for anything have meant that our elected leaders are now sedentary and impotent. Their abilities, if they ever had them, are long wasted away so they couldn’t do it even if they wanted to.

      • I’m not 100% sure but I don’t believe they generated a surplus through asset sales. They produced a surplus several years running and money from asset sales was put into the future fund and not on the budget bottom line.

      • Er, yes well aware of the Bank of England paper, read it years ago. Which also reinforces my point…a “surplus” in the current economic conditions is damaging to the economy and should NOT be considered as something to aspire to. Australian Gov is sovereign state with its own fiat currency and is therefore the issuer of the currency, so Gov debt…surplus-deficit meaningless unless expressed in terms of broader economic conditions that warrant it. Currently our broader economic conditions definitely do NOT warrant a surplus.

      • For private debt that’s true…not true in same way for Govt “debt”. Government is issuer of the currency, does not even have to use bonds to “raise money” for spending if it doesn’t want to. So a Govt “surplus” or “deficit” largely meaningless except in terms of the impact on money supply and broader economic conditions. There are exceptions, and suffice to say the current conditions in Australia do not come close to those circumstances.

  2. “the best set of numbers since the final year of the Howard-Costello government.”
    Well that clearly bodes well for the coalition.

  3. Most miiddle and lower class families are in virtual recession with very low or negative real growth in real incomes per capita.
    Unfortunately the so called journalists don’t make a practice of asking about real incomes per capita, real GDP per capita and qualitative living standards when the government spruiks about GDP grrowth
    And the huge jump in real property prices has precluded many young adults from buying, Those that bought in the last 2 years are now looking at potential erosion of equity as prices slide. Some may also get to negative equity.