The fiscal fudge exposed by the labour force data

Thu, 08 May 2014  |  

The April labour force data reinforce the political fudge that was imposed on Treasury by Treasurer Joe Hockey when the Mid-Year Economic and Fiscal Outlook was prepared in December 2013.

One of the factors behind the budget non-crisis revealed by Hockey in the MYEFO was driven by Treasury using much weaker economic projections than those used in the independently prepared Pre-Election Fiscal Outlook. This had the effect of reducing revenue and increasing outlays. As the MYEFO noted, the use of artificially weaker economic parameters accounted for $55 billion of the deterioration in the budget botoom line.

One of the biggest fudges occurred with the employment outlook.

PEFO was forecasting employment growth of 1 per cent in the year to the June quarter 2014. MYEFO revised this lower to just 0.75 per cent. It doesn't sound like a big change but the difference is approximately 30,000 in employment. That is 30,000 people working, producing GDP, spending their wages and of course paying income tax and GST whenever they shop.

Employment has to fall by 15,000 in both May and June for the MYEFO number to be correct. This may happen, but it would have a very low probability. Even if employment is up just 5,000 a month in the next two months, the PEFO numbers will be spot on. The recent trends suggest even PEFO may be too pessimistic.

There is also the problem that these dreadfully gloomy forecasts in MYEFO fed in the Commission of Audit report which concluded that there would be budget deficits every year for the next decade. This is another fiscal fraud as it used the extraordinary assumption that the unemployment rate would be 6 per cent in every year of the next decade. That level of unemployment, as opposed to the 5 per cent rate assumed in Treasury projections used elsewhere, implies a massively smaller workforce and because of that, there is a huge impact on the budget bottom line. Already the unemployment rate is 5.8 per cent and is on track to test lower as the economy chugs along near trend.

If Treasury were to plug in realistic forecasts and projections, not only would the budget 'problem' be remarkably smaller, there would be fiscal riches in the budget. The budget would be in surplus by 2016-17 without tax hikes, fuel excise increases, Medicare co payments or the other nasties that will inevitably be in the budget.

What most if not all commentators have missed in addition to the rubbish forecasts underpinning the MYEFO and Commission of Audit snake oil, is that the cuts in spending and hikes in taxes are going to be there to cover the cost of the pet projects of the Coalition and not reduce the deficit.

Getting rid of the mining tax and carbon price, the paid parental leave scheme and increasing defence spending to 2 per cent of GDP are costing the budget bottom line at least $10 billion a year and this is growing to above $20 billion a year in period beyond 2020.

Abandoning this set of policies and using realistic forecasts for the economy would all of the sudden not only see large budget surpluses in place, but it would mean net government debt is eliminated by about 2020. The deficit 'crisis' is of the Coalition's making.

This is the emergency - it is in the half baked policy priorities and dodgy economic parameters.

comments powered by Disqus

THE LATEST FROM THE KOUK

CLIMBING THE COVID MOUNTAIN

Wed, 29 Jul 2020

TEN ECONOMIC STEPS THAT FORM A PATHWAY TO THE TOP

THEKOUK and EVERALDATLARGE OUTLINE A WAY FOR THE PEOPLE OF AUSTRALIA TO CREATE AND MAINTAIN SUSTAINED PROSPERITY

Covid19 has opened a door for Australians to positively accept significant changes that will lead to a shared good. This rare opportunity enables us to achieve sustainable economic and social goals that create a new ‘normal’ as our way of life.

These Ten Steps are presented as non-partisan recommendations to the Australian Parliament in the firm belief that, if they embrace them, the Australian economy and society will be greatly enhanced after the Covid19 pandemic has passed.

*A job for you if you want one.
A significant increase in part time and casual employment can be created that will enable you to enjoy a more creative and peaceful lifestyle and to live longer and better. The traditional age at which you would have been expected to retire will become obsolete as a result. An access age for pension and superannuation will become your choice. This will enable you to remain in paid work for as long as you want to, on a basis that you choose, while boosting the productivity and growth of Australia.

*You will get wage increases that will be greater than your cost of living.
A demand for enhanced innovative skills at all levels of employment will be created as the economy grows in strength, thereby enhancing your stature in the workforce and enabling executive salaries and bonuses to drop to levels that are accepted as justifiable by employees, shareholders and customers.

The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

Tue, 07 Jan 2020

This article first appeared on the Yahoo Finance web site at this link: https://au.finance.yahoo.com/news/the-governments-test-in-2020-220310427.html   

---------------------------- 

The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

For many people, the cost of the fires is immeasurable. 

Or irrelevant. 

They have lost loved ones, precious possessions, businesses and dreams and for these people, what lies ahead is bleak.

Life has changed forever.

As the fires continue to ravage through huge tracts of land, destroying yet more houses, more property, incinerating livestock herds, hundreds of millions of wildlife, birds and burning millions of hectares of forests, it is important to think about the plans for what lies ahead.

The rebuilding task will be huge.

Several thousands of houses, commercial buildings and infrastructure will require billions of dollars and thousands of workers to rebuild. Then there are the furniture and fittings for these buildings – carpets, fridges, washing machines, clothes, lounges, dining tables, TVs and the like will be purchased to restock.

Then there are the thousands of cars and other machinery and equipment that will need to be replaced.