It is perhaps a tad unwise to try and second guess the budget to be handed down next Tuesday, but some things need to be made clear, especially to those who might be fooled by what is expected to be a pre-election handout.
Regardless of how Treasurer Scott Morrison might try to sugar-quote the numbers with his breathtaking rhetoric, be assured at least some of his forward projections will be based, not on hard numbers, but more likely, on aspirational and ambitious expectations.
In other words, it’s going to be a budget fit for purpose, but not the national purpose. We can expect some rubbery forward projections that will pave the way for some pretty ambitious outcomes that his party can spruik as we head toward the election, later this year.
The ever-optimistic Morrison who foolishly convinced himself that a return to surplus was only two years away, might be of a mind to project a surplus as soon as next year. If he does, don’t believe a word of it.
He has the figure of 23.9% of GDP in mind as the maximum amount he can receive in tax (it’s a Liberal party yardstick). BUT, should we be watchful of what GDP figure is he basing his projections on? Yes we should. Expect a rosy one. If he can inflate the expected GDP for 2018/19, he can spend a little more and still show a reduction in the projected deficit.
That’s what creating rubbery figures is all about. And if he creates enough rubber in 2018/19, to show a reduced deficit, that makes creating rubber for 2019/20 and the subsequent forward estimates that much easier.
Hence, the temptation to project a small surplus in 2019/20, one year ahead of previous estimates. Again, if he does, don’t believe a word of it. There’s no good reason why the figure of 23.9% needs to be adhered to. Most OECD countries have higher levels than that.
But, 23.9% is dogmatically enshrined into the psychology of Liberal minds. So, if Morrison wants to spend more as he searches for election sweeteners, all he has to do is increase his estimate of what the expected GDP for 2018/19 will be and still appear economically responsible.
From there, he can estimate a higher tax take and a lower deficit. Simple. After all, it’s just numbers in a computer and they can be changed down the line as circumstances require.
So don’t be fooled by whatever comes out of Morrison’s mouth on Tuesday. In fact, the rosier it looks, the less likely it is, that it will be true.
It is unfortunate that Morrison seems to think that running a national economy is the same as running a household. It is not. A currency issuing government is only constrained in its spending by the available resources. It’s “debt”, issued in its own currency, can always be repaid.
No one will be knocking on the government’s door to repossess anything. Sadly, Morrison does not understand this, and neither does his government. He should, however, be concerned about private debt. That is the great threat to the Australian economy, not magical numbers expressed as a percentage of GDP.
It is private debt that threatens to bring the country down. RBA chief, Phillip Lowe knows this and has said as much. But Morrison is not looking at private debt. He has a fixation with government debt.
As the currency issuer, the government can safely spend 100% of its GDP without the fear of inflation so long as that spending leads to productive outcomes. And, it never needs to borrow.
Borrowing, via the issuance of bonds is a political choice, not an economic one. It’s high time economists started stating these simple facts, rather than the emotion-charged, political claptrap they sprout forth now.
They won’t, of course. They will fall into line and spread the gospel according to their media owners, who just happen to believe in the household economy myth.
Morrison will talk a lot about that on Tuesday night.