Tuesday, 8 May 2018

Budget 17/18

Before we start on only a few comments on last night's budget I should make a few preliminary comments.
We should always remember the budget came into surplus under Costello at the same time it was projected to under Ralph Willis. The cuts in their first budget were obviated by extra spending in the next budget.
Next the reduction in net debt came about not by budget Surpluses but by privatisaion. Telstra anyone.
Okay now let us get to the budget.

The starting point was $ 9.75B yet it ended up at $14.5B AND spending as a % of GDP rose! This is at odds somewhat with the cyclically adjusted primary budget balance which indicates tighter policy. ( source CBA economics thanks fellas). We also should remember that most of the infrastructure spend is off-budget and this has a highish multiplier. However this spend is merely making up for what should have occurred previously ( during the GFC 'events')

I am pleasantly surprised however that given this was an 'election' budget  that most of the proceeds were not blown away of structural spending initiatives. ( Note however the income tax cuts were not matched by spending cuts and this this means a deterioration the structural budget somewhat off set by other measures.

Given the forecasts to nominal GDP this would normally be THE time to increase budget consolidation. Rather than the deficit being 0.8% of GDP it should be below 0,6% of GDP and hence in economic terms balanced ( this is roughly +or- 0,5 % of GDP).

The 23.9% of GDP which receipts of GDP can go no higher is patently absurd. It was higher in most of the Howard years without doing much harm. see the Kouk. A stronger economy always generates more revenue.
It puts almost all budget consolidation measures on spending. Government services are much more a superior good than a normal good.

As to the forecasts there seems to me a discrepancy to me between unemployment and wages. Why are real wages going to rise 1% in real terms when we are yet to reach our NAIRU?

Lastly why oh why is not the budget balance on accrual accounting no in the budget. This is a disgrace and a bipartisan disgrace at that.

Richrd Holden HERE and HERE

Whoopsy. I forgot about the assumptions on Productivity. Even more optimistic than wages.

I also looked at the contingency reserve. That is a lot higher than usual. spending when the election is called?

It appears the tax 'reforms' which has NO ( post forward estimates) details going into 7 years ahead most-of-the-benefits-from-the-budget-tax-cuts-will-help-the-rich-get-richer