Never Mind The Deficit, Look At The Spending

It must take a lot of confidence to blame the size of our new deficit on revenue loss due to the financial crisis just seconds after you have finished a mind-numbingly long list of new spending measures.

In fact, there’s a weird – almost creepy – sense of confidence surrounding Wayne Swan’s second budget.

Treasury’s reputation should be very battered. Just last year, the inflation genie was out of the bottle and we were looking at a beautiful vista of economic happiness stretching as far as our eyes could see. But Treasury seems to be getting more sure in its ability to predict the future, not less.

Wayne Swan’s conceit that this recession will be quickly followed by a burst of astonishing, face-saving growth relies on a predicted GDP growth of more than 4% in the next couple of years. That’s a pretty big call in the middle of a recession that took the Treasury itself by surprise. And it’s an even bigger call considering during the twentieth century, the average GDP growth was only 3.4%. So if Treasury’s forecasts are accurate, then the fire in which this budget was forged was not very hot.

The misplaced confidence of this budget is even clearer when we look at Wayne Swan’s counterfactuals. Without the property bailout, the Wellington Street bus station, the highways up (and down) the coast, the detailed design work for the Sydney West Metro, and the $900 recession hush-money, the Treasury believes that Australia would apparently be 2 ¾ per cent poorer next year. And there’d be 210,000 fewer people in work. Not 220,000, not 200,000 but 210,000.

Of course, these numbers are almost always invented out of thin air. Treasury secretary Ken Henry admitted as much in February.

So without these impressively self-assured Treasury figures we are left with just a historically large deficit and a government piling its promises up behind the next election. We have spending levels not seen since the Second World War, and not a whole lot to show for it.

Wayne Swan’s budget is a chickie run between Treasury and the global economy. Sure, both could get out of it safely, but you wouldn’t want to bet on it.