Joe Hockey's debt and deficit disaster

Thu, 17 Sep 2015  |  

Treasurer Joe Hockey released a very short statement outlining a couple of key points on the budget outcome for 2014-15, with the full document to be released next Monday.

Mr Hockey noted that the budget deficit for 2014-15 was $38 billion, which he said was “over $3 billion better [sic] that expected”.

There are, as there always were with Mr Hockey, a few issues with his take on fiscal issues.

Importantly, a lower budget deficit is not always “better”. If it is because the government has tightened fiscal policy into a weak economy, it is plain silly policy – it would have been better for growth and jobs to have had a wider deficit. With GDP growth at 2.0 per cent through to the end of 2014-15 and unemployment locked in at 6.0 per cent or more, who knows, that extra $3 billion may have helped growth.

Anyway.

And $3 billion lower than expected? Expected by whom and when?

Let’s have a look at the evolution of the 2014-15 budget outcome under the stewardship of Mr Hockey as Treasurer.

When the Pre Election Fiscal Outlook was prepared in August 2013, independent of any political influence by the Secretary’s of Treasury and Finance, the 2014-15 budget deficit forecast was $24.0 billion. Yep, $24.0 billion – no more, no less.

After the election and as Treasurer, Mr Hockey then went about changing policies and when he released the Mid Year Economic Fiscal Outlook in December 2013, the forecast for the 2014-15 budget deficit was $33.9 billion. Hhhmmm.

In Mr Hockey’s first budget, in May 2014, you know, the one that cut and diced everything in a decent society, he was forecasting the deficit to come in at $29.8 billion. So a little smaller than the forecast at the MYEFO, but still well up on the PEFO estimate.

Let’s now fast forward to the 2014 MYEFO, in December last year, and at that time, the budget deficit was forecast to hit $40.4 billion. To be sure, there was the impact of falling commodity prices and weaker growth, but the deficit was nearly double the PEFO forecast.

Moving on, finally, to the Budget in May 2015 and a deficit for 2014-15 (with over three-quarters of the year in the bag!) was forecast to be $41.1 billion.

And now we have the final outcome – a deficit of $38 billion.

That’s a $14 billion blow out from the projected deficit in PEFO and that is the key takeaway.

To be sure, the deficit was not as wide as Mr Hockey’s worst case projection four months ago but that is like me saying I won $20 at the races last Saturday after losing $50 the week before.

comments powered by Disqus

THE LATEST FROM THE KOUK

My house price bet with Tony Locantro - an update

Mon, 01 Apr 2019

This article first appeared on the Yahoo Finance web page at this link: https://au.finance.yahoo.com/news/aussie-property-crash-looking-even-unlikely-heres-021138614.html 

----------------------------------------------------

My house price bet – I’m very happy and getting ready to collect

I recently made a bet with Tony Locantro, Investment Manager with Alto Capital in Perth on the extent to which house prices would fall over the next three years.

Just to reiterate, the bet centred on Locantro’s view that prices would drop 35 per cent or more by the end of 2021 from the peak levels in 2017, a forecast that looked absurdly pessimistic given the raft of factors that influence house prices over the course of years.

For Mr Locantro to win the bet, house prices measured by the Australian Bureau of Statistics on a quarterly basis in either Sydney, Melbourne or for the average of the eight capital cities would need to fall by 35 per cent or more from the peak levels by the time the December quarter 2021 data are released. The ABS released the latest residential property price data last week which presents an opportunity to see how the bet is unfolding, admittedly with three years to go until it is settled.

As everyone knows, house prices are falling in most cities, reversing part of the boom over several decades.

Get ready for a cash rate cut in April

Mon, 25 Mar 2019

This article first appeared on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/get-ready-cash-rate-cut-april-193244245.html

----------------------------- 

Get ready for a cash rate cut in April

The data is in and it is compelling.

The Australian economy is faltering and the risk is that it will weaken further if nothing is done to address this decline.Not only has there been recent confirmation of a per capita GDP recession – that is, on a per person basis the economy has been shrinking for two straight quarters – but inflation is embedded below 2 per cent, wages growth is floundering just above 2 per cent, house prices are dropping at 1 per cent per month and dwelling construction is in free fall.

Add to this cocktail of economic woe an unambiguous slide in global economic conditions, general pessimism for both consumers and business alike and a worrying slide in the number of job advertisements all of which spells economic trouble.Blind Freddie can see that there is an urgent need for some policy action. And the sooner the better.For the Reserve Bank of Australia, there is no need to wait for yet more information on the economy.

It has been hopelessly wrong in its judgment about the economy over the past year, always expecting a growth pick up “soon”. Instead, GDP has all but stalled meaning that inflation, which is already well below the RBA’s target, is likely to fall further.In short, no. It is not like a 25 basis point interest rate cut on 2 April and another 25 in, say, May or June will reignite inflation and pump air into a house price bubble.

Such a claim would be laughable if there are any commentators left suggesting this.