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Much has been written on this budget. I judged Terry McCrann’s article (below) the best. I add one or two points that seem to have attracted limited attention.

More generally, while considerable scepticism is appropriate about Swan’s promise to budget over the next four years for a surplus and to limit real spending growth to 2% pa (on average), with the Coalition also promising surpluses it does mean that both major parties are heavily constrained in their use of the budget and that government spending should fall slightly (relative to the rest of the economy). However, the (cash) projections to 2015-16 still show a slight increase compared with 2007-08 in Labor’s spending levels (relative to GDP) and the Coalition has still to explain what its small government policy signifies. As I have suggested before, properly explained there is scope to reduce spending by 2 percentage points of GDP without scaring the horses – ie by $25-30 bn.

Des Moore

Budget 2012 steals with one hand, gives with the other
Article by Terry McCrann in the Herald Sun 8 May 2012

Terry McCrannAn unbelievable budget. Literally.
Herald Sun business commentator Terry McCrann explains the assumptions behind the budget projections.

AFTER four Budgets playing Father Christmas, this is Wayne Swan's Robin Hood Budget.

An unbelievable budget. Literally.

Now he's not only handing out money with one hand, he's also taking it back with the other.

The Budget has new spending that adds up to $22 billion over the five years, including this one. But it also takes back $34 billion over those years.

The $12 billion in net savings, over five years, is the rather modest measure of this Budget's "toughness".

The Treasurer could have reached his surplus by slashing much less - if he had not opted for new spending.

But the Robin Hood bit is precisely what this Budget is all about. And why it is an intensely political exercise.

Swan is taking from the well-off - like the superannuation hit to high-income earners and abandoning the company tax cut - so he can redirect money to lower-income families and the disadvantaged.

It's not only Robin Hood in the old-fashioned Labor way. But a desperate attempt to compensate, indeed over-compensate for the carbon tax.

There's also a new age edge to the Robin Hood flavour. Swan is stealing from the fiscal future, and indeed the past, to "give" to the present - this Budget's 2012-13 year - where he's hostage to the promise written in fiscal blood of a surplus.

Spending is shovelled into this current year which finishes at the end of June; and also into the 2013-14 year which starts in July next year. And spending is literally taken out of the all-important 2012-13 year.

Total spending increases by a very healthy 4.8 per cent in real terms in 2011-12; then will purportedly fall by 4.3 per cent in 2012-13; then spring back to a 3.7 per cent growth rate in 2013-14.

The actual dollar numbers are even more stark.

Spending goes up $25 billion this current year; falls $7 billion next year; and then leaps by $23 billion

Put that together with a similarly super-charged lift in revenue, surprisingly (not), in the 2012-13 year; and hey presto, Swan is playing Robin Hood AND Merlin - able to conjure a dramatic move from a $44 billion deficit this year to that $1.5 billion surplus next.

That forecast is very new age. It's a virtual reality surplus that exists only in the cyberspace of a Treasury computer. In the real world, it's a nonsense.

The one thing we can say with absolute certainty is the actual Budget bottom line in 2012-13 will not - repeat: will not - be a $1.5 billion surplus.

There's a tiny chance it will be a bigger surplus; the near certainty that it will end up in deficit like all the previous Swan Budgets.

Just look at the current year which is nearing an end. A year ago the forecast was for a $23 billion surplus; last night the figure was "adjusted" up to $44 billion. It's a racing certainty the final figure will be something different again. And the year's got only two months to go.

Swan's is half-right that the Budget will "make way" for the Reserve Bank to cut interest rates further.

And he's likely to be "rewarded" by another rate cut at the next RBA board meeting in early June.

But it's more the case that the Budget doesn't stand in the way. The RBA is cutting because the economy is not growing as fast as both it and Treasury believed last year.

The Budget-rate link actually works more the other way; that the Budget is hostage to what the RBA does with rates.

If it left rates too high for too long, growth in the economy would stay sluggish, and that alone would tip the Budget back into deficit.

In a more fundamental sense, the Budget - and the Australian economy - are hostage to what happens in China, Europe and the US.

In the wake of the elections in France and Greece, the chances of Europe tipping us into another GFC have increased. The US recovery is going to be sluggish at best. And China, in the words of Winston Churchill, is a riddle wrapped in an enigma.

It's economy has slowed. No-one really knows what might happen next.

The best thing to be said about Swan's fifth Budget in this context of uncertainty is that it hasn't really done anything major.

That is to say, it did no major harm. It didn't do much good, either. But it's a plus that it only pretended to slash and burn.

The two biggest cuts were abandoning the small cut in company tax. And the so-called "reprogramming" of defence spending, more normally known as pushing off spending to manana.

It managed to give Wayne Swan - and Julia Gillard - a surplus. But that surplus has got to survive the Budget update in December, and then the Budget next year. Good luck.

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