27-April-2011
Portfolio Media Releases
In many ways Wayne Swan is blessed as a treasurer with the best terms of trade in 140 years.
But you wouldn't know it as he tries to claim that the mining boom is somehow a curse.
In fact, the way he is using all sorts of lame excuses for the budget pressures the government is now facing makes him a subject of ridicule. Poor Wayne.
Sure, the Queensland floods and the Japanese disaster will have some short-term impact on government revenue, namely due to disruptions in the supply and demand of our coal. However, it is very marginal.
New figures showing that China's insatiable demand for our coal and iron ore has delivered a $60 billion boost to our economy in the past 12 months underlines the degree of spin in the Treasurer's "woe is me" routine.
Deloitte Access Economics director Chris Richardson saw through it when he said that with the world throwing money at us, the government had "the perfect backdrop for a budget".
While the government should be running big surpluses and building up our resilience to any future shocks, everybody knows that the real reasons Labor is facing budgetary pressures are all of the government's own making.
While Swan is out whingeing that mining boom Mark II will not deliver the "rivers of gold" that Mark I delivered - which is nonsense - his real problem is the rivers of waste his government is drowning in.
What the government doesn't like to talk about is how it will have splurged a staggering $85bn on fiscal stimulus by the end of 2012, billions of it wasted on the likes of pink batts, overpriced school halls and green programs.
If they had not spent all this money, as the Coalition certainly would not have, the budget would be in surplus now.
Instead, we are facing another record deficit, which is likely to be considerably higher than the mid-year estimate of $41.5bn.
As a consequence, the meagre, and highly manufactured, paper surplus of $3.1bn that the government has pencilled in for 2012-13 is also now likely to be wafer thin and short-lived because of the real structural problems hidden in the budget.
These problems are growing as the government is increasingly getting locked into spending all the revenue from a temporary mining boom on long-term recurrent spending programs.
Swan has since said "that you have to be wary of some of the (Treasury) estimates of the structural deficit". If that's the case, the government needs to come clean in the budget about the current underlying structural health of the budget.
Also at odds with Minister for Finance Penny Wong and Swan's talk about rapid fiscal consolidation is net debt. For Labor, "debt" is a dirty word. It never passes their lips.
Net debt is spiralling towards $100bn, which brings annual interest repayments of $6bn. That is the equivalent of six world-class hospitals.
For all the wrong reasons, this is some achievement in a little over three years, particularly considering the set of books Labor inherited in 2007. No debt, a $20bn surplus and reserves of about $60bn.
This mining boom is being wasted. Every dollar is being spent on recurrent spending. Not one mining dollar has gone to pay down debt.
This budget must outline a clear strategy for repaying debt. Labor is lazily relying on the terms of trade to help reduce debt, even though Swan says the government is not expecting any great revenue windfall from commodity exports.
Without a coherent debt reduction plan, Labor's claim that debt will be paid off by 2019 is not believable. In fact, the Treasury is predicting a return to $50bn deficits by 2019 because of the structural problems in the budget.
The budget will have the equivalent of many blank pages.
The government has made it clear it will provide no details regarding its toxic carbon tax. This means revenue and expenditure in the order of $34.5bn will be missing from the budget out years.
The budget will not be worth the paper it is printed on. If these numbers were to be included, Labor's supposedly strict fiscal rules of keeping real spending growth at or below 2 per cent and taxation as a percentage of GDP below 2007-08 levels would be out the window.
The mining tax is yet to be properly bedded down and the budgeted revenue of $7.5bn over its first two years of operation is expected to be considerably less. But Labor has already spent the money. So the moment the Treasurer brings down the budget he will be under pressure to bring down a virtual second budget soon after.