It is pertinent that the Financial Review published my letter below the day after Treasurer Swan released the final budget result for the year ended June 2012 – yes, it took almost three months to “finalise” the figures. And it was timed so that it occurred almost immediately after the completion of the annual survey by the complaisant IMF saying, inter alia, “The authorities’ current macroeconomic policy stance is appropriate”, but not while Parliament was sitting.
The release and subsequent press conference held by Swan (with Finance Minister Wong) presented the result in a way designed to minimise the deficiencies in both the original estimates and the accompanying economic forecasts. The featured claim (swallowed by the ABC and some other journalists) that the result is “the smallest variation between the budget estimate and budget outcome for a decade” is a pathetic one given that the estimate used was published in May 2012 ie only a month or so before the actual result. Swan also ran his now familiar line that “our” budget position is better than in other advanced countries and (extraordinarily) is “in very good shape” as recognised (he wrongly claims) by the IMF and by Standard & Poor’s reaffirmation of Australia’s AAA credit rating. This is another example of Swan distorting the real picture whenever he has the opportunity.
The real picture on the budget is that there were sizeable errors in the original budget estimates made in May 2011, with total receipts being 3.7 per cent lower and total payments 2.4 per cent higher. And the budget deficit of $43.7 billion was almost double the original estimate of $22.6 billion. Swan blames a continuing hangover from the GFC as the cause of the shortfall in revenue and adds (surprisingly) that “we don’t expect taxes to return to pre-crisis levels over the forward estimates”. Neither he nor Wong explain (and no journalist asked) why major action was not taken to start instituting spending reductions in 2011-12 once the revenue shortfall became apparent. Yet they reaffirm the intention to budget for a surplus this year. Doubtless they will find a way of budgeting for a surplus – but I suspect an election well before the likely shortfall becomes apparent.
Importantly also, last year both the major economic forecast for employment growth made in May 2011, and Swan’s continued claims about the supposed strength of the jobs picture, have also been well astray. This is referred to in my letter below but it is worth noting here the following differences in estimates:
Forecasts of Growth in Employment for year ending in June Quarter of 2012
Made in May 2011 + 1.75%
Made in Dec 2011 + 1.0%
Made in May 2012 + 0.5%
Actual + 0.7%
There are two important points here. First, of the increase in 2011-12 of those of working age only a proportion were able to find jobs. Second, while there has been very little change over the past year or so in the number of unemployed, many of the increased working age are not even trying to get a job and are left outside the labour force twiddling their thumbs on welfare or at home. It is surprising that neither the Opposition nor economic commentators seem to have even noticed this “flexible” labour market and have failed to recognise that the official rate of unemployment is not necessarily the best guide to what is happening in the labour market ! With the Fair Work legislation we are in danger of increased numbers continuing to leave the labour force, as has been happening in the US.
Des
Fruits of mining boom already picked
(letter published in The Australian Financial Review, 25 September 2012.)
Your commentators report that experts now predict jobs will bear the brunt of the falling terms of trade ( “Jobs suffer most as boom ends”, 21 September). But this has already occurred.
After increasing by 3.3 percent over the year to June 2010, employment grew by only 1.2 per cent over the year to June 2011 and over the last year by only 0.5 per cent. Only an additional 60,000 jobs were created over that year while GDP grew at 3.7 percent and the population of working age increased by 237,000. Yet about 190,000 of the working age population increase did not even join the labour force and the proportion not in the labour force increased from 35 to 35.6 percent.
Treasurer Swan claimed that the 3.7 percent increase in real GDP in the June quarter (compared with the same quarter last year), was a “very, very solid result”. But the growth in GDP was much less than for real disposable incomes, which increased by only 2.6 percent. Indeed, in what is probably the best guide to economic well-being, the real increase in per head terms was much lower than over the previous year -- only 1.2 percent compared with nearly 3 percent.
In short, benefits of the mining “boom” have already been spread more thinly across the community and this is reflected in the on-going low level of consumer and business confidence.
Des Moore
Institute for Private Enterprise.