Deloitte also lost in the Budget past today:
The economy and the budget usually move together. If the economy weakens, that typically eats into the tax take and lifts the welfare bill. But that usual linkage broke down of late, with the economy weakening at the same time the budget improved. That has led to misunderstandings:
- No, the economy didn’t weaken because the budget improved: Policy decisions have hurt the budget and helped the economy. Between MYEFO in late 2017 and the budget in April 2019, net new policy costs amounted to $42 billion over the four-year budgetary cycle. A big chunk of that – $8 billion in tax cuts – dropped into punters’ pockets in recent months (If you hear someone saying budget policy must be hurting the economy if the budget balance is improving, then you are listening to someone who needs to revisit Econ 101.)
- And no, the budget didn’t improve because of fiscal drag: Many people think ‘fiscal drag’ – higher wages pushing people into higher tax brackets – drove the budget’s recovery. But that’s hogwash. It was company tax that sprinted: in the three years to 2018-19, PAYG tax rose by just 0.08 percentage points of national income. Yet the company tax take rose by a whopping 1.04 percentage points of national income across the same period.
