THE ritual is over for another year. We have a $58 billion budget deficit and unemployment will rise to a million people. Treasury forecasting has been undertaken as far ahead as 2012-13, when we are supposed to have a government debt of $188 billion. In 12 months we have moved from a budget-projected surplus of $21 billion and 2.75 per cent growth in GDP to a huge deficit.
It's about time we talked about two pieces of nonsense that are features of Australian budget time. The first is the obvious Treasury fallacy of attempting to model (down to a 10th of a per cent) changes in Australia's GDP over the next four years and the size of the deficit. The only time that crystal-ball gazing partially works is when nothing changes in the Australian economy over the year.
The second piece of nonsense is the total spatial and temporal myopia that seems to afflict the Opposition and the media at budget time. Why don't we have a look at the budget deficits proposed by the US and British governments? Why don't we look at the infrastructure program and tax cuts that Labor proposed in last year's budget and acknowledge that it is simply carrying out its tax cut promise and doing what it proposed to do to drag Australia out of its torpid reliance on private-public partnerships to actually get any new roads, rail and port assets?
The question is, when should a government renege on firm expenditure proposals for the next financial year? The uncertain time of a recession is hardly the time to lose your nerve and put the government into do-nothing mode. It might be if we thought the free market would save us.
In the US, the budget is $US3.6 trillion ($A4.7 trillion). The deficit is expected to be $US1.8 trillion. This was supposed to be the strongest economy in the world for decades.
In Britain, the prediction is that national debt will eventually settle at somewhere between £2 trillion ($A4 trillion) and £3 trillion. I like this estimate because they acknowledge that they really don't know how much it is. Neither do the Americans and neither do we.
Two obvious truths emerge from the present budget brouhaha. First, Treasury should do the accounting for the Government and work out total income and expenditure for the economy. It should also calculate the cost of government budget expenditure and income generating measures. Treasury should forget about examining the entrails of the future. Any accurate measurement of anything other than departmental estimates is more good luck than good management. Economists have never been good at creating dynamic modelling tools for any economy.
Second, we are a long way from the rest of the world but we do need to look occasionally at how the major economies are performing. Denigrating our performance and strategy without any attempt to consider the relative performance of other economies in what is the biggest economic reversal of the past 50 years is more than a bit insular and myopic.
I suppose the biggest disappointment is that there has been no attempt to have a combined political approach to the recession. Malcolm Turnbull talked about it at the start of the decline, but the process has quickly degenerated into the pedestrian name-calling blame game that is a perennial feature of our small-minded political environment.
Once again, it seems necessary to forget about the modelling, the theory and the bickering for political advantage. The budget is a once-a-year show that is quickly forgotten as the economy and the people move forward into reality. The numbers from last year's budget and the February budget revisions are already obvious nonsense. A lot of hot air was expended talking about numbers that didn't happen.
This year, the predictions range from an end to the global recession in 2010 to the continuation of budget deficits for another six years. I remember that this time last year we were talking about an iron ore and coal exports boom at record prices that would last indefinitely. What happened to that? At least our terms of trade aren't a problem any more.
This is a bad time for the economies of the world, including Australia. We are better placed than most industrialised countries, but still have the overhang of foreign borrowing to finance our current account deficit and the debt trap that the deficit and overseas borrowing by the banks have created. The solution to that has always been in our own hands. We need to import less and add value to exports. Spending money on roads, rail and ports is an imperative if we are to be a more competitive economy. As a baby boomer, I don't mind working longer. It seems a long time ago that we were telling the baby boomers to take the freely available retirement packages and get out of the way of the new economy. The pension and infrastructure initiatives are sensible and will strengthen our economy.
We will probably have a mini-budget early next year that revises all the present budget projections. At least we are ensuring that one group of economists has plenty of economic activity. The issue is whether the activity has any productive or predictive value.
Martin Feil is a tax and industry policy consultant and a former director of the Industries Assistance Commission.
