Sunday, 11 May 2014

Commission of Audit, Budget etc

I eventually started to read the Commission of Audit but stopped early because it was clearly goebbelsing.

It compares the current forecasted payments as a % of GDP and then compared it to the what it was before the Government came to power.
Why would you either compare the latest figures which were manipulated by Hockey to make them larger than otherwise they would be ( by actual spending and changing the economic parameters).

It is comparing apples with oranges. For a start the figures are influenced by the government combating
( successfully) the GFC. You only gradually reduce spending otherwise you may cut off the recovery, like Japan did in the 90s , and this the previous Government was doing.
You also need to know what the AVERAGE Nominal GDP growth rate was during the Howard years.
This present government has had much less than the average Nominal GDP rate since recovery took place.

If you have say less than half the average nominal GDP growth then the automatic stabilisers kick in . This is why Payments as a % of GDP were going to rise from the last fully ALP budget to this current budget. It was the current government that actually used some active fiscal policy which boosted payments.

Now guess what if you stick in an average Nominal GDP rate of the Howard era now and adjust spending then hey presto it magically falls as a % of GDP to Howard era levels. Wow

If you have a long period of below trend growth in Nominal GDP growth as the Commission of Audit has in its projections  then why wouldn't you say that and give reasons why Australia is going to have its own variation of secular stagnation.This could be a reason got cutting spending BUT they never say that.
 They clearly imply we are headed for normal economic times but we have deficits all the way without change.
( By the way even on this scenario in 2023/24 NET Debt is still a mere 17.5% of GDP which is less than it was in 1996!  It is clearly anything but a debt crisis.)
Clearly the deficit is far morel likely to come in around 1.9% of GDP as Treasury forecast in PEFO than the 3% of GDP Hockey gave us in MYEFO.
There has never been a deficit and debt crisis in Australia recently and manufacturing figures to suit your case was simply a waste of public finances. Clearly the Commission of audit was a waste of time and money.

In Swan's last budget the public sector detracted 0.7 percentage points from GDP. The RBA is estimating  that the public sector is going to add  roughly 0.4 percentage points over the next few years.
They maybe wrong but I doubt it.