Scummo’s enormous budget black hole

Via the AFR comes Scummo’s monstrous budget black hole:

The Morrison government would need to cut spending by about $40 billion a year by 2030 to afford its big personal income tax cuts and deliver on its budget surplus forecasts, new analysis by the Grattan Institute shows.

The Coalition has positioned its $387 billion in lower taxes than Labor over the next decade as the key economic fight in the federal election, including an extra $230 billion in personal income tax cuts that Labor is resisting.

…That low level of federal spending was only achieved three times in 11 years by the Howard government and, before that, in 1989-90, according to an analysis of the federal budget by The Australian Financial Review.

More from Grattan:

…there have been a notable absence of savings measures in the past two budgets, other than the now almost obligatory measures to extract more efficiencies from the welfare budget.

Budget consolidation has mainly been a revenue story. Revenues have increased by a full 2 per cent of GDP since 2013-14. Growth in income tax receipts through bracket creep, commodity price windfalls and Future Fund earnings are the heroes of this story.

It looks like the record of a government that should take credit for some incremental belt-tightening and (largely) resisting the temptation for cash splashes. But the government wants to lay claim to a bigger legacy. It claims to have set Australia on a path to eliminating net debt by 2030, while giving the largest personal income tax cuts since the Howard government.

This version of the legacy is more fantasy novel than historical account. The government’s steady downward trajectory on debt relies on it achieving ever-growing surpluses building to almost 2 per cent of GDP by 2029-30.

Sounds impressive, especially when you take into account the tax cuts announced in the past two budgets are together worth more than $300 billion over the decade. That’s because these fantasy surpluses are born on the spending side of the budget – payments as a share of GDP are projected to fall by 1.5 per cent of GDP by 2029-30. Achieving such a reduction would require significant falls in spending growth across almost every major spending area, during a period when we know that an ageing population will increase pressures on many components of spending. The Parliamentary Budget Office’s best guess is that ageing could wipe $36 billion off the bottom line by 2028-29.

This is the problem with attempting to create a legacy in the medium-term estimates – these aren’t intended to predict what the budget would actually look like under the current government in a decade. The medium-term estimates assume a world of steady trend growth and no new spending announcements – other than for infrastructure and pharmaceuticals. To believe these figures you would have to believe the Coalition would contest another three elections without spending an additional dollar.

Hiding behind the medium-term estimates is not just rhetorical flourish. The government has used these estimates to justify substantially boosting the size of its tax cuts for high-income earners from 2022. Take away the optimistic assumptions and its not at all clear these are affordable.

So the ultimate legacy of this government could well be a budget heading back to structural deficit towards the end of the forward estimates. If only they could have been happy with just average.

Given the key growth drivers of bulk commodities and house prices are also entering the end game, it gives some idea of how great is the cognitive dissonance in the corrupted Treasury as well.

We already know that the only real plan to grow the economy through these twin challenges mass immigration plus infrastructure (fiscal) spending so if the needed budget cost savings measures are plugged in you get a hit to growth in 2030 of…wait for it…1.5% of GDP.

You go Scummo!

Comments

  1. Yup, surpluses for as far as the eye can see — along with tax cuts!

    See how clever we are?

    Someone please drop a bunker buster on parliament (while in session).

  2. Really surprising that Bowen will not lift the income tax free threshold to $20k/year.

    Clive Palmer has HSR in his manifesto – the fake Greens need to build it and shrink his party. Clive is probably a globalist. HSR would be a one off expense rather than an ongoing $40 billion per year expense.

  3. It irritates the hell out of me.

    Pre-election “We are fiscally responsible” translation “We don’t spend any money unless it’s on us”
    Campaign “Weeeeeeee, there’s pork for you! Pork for you! Everybody gets pork!”

    And why wasn’t this money for schools and hospitals available before the election?
    (rhetorical question)

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