(WARNING: For those who find percentages confusing, this may not be the article for you)
As I listened to Scott Morrison and Matthias Cormann say “Jobs and growth” 579 times, I drifted off, thinking about the bigger picture rather than the tinkering at the edges that was announced today.
Sticking with the line that we do not have a revenue problem is a Herculean task in light of the figures but Scott assures us that any shortfall will apparently be fixed by growing the economy.
To fix the deficit, we must cut spending he says, with a goal of decreasing expenditure from 25.9% of GDP in 2015-16 to 25.3% of GDP in 2018-19. To help achieve that, the increase in expenditure each year has been cut from 2% to 1.8%.
And this is where I started thinking, if expenditure is growing at a slower rate than GDP, why do we need to make cuts to achieve Scott’s 25.3% – won’t that happen all by itself?
So I did the maths – and this is the part you may want to skip.
If current expenditure of 25.9% goes up by 1.8% each year it gets to (25.9×1.0183) 27.3% by 2018-19.
At the same time, GDP is projected to increase to (1.0275×1.03×1.03) 109% of today’s GDP.
That means expenditure in 2018-19 will be (27.3/109×100) 25% of GDP, which is lower than Scott’s projected 25.3%, without having to make any further changes.
If growth can fix the revenue problem without us having to increase taxation, then it will also fix the spending as a percentage of that increased GDP without us having to do any cutting.
