Swan’s surplus success tainted by Labor's past performance

Swan’s surplus success tainted by Labor's past performance

Shaun Heenan

The word ‘surplus’ has become somewhat of a calling-card for the Gillard Government in the lead-up to what will surely be a tough re-election campaign.

Labor’s much talked-about 2012-13 budget has arrived and, sure enough, Treasurer Wayne Swan has snipped and saved and has managed to, on paper at least, push our nation back into the black.

The Treasurer is clearly proud of his on-paper achievement, plastering his success across the very front of the document.

“Returning the budget to surplus on time and as promised,” it reads.

“Despite significant revenue losses since the GFC, we are returning the budget to surplus in 2012‑13, while ensuring families and businesses are sharing in the benefits of the resources boom.”

“A surplus is appropriate given our strong economic fundamentals and an economy returning to trend growth.”

But a $1.5 billion surplus, surely that’s an enormous amount of money? Taken at face value, it is. It represents around $65 for every man, woman and child in the country.

When examining history, we do not actually need to look back all that far to see why the trumpeting of the surplus horn is an empty celebration.

When the Government delivered the 2010 budget, it told the nation to expect a deficit of $40.8 billion.

But it must be hard to accurately predict the financial situation of an entire country a full year in advance, and so, fairly predictably, this number was optimistic.

The Final Budget Outcome for the financial year 2010-11 tells us that the Federal Government actually recorded a deficit of $47.7 billion, meaning there were $6.9 billion worth of unpredicted expenses and underpriced commitments that the Government failed to account for.

Stepping back a year in an attempt to prove or disprove a pattern, we can see that in the 2009-10 budget, there was a predicted deficit of $57.6 billion.

The Final Budget Outcome for that year reports an actual deficit of $54.8 billion, which is $2.3 billion lower than expected.

The year before that saw the deficit come in $5 billion lower than expected, and the year before that just $400 million lower than expected.

There’s a drastic turnaround here, and it takes place at around the time Julia Gillard stepped in as Prime Minister.

The aim of this research is not, however, to find somebody to blame, or even to uncover a pattern of misjudged budgets.

What we see here is that national and global financial markets are wildly unpredictable, and it seems somewhat of a miracle that the estimate is anywhere near as close as it has been.

Numbers this big have a large margin for error; a margin for error which is nearly always bigger than the number keeping the nation in surplus in the newly released budget.

Perhaps next year we’ll learn that Wayne Swan has managed to keep the real numbers in line with his outline and we’ll see precisely a $1.5 billion surplus.

Perhaps he will outdo himself, and the nation will end up $10 billion in the black.

Or perhaps he has overextended our finances in a desperate attempt to keep his promise, and Australia will actually end up with a deficit again. This seems well within the margin of error seen in previous years.

If that is the case, then what was the point of this whole exercise?

With so much argument and rhetoric being slung from both sides of parliament over the notion of returning to surplus, most of the important discussion has been somewhat glossed over.

First and foremost: what impact does returning the budget to surplus actually have?

Wayne Swan has placed so much importance on what an achievement it would be to return the budget to surplus that no one has really stopped to ask why.

Mr Swan himself provides one answer, repeating in his 2012-13 budget speech the same well-rehearsed mantra he has stuck with for much of the past year.

“The four years of surpluses I announce tonight are a powerful endorsement of the strength of our economy, the resilience of our people and the success of our policies.

“In this uncertain and fast changing world, we walk tall, as a nation confidently living within our means.

“Tonight we make a forceful statement that ours is one of the world’s strongest economies, and fairest communities.”

He is quick to bring up a comparison with the rest of the world – and rightly so.

Speaking in the House of Representatives, the Treasurer will often make the global comparison.

“We have a AAA credit rating from the three major financial credit rating agencies globally for the first time in our history,” he said.

“We have supported employment and small business in our economy. We have done it with a responsible fiscal policy that has given us an economy that is the envy of the world.”

The envy of most of Europe, certainly, and definitely the envy of the United States of America, who recently lost that coveted AAA credit rating.

The United States is an interesting case at the moment. Exactly how far gone is the world’s superpower financially at the moment?

The United States’ budget for 2012-13 targets a yearly deficit of $901 billion. This is an improvement from $1.327 trillion in 2011-12 and $1.48 trillion in 2010-11.

With that in mind, Australia has never really been in any sort of financial trouble worth mentioning, and that tiny $1.5 billion surplus seems like an absolute miracle.

The fact of the matter is that Australia’s economy, though operating on a much smaller scale than America, is indeed the envy of any country that cares to make the comparison.

The fact that the nation is anywhere near surplus, or that it remained within $100 billion of it during the worst days of the Global Financial Crisis, really does seem to speak of impressive fiscal policy.

Opposition Leader Tony Abbott didn’t see much worth cheering about on budget night. He has been derided in the past for his seemingly contrarian attitudes when it comes to discussing any matter of Government policy, but is he on to something with the budget this year?

“The fundamental test of a budget is how it improves the welfare of the Australian people,” he said in reply to Mr Swan’s budget speech.

“Since December 2007, the price of electricity is up 51 per cent, gas is up 30 per cent and water is up 46 per cent.”

“Education costs have risen 24 per cent, health 20 per cent and rent 21 per cent. Grocery prices are up 14 per cent.”

“Since the middle of 2009 interest rate rises have added $500 a month to mortgage repayments, while wages have risen just seven per cent.”

None of that relates directly to the Government’s income, so that is not how they’re paying for that surplus.

Simon Lauder from ABC News 24 conducted surveys the morning after the budget speech was televised to see how the Australian public felt about the Government’s financial restructuring.

“From what I gather, not a lot of people watched it. By far the most common response here in Melbourne is that people don’t know what’s in the budget. They haven’t read it,” he said.

As the nation fails to pay attention, Mr Swan’s effort may not help him at all on polling day.

Image from www.abc.net.au

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