In the recently released Victorian government budget and in the accompanying Treasurer’s speech, the government made much of a fall in GST and stamp duty revenue, claiming ‘significant revenue write downs’ and a reduction of $7.6 billion over the forthcoming four year period 2012-13 to 2015-16.
This would suggest an actual expected decline in the total revenue amounts from past years and into future years.
However, close reading of the budget indicates that the reference to the decline relates to estimates made in late 2010.
In fact, the budget figures clearly show that government revenue has actually been increasing steadily since the time of those estimates and that this will continue to be the case.
Total revenue will increase by 3.2% for 2012-13 and then increase by an average of 4.4% for the following three years.
|Taxation, GST and other grants||37283.1||36784.0||38002.8||40430.1||41989.1||44224.4|
|Other revenue||8 743.8||10091.1||10353.9||10028.6||10395.8||10777.2|
The figures clearly show no actual decline in the expected total revenue over the six year period, and certainly no decrease in taxation and GST revenue over the four years from 2012-13.
To the contrary, a clearly increasing trend is evident.
Hence, despite the government’s rhetoric, there has been no collapse in revenue.
In turn, delivery of the $155 million surplus for 2012-13 has not been as difficult as the government has attempted to make out.
This highlights an interesting manner in which a government can engage in spin with the budget figures.
On reaching office, a government can make various optimistic forecasts.
When those optimistic forecasts prove to be wrong only 18 months or so later, there is a claim for a need for belt tightening and spending cuts.
However, given an actual upward trend in revenue, the government can claim the mantle of responsible economic manager when it is able to forecast a budget surplus.
Two other interesting observations can be made with respect to the Victorian budget.
The first relates to an increase in interest expense being paid by Victorian taxpayers and the second relates to the government’s unfunded superannuation liability.
Despite the $155 million operating surplus, total borrowings and other liabilities of the Victorian government sector are forecast to increase by 15 percent over the 2012-13 budget period.
In turn, a 40 percent increase in the government’s interest bill is forecast for the coming year, an increase amounting to almost $500 million.
Moreover, annual interest expense is forecast to continue to increase over the following three years.
Accordingly, a major component of any difficulty in producing a budget surplus is the rising interest bill.
The Treasurer’s speech made much of the fact that last year’s budget (for the 2011-12 financial year) achieved a $2.2 billion constraint in spending growth.
However, the Treasurer did not mention that a huge actuarial loss amounting to $5.9 billion has arisen over the course of the 2011-12 year in the State’s unfunded superannuation liability.
The result has been a revised total net result amounting to a huge $6 million deficit for 2011-12.
This compares to a net result amounting to a 64.2 million surplus forecast in the original budget released 12 months ago.
This aspect of the budget has received very little coverage, if any, in the media.
It emphasises that the focus when a budget is released is on the new budget forecasts, and that an examination of situations arising in the current year tend to be neglected.