Government budgets are increasingly becoming more political documents. This has been particularly evident with the federal government’s pledge to return the budget to surplus. However, budget numbers are calculated pursuant to accounting principles and a number of accounting ‘tricks’ can be identified behind the $1.5 billion surplus number.
Moving of spending out of the 2012-13 budget year
Given its commitment to announcing a surplus, the government has had an incentive to move spending out of the 2012-13 budget year.
What is especially evident is the extent to which the government has made ‘policy decisions’ which have taken spending out of the 2012-13 year and brought it forward into the current financial year (ie year ending 30 June 2012).
The commencement of this strategy was evident from the government’s 2011-12 ‘Mid-Year Economic and Fiscal Outlook’ (MYEFO) released in November 2011, and the latest budget reveals that the government has continued this strategy.
In the six month period between the release of the 2011-12 budget in May 2011 and MYEFO, the net budget impact of policy decisions was to provide a $2.9 billion improvement to the 2012-13 bottom line.
A further $3 billion saving to the bottom line has been achieved with policy decisions made between MYEFO and this budget.
The net effect has been an improvement of $5.9 billion in the budget bottom line. Without these decisions, the 2012-13 budget bottom line would have been a $4.4 billion deficit.
A particular trick evident here is that the aggregate amount of the shift ($5.9 billion) can only be detected by examining both MYEFO and the current budget.
Increase in dividends from public corporations
A feature of the budget this year is the increase in the ‘efficiency dividends’ being forecast from government public corporations.
Examples of these public corporations include Medibank Private, the Reserve Bank of Australia, Australia Post, the NBN Co, Airservices Australia and the Australian Rail Track Corporation.
An accounting trick here results in a spike in these public corporation dividends in the year of the return to surplus. From an amount of $374 million for 2011-12, these dividends are budgeted to increase to $1.1 billion for 2012-13 and then return to $446 million and $476 million respectively for the following two years.
Of course, it is the government that controls these public corporations and determines the annual dividends, so the figures suggest the government has deliberately increased these dividends to assist in budgeting for the 2012-13 year surplus.
The increase in the dividends for the 2012-13 year above their normal level provides a benefit to the budget bottom line of around $0.7 billion, almost half the amount of the surplus.
National Broadband Network
A further accounting trick can be seen in the manner in which the National Broadband Network (NBN) has been structured.
As the NBN will be undertaken by the NBN Co Ltd, a public corporation, this expenditure and the related borrowings will never appear in the budget.
Accordingly, the $40 million or so NBN spending that has commenced and that will continue into future years will never appear in the budget bottom line.
Perusal of the NBN Co’s annual report for the year ended 30 June 2011 reveals that the 2010-11 budget bottom line would have been adversely affected to the extent of approximately $0.7 billion had the NBN spending been undertaken through the budget sector rather than a separate public corporation.
As the NBN spending is ramped up over future years, the effect of this omission from the budget bottom line will become greater and greater.
Will the surplus actually be delivered?
A final question is whether the $1.5 billion surplus will actually be delivered. The budget is merely a forecast of what is expected for the ensuing financial year.
The government is making much of the return to surplus at this point in time, but we will not know whether that will actually be achieved until around September 2013.
The budget surplus of $1.5 billion provides only a very thin margin for error.
Further, if the past is any guide, the final outcome due for reporting around September 2013 will not receive anywhere near the same attention as the budget now, especially as a further budget will have been released in the meantime (in May next year).