Surplus spin hides reform challenges
By David Hughes
First published in the MRC’s Watercooler newsletter. Sign up to our mailing list to receive Watercooler directly in your inbox.
In the midst of so much other important news, you may have missed the Final Budget Outcome that came out this week.
Budgets are focused on assumptions, promises and spin. In contrast, the Final Budget Outcome simply provides the facts in the form of the actual result for the year. Rather than let the figures speak for themselves, there was still an attempt to spin them into a narrative that works to the Government's advantage.
The Government is making three claims, all of which hide the true picture. These claims are:
Labor has delivered the biggest back-to-back surpluses on record.
The surplus for 2023-24 is larger than predicted in the May Budget due to lower payments, NOT higher taxes.
The tax take is down compared to the May Budget.
We address each of these claims below to provide a more accurate account.
Claim: Labor have delivered the biggest back-to-back surpluses on record
This is true in raw dollar terms, which you’d expect over time as the economy grows and inflation increases. Using this same logic, Albanese can claim he spends more on defence, education and health and presides over more Australians in employment than John Howard ever did; but that's not a true representation as the population has grown by 6 million since 2007.
Measuring surpluses as a proportion of the economy is a better gauge. On this measure, Labor’s two surpluses are much smaller than seven of the back-to-back surpluses delivered by the Howard Government. Labor's two surpluses combined are also smaller than or equal to four of the single-year surpluses delivered by the Howard Government.
Claim: The surplus for 2023-23 is larger than predicted in the May Budget due to lower payments, NOT higher taxes
First of all, this was not a low year for government spending. Last year the Government spent $19 billion more than the Morrison Government did during 2020-21 at the height of COVID in the midst of JobKeeper and record health spending.
The surplus came in around $6.4 billion higher than estimated in the May Budget. Much of the “lower payments” that delivered this are not real reductions in Government spending, but are actually accounting tricks.
Around two-thirds of the increase in the surplus ($4.2 billion) is actually due to delayed payments to the states, largely due to failure to land agreements or execute contracts on time. This spending will simply shift to this current financial year. These delayed payments include:
$1b for disabilities funding to Western Australia, because an agreement hasn’t been signed yet.
$600m for road and rail projects, due to missed milestones and “adverse weather”.
$500m for climate change programs, largely due to the timing of invoices for energy subsidies.
$400m in delayed payments for the Preschool Reform Agreement.
$300m for housing, including delays in remote housing milestones.
$300m for health, including delays in states meeting payment milestones for the Community Health and Hospitals program.
$200m due to delays in delivering projects under the Better Connectivity Plan for Regional and Rural Australia.
Claim: The tax take is down compared to the May Budget
The reality is, tax receipts as a proportion of GDP are the highest they’ve been since 2008 when Wayne Swan was Treasurer.
Total government revenue as a proportion of GDP is the highest it’s been since 2000-01, before the GST reforms. In fact, revenue as a proportion of GDP has only been higher than this in two years since 1970-71; in 1986-87 and 2000-01.
The tax take is down since May because:
Company tax receipts and GST receipts are lower, which implies lower economic activity and spending.
Tobacco excise is down, likely driven by the Government’s failure to control vaping and the black market for tobacco.
So much of the focus at the moment is on the cost of living, and rightly so. But there are underlying problems with our budget and economy. We have a system in need of reform. As Howard and Costello knew, the longer you ignore structural problems the harder they are to address.
As I’ve said before, and as the data above reinforces, we now have a system where the average tax rate paid by workers is at an historic high. And the share of taxpayers is declining coupled with rising costs to support an ageing population. This creates an inequality which needs to be addressed.
We need a government with the courage to take on the two key reform challenges in tax and spending. Continuing to prop up a tax system that's becoming less fair by the day and continuing to fund (but not redesign) ballooning welfare programs not only lacks foresight, it lacks compassion.
The next generation of taxpayers deserve a fairer system. A modest budget surplus is good but it can’t be used as a shield to defer important economic reform.