Given the flow of economic news in the past six months on GDP growth, inflation and employment, it appears the parameters underpinning PEFO were pretty close to the mark and the MYEFO numbers were fudges.
The Budget today is likely to revert to the more realistic PEFO numbers which will no doubt provide a windfall for the bottom line and will lock in the return to surplus in about 2016-17 (depending on the spending plans of the government).
Perhaps the biggest fudge when the budget emergency was concocted in the MYEFO documents and carried through in the Year 10 economics work done by the Commission of Audit was an assumption that the unemployment rate would remain at 6 per cent from now through to the mid 2020s.
This change smashed revenue and created the deficits and broke with the assumption used by Peter Costello when he was Treasurer and used by Wayne Swan that the unemployment rate would revert to 5 per cent in the long run.
This 1 percentage point difference in the unemployment rate compounded the hysteria that the budget would never return to surplus.
A lift in the nominal GDP forecast will give a windfall to the bottom line of the budget as will the return to an assumption of 5 per cent for the long run equilibrium unemployment rate.
Why the MYEFO and Commission of Audit used 6 per cent is clear – to make the budget look bad.
If the return to budget surplus is largely the result of parameter changes based on a stronger economy and the use of uncooked economic parameters, the fiscal fraud of the past few years will be exposed.