Understanding the Federal Budget

My own first budget as a CEO meant a lot of learning for me. As budgets went, it wasn’t all that much — a hundred million or so — but I was responsible for it, so I needed to understand it, and the way it was set out. Where did all the money come from — and where did it all go? And why? Plainly it was intimately related to last year’s budget, when I hadn’t been at the University. What about the year before that? When I thought I understood it all I decided to write about it for the benefit of staff. After all, if I couldn’t understood it, how could they? Now that I could, I was sure they would be glad to know.

So I wrote what I hoped was a clear and accessible account of what we had done, and why it was that way. I learned that most staff had just glanced at the title and gone to other things. No one wanted to know about the budget. It was dull and boring, despite my encouraging prose, and they couldn’t do anything about it anyway. I guess most citizens feel the same way about the Federal Budget. I would also be pretty sure that there are very few within the Government who really understand it in its entirety. As with any other organisation’s budget, this one is intimately related to last year’s, and to next year’s. Those who care about budgets are usually looking to see how their group/interest/project fared: did we get anything? Or, there’s not enough! Or, thank goodness, we didn’t get cut. I can remember that kind of excitement at different times when my area was a small part of the Commonwealth Government.

In the case of this year’s Federal Budget, brought down just before an election, we should look for  goodies for target groups, and expect also that there won’t be any really unpleasant taxes. I came across a splendidly sane summary of the Budget the other day, and you can read it here. I’ll comment on just a few of the insights I found. To start with, and as one must have expected, there’s no real attempt to cut back on the deficit. Revenue has been rising over the past several years, but the deficit just keeps growing. The graph shows it all quite clearly. If we’d been able to peg expenditure at 2012/13 levels, revenue would have covered it four years later. But plainly we didn’t. Maybe next year someone will do something.

Why not? Well, governments develop programs, and their future costs are put into forward estimates. We citizens have a quite sensible belief that the programs that affect us are going to be there for the future, and we build our own family budget decisions on them. We decide whether or not to renovate a house, or move to another job, or take out more or different health insurance, or even spend less on some things rather than others, in part because of what our governments tell us they are going to do. So government programs are hard to change, and almost impossible to end. That is why there is, and should be, such a lot of debate about them before they begin.

Back to the graph. The Government expects its revenue to increase by six per cent, and it expects its spending to increase by about four per cent. Look there, its supporters might say, doesn’t that show we’re making savings? Well, you might reply, how certain are you about the six per cent growth?  The 4 per cent expenditure increase we can believe in, but the other…? Those revenue forecasts have been pretty dodgy over the past decade. This one is based on the assumption that GDP will grow by 3.25 per cent, and that is based in part on assumptions about the price of oil and the relative value of the $A. We’ll see.

That’s about all you are likely to find out about revenue, save that smokers are to be hit, as are people packing away money for their retirement. It seems that the Government possesses a forlorn hope of getting multinationals to pay tax if they earn money here. Everything else in the Budget is about spending. Which area is the great winner? Transport infrastructure, about which no one in Sydney or Melbourne is likely to complain — at least, not very loudly.

Another big winner is debt interest, which will pass $15 billion for the year, an increase of 8.2 per cent. In the last ten years, including 2016/17, debt interest or, if you like, accumulated government deficits, have passed $106 billion, which makes it the largest expenditure endeavour in our history. It is not quite clear what Australia got for all that debt, but its four principal elements are plain: the ‘stimulus’ provided by the Rudd Government between 2008-2010, the NBN, another Rudd initiative, the Gonski education ‘revolution’, and the NDIS, a Gillard initiative. Julia Gillard managed to place the then Opposition in a position where its leaders felt they had to accept both Gonski and NDIS. They are now paying for it. Labor didn’t have the money to pay for all these schemes, and nor does the Coalition.

Those on the sympathetic, humane side of our politics, those who worry about the poor, the disadvantaged and the needy, often see Defence appropriations as the source for the extra money they see as necessary. Surely those planes or submarines could be postponed for a few years. But a look at the Budget totals makes you shake your head. Yes, Defence is a whacking great $27 billion, and no doubt there is money there that could be found without imperilling anyone’s security. In comparison, the combined projected expenditure for Help for the aged and Help for the disabled is a measly $97 billion. In fact, just the money to be paid to families with children is much more than Defence — $38 billion. Health is $71 billion. Social services and welfare make up $159 billion of the Government’s total expenditure of $431 billion. Education makes up another $34 billion. Put them all together — social services and welfare, health and education — that’s 61 per cent of the entire Commonwealth Budget. Let’s face it, if savings have to be made, this is the area where they have to come from. We are a social-welfare democracy. I’m not opposed to that at all, but it seems nutty to me that cuts cannot be made in the nearly two-thirds of the Budget that are devoted to transfer payments from one group of Australians to others.

Sometime soon, someone will have to bite the bullet, and say ‘No more!’ There’s no sign that a windfall is going to come out of the sky, or that the great innovation boom we see on Government television ads is going to find all the money needed, or that Australia will win the $100 billion Global Powerball Jackpot, any time soon. No. Ending the deficit has to come from cutting services and transfers. So if the Turnbull Government is re-elected, which is my gut feeling at the moment about the outcome of the election, then we should prepare ourselves for a tough budget in 2017. If it doesn’t happen then, we are really in trouble.