Wednesday 25th of December 2024
Home » Blogs » John Richardson's blog

yet another christmas tale ....

yet another christmas tale .....

Treasurer Joe Hockey believes Tuesday's Mid-Year Economic and Fiscal Outlook will expose once and for all the depth of the damage done to the national balance sheet by the last Labor government.

The Treasurer will deliver the MYEFO statement at lunch time on Tuesday in a televised address to the National Press Club.

Revealing a projected deficit for 2013-14 of $47 billion - up from the $30 billion outlined on the eve of the election just over four months ago, Mr Hockey will claim that Labor's spending had bequeathed the nation a ''historic legacy of debt'' requiring tough savings measures and a lot of time to repair.

Gross Commonwealth debt is also expected to continue climbing, with suggestions it could be projected to exceed $500 billion beyond the current budget period.

A spokeswoman from the Treasurer's office said the release of the MYEFO report will reveal the federal budget with greater transparency than at any time in the past.

Declining revenues, and billions in extra spending have contributed to a more than $17 billion deterioration in the budget bottom line.

This has included revenue forgone and new spending since the election, such as a cash grant of $8.8 billion to the Reserve Bank Reserve Fund - its buffer account designed to protect the central bank against hostile foreign currency movements.

The opposition has claimed that grant was unnecessary and undertaken as much for the political purpose of inflating the deficit left by Labor as for prudential reasons.

But Mr Hockey will use MYEFO to paint a picture of a budget close to a state of crisis.

The spokesman said the Treasurer would argue that Labor had promised to increase spending by no more that 2 per cent a year - but it had blown out to 3.5 per cent.

Being the first formal economic statement of the new government's term, the political stakes are high with the Coalition eager to tie the full horror of the fiscal story to the government it replaced.

Speaking ahead of the release, Prime Minister Tony Abbott described it as ''Labor's last budget statement and Labor's only truthful budget statement''.

''What's going to be happening tomorrow, is that we will be ruling a line under the fiscal damage that Labor has done, sadly the economic damage will continue for some time but we'll be ruling a line under the fiscal damage that Labor has done and we'll be starting the repair job,'' he said.

Shadow treasurer Chris Bowen dismissed the arguments as political trickery, thanks to the Charter of Budget Honesty including the requirement for the pre-election Economic and Fiscal Outlook prepared independently by Treasury within the election campaign.

Hockey To Expose Labor 'Debt Damage'

 

all hat, no paddock ....

How on Earth did we convince ourselves this bunch would be miles better at fixing the budget than the last lot?

Joe Hockey claims his midyear budget update is an honest assessment of the state of fiscal affairs he inherited from Labor. It isn't.

Rather, it is an attempt to lower expectations about the speed and ease with which the Coalition will be able to get the budget back on track.

He won't be able to achieve it for many years - he's not saying when - and not without significant and painful, but as yet unidentified, cuts in government spending. In short, he is unlikely to be able to do it much faster than Labor would have. What's likely to differ is who will bear most pain.

Labor would have erred in the direction of higher taxes, particularly on the better-off. Hockey has ruled out higher taxes and is hinting at cuts in government spending on ''welfare, education and health''.

Contrast this grim slog with all the Coalition said in opposition about the deficit being purely the result of Labor mismanagement.

This time last year Tony Abbott and Hockey were promising to deliver a budget surplus in each year of their first term. By the election campaign the return to surplus had been delayed until the first year after the next election.

Now even that is in doubt.

Hockey claims the midyear review and deficit estimates it contains draw ''a line in the sand''. From now, he says, he will take responsibility for budget estimates.

Although the pre-election budget statement, certified by the most senior econocrats, was specifically instigated by the Howard government to remove all doubt about the true state of the budget at election time, Hockey is claiming to have uncovered a budget black hole.

This financial year's budget deficit is now expected to be $17 billion bigger, while the cumulative deficits for the next four years are expected to be $68 billion bigger. Little of this can be fairly attributed to the previous government. More than 60 per cent of the expected worsening in this year's deficit is attributed to decisions made by the Abbott government, most particularly the capital grant of almost $9 billion to the Reserve Bank.

It represents a piece of creative accounting, loading up the deficit in the year for which Labor can be blamed so as to improve the deficit in the years for which the Coalition will be responsible.

But when you look at the expected deterioration over four years, 80 per cent of it is attributable to the worsening outlook for the economy just since the election.

Hockey is trying to shift the blame for this deterioration onto Labor but, in truth, if it comes to pass it will be caused by factors largely beyond the control of any government.

Hockey is right in his claim that government spending grew a lot faster under Labor than it tried to have us believe. He is right, too, in saying the present prospect of another decade of deficits cannot be accepted.

We are being softened up for a tough budget in May. What remains to be seen, however, is whether Hockey and Abbott have the toughness needed to get the budget back on track and do so without damaging the economy in the short term or sharing the pain unfairly.

Hard To Be Impressed By This Piece Of Creative Accounting