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.

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