Monday, 14 April 2014

Is there excessive spending in Australia?

Yes dear lonely and only reader we have looked at this topic a number of times but since I heard quite a bit about this yesterday in the media I thought I might go over the topic again.

There are a number of problems of believing there is excessive Government spending in Australia.
1) The Structural deficit. We examined that here. The major reasons for the structural deficit has to do with revenue. Indeed whatever problems there were on the spending side have been addressed.
2) Spending in nominal terms fell in the last completed budget of Wayne Swan. Thus if spending is a problem then we would have seen a huge increase in the current budget. In the latest MYEFO documents this is nowhere to be found. The only increases in expenditure since PEFO have come from the current Government ( they almost doubled real spending)and they have been political to make the current budget look 'bad' and future budgets look good..In other words accounting tricks.
3) Cash rates are 2.50% and have been there for some time.The market is expecting future cash rates to FALL! If there was excessive spending then they would be rising and the market would be expecting rises in the future.
4) Nominal GDP is forecast to be 3%. If there was excessive spending it wouldn't be so low.

I might just add in finishing revenue as a % of GDP is forecast to be 23.1%. ( It will probably be a tad higher). It was never at these low depths in the Howard years!