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Edition 308 – Blowing The Budget

In mid December 2021, the Federal Treasurer, Josh Frydenberg, announced the Federal Government’s Mid Year Economic Forecast Outlook (MYEFO). Essentially, it’s a status update on the nation’s accounts part way through the financial year. Most people either don’t know about it or take little notice of the story on that night’s news bulletins. Being a nerd about budgets, I’m always interested.

The big win from the Government’s announcement was that revenues were up $106 billion over the four year forward estimates. In other words, they collected higher taxes than they’d budgeted just five months beforehand. That’s a great result for a country which is close to $1 trillion in government debt.

The big loss – not a red cent of that money actually improved the Government’s bottom line. So lousy were they at outspending what they said they would in the current financial year, that none of the tax windfalls made a dent on the mammoth budget deficit.

To put this in a business context, the Government’s revenue was at least 10% higher than what was budgeted, none of which came from “extra services”. If it was your business, it’s akin to you being able to charge a higher price, or a premium, without it actually costing you a dollar more to produce whatever it is you make or whatever service you provide. It’s windfall gain – nothing else. So, it should have gone straight to the bottom line.

From the expenses perspective in a business context, so reckless have they been with their spending in a 5 month period (or maybe it’s how truly awful the budget process actually is!) that they’ve somehow managed to blow up that windfall gain, thus not banking any additional cash, paying down debt or providing for the future rainy day (a few of which we’ve had these past two years).

If I was advising a business that showed such a large increase in revenue with nothing to show for it at the end of the day, I’d be calling the owners and managers of this business on their ineptitude. So, I’m calling the Federal Government out.

As a country, if we’re going to get out of the debt hole that has been created over the past 15 years, we’ve only got a couple of options:

  1. Sell stuff.
  2. Generate more revenue.
  3. Spend less.

Other than, maybe, the NBN, I can’t think there is too much else in the privatisation cupboard to flog off, so prodigious have various Governments in this country been at privatising since the mid-80’s.

Generating more revenue simply means collecting more tax. That’s a hard policy position as I’m yet to meet a business owner, or indeed anyone in the street, who’d gladly pay more tax.

Spending less is the toughest game of all. Which programmes will be subject to the knife? What promises have been made in the past that will need to be binned in the future? Where do you draw the line between what’s a programme that worthy of a future and what isn’t.

Just for a moment, the Treasurer, the Minister for Finance and the Prime Minister (himself a former Treasurer) need to get cracking on updating the spreadsheet to give the country certainty that we can get our financial house in order. If we don’t, as a generation in charge now, we face the possibility of saddling the next two or three generations with the debt of today, simply because the hard decisions weren’t made at a time when the economy was growing, unemployment plummeting & commodity prices were at or near record highs.

This Week’s Tip

“In 2007, the Howard Government paid off the last of the Federal Government’s debt. It owed nothing to no one, was banking serious cash (that’s called the Future Fund) and a debate commenced around whether or not the Federal Government should indeed be issuing Government Bonds. Where have those days gone?”