Julia Gillard is facing a make-or-break year. This is the last year of leeway before the federal budget has to be in surplus. In 2012-13 the Gillard government has to budget for a surplus, and deliver it too.
Gillard gave a rather strange speech to the Committee for the Economic Development of Australia this week. She made all the usual noises: world-class education and Australia's a great nation and so on. She also claimed her government was a low-taxing government and that in 2011-12, this coming fiscal year, commonwealth revenue as a share of gross domestic product would be lower than for every single year of the Howard government era.
While the literal meaning of Gillard's words is true, the meaning of her statements is fundamentally misleading. Treasurer Wayne Swan has been telling anyone who will listen that government revenue has collapsed due to the effects of the global financial crisis. The Rudd-Gillard government has been ''low-taxing'' because its efforts to be high-taxing have more or less failed; revenue sources dried up during the GFC.
The then Rudd government did promise in its first budget to keep taxation as a share of GDP below the 2007-08 level.
But for the ''small'' problem of the budget deficit, it looks like the Rudd-Gillard government has met that promise. Budget deficits are deferred taxation -- the money will have to be paid back at some point through increased taxation.
The Howard government tended to run budget surpluses, which are either deferred spending or deferred tax cuts. A government that runs a surplus is taxing too much, while a government that runs a deficit is spending too much or, perhaps, taxing too little. Of course Gillard would have us believe the Howard government generally spent too little, although not even Rudd, who famously said, ''This reckless spending must stop'', thought so at the time.
In order to compare like with like, it is necessary to adjust the revenue figures over time, taking into account over-taxation and under-taxation.
To that end I had a look at commonwealth receipts as a percentage of GDP and subtracted surpluses and added deficits. It quickly became apparent the current and deferred tax burden under the Gillard government in 2011-12 will be higher than in any year during the Howard era. Debt and deficit is being used to claim superior economic management when the increased tax burden has simply been shifted to future years.
Yet Gillard couldn't resist the temptation to pillory the Howard government for excess spending in its last term of office. Indeed it was high, and the Gillard government has committed to a spending cap of about 2 per cent growth. Yet we are invited to believe that the Rudd-Gillard government has been disciplined in its spending.
Over the life of the Howard government spending grew, in real terms as measured by CPI, by 3.54 per cent on average each year. The equivalent figure for the Rudd-Gillard government, including over its forward estimates, is 3.32 per cent. When I look at real spending in non-farm GDP deflator terms, Howard government spending grew only by 2.9 per cent while the Rudd-Gillard government equivalent is 3.3 per cent.
We can't even conclude they're as bad as each other. The Howard-era data is historical; most of the Rudd-Gillard-era data is forecasts. If the Gillard government is as disciplined as it hopes, it will be as bad as the Howard government was. But fiscal discipline has been foreign in Australian public finance for some time.
Why is this year particularly difficult? This coming fiscal year requires the federal government to cut spending in real terms (as measured by CPI). All governments like to decrease the rate of spending and claim that as a budget cut. That won't be enough this time. Tax receipts are more or less at the long-term average while spending is way above the long-term average. A claim that the government is low-taxing is clearly the start of a campaign to butter up the electorate for increased taxes. We have already seen the flood levy, and the carbon tax and a bank super-profit tax are not far behind. These taxes will breach the Rudd government's first budget promise.
Government spending over the past few years has been undisciplined. Rather than being timely, temporary and targeted, the spending has gone on too long and too indiscriminately.
Swan, who foolishly promised that ''come hell or high water'' the budget would be in surplus in 2012-13, needs to deliver. Given the original promise of a cap on tax receipts, the surplus can only be achieved by spending cuts. We will know on budget night whether he can deliver -- anything less than real cuts of about 1.1 per cent of GDP will indicate yet another broken budget promise.
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