We are now a month away from the 2024-25 budget. And as with all budgets, the choices made matter much more than any big numbers that get the media attention.
The first thing to remember about budgets is caring about whether or not the budget is in surplus or deficit is a rather silly endeavour.
Firstly, we know that the numbers announced will probably be wrong; they always are:
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That’s no big deal, but the error determines a lot of the media and political narrative. If you get more revenue than forecast you look like a genius. If it goes the other way, journalists write that you can’t manage the economy.
The treasurer actually did nothing other than swing in their hammock (to quote Paul Keating on Peter Costello) as the world’s economy changed for good or ill.
The 2022-23 budget, for example, was first forecast in 2019 to be a surplus of $9bn. By 2021 the forecast was for a deficit of nearly $100bn.
Global pandemics tend to screw up forecasts.
And those numbers tell us nothing about who was the “better economic manager”.
In last year’s budget, the forecast was for a surplus of $4bn, but four months later the final outcome revealed it was $22bn.
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No policy in those four months changes any numbers. The budget papers state that the extra $18bn came mostly from $12.7bn in better than expected company tax revenue due to “sustained elevated commodity prices”.
The government boasted the $100bn turnaround from a $77.9bn forecast deficit to a $22.1bn surplus was “the biggest nominal budget improvement in Australian history”. But it was all due to the improved “parameter variations” – ie prices of iron ore and gas and economic growth.
In effect the $100bn “improvement” occurred purely because the forecast in the 2022 budget was historically wrong.
The 2023-24 budget will likely be in surplus. Currently it’s forecast to be a deficit of $1.1bn, but all that needs to occur is for there to be 0.2% more revenue than is expected and we’d have a surplus.
Would you feel better if that happened?
Did you feel richer when you heard last year that the budget was $18bn “better” than it had been forecast a few months earlier?
Budget numbers are great at giving us a monetary count for things but they tell us very little about the economic choices made.
Consider a government that is given two choices.
The first is to spend $31.4bn over 10 plus years on an inland rail that does not begin or end at a port and is forecast to create only an average of 700 direct jobs a year over 50 years, and in that same period will add just $16bn to our GDP (which is now about $2.6tn).
Or it could choose to spend $31.4bn over 10 years building homes for people to live in.
The cost to the budget would be the same (and if you planned to sell the homes to people you could suggest there will be a net return and so it could go “off budget”).
Right now Barnaby Joyce is displaying surplus levels of chutzpah by suggesting the inland rail project is in danger of becoming a “white elephant”. It was always going to be built on a flimsy business case that, as Gabrielle Chan noted, forecast that half of the freight to be carried on the completed rail would be coal.
Hardly a “future proof” commodity.
Anthony Albanese in 2018 suggested rather presciently that “a future government will have to deal with this”.
It also has to deal with the choice of where to direct the resources of the economy, and a budget surplus or deficit will likely tell us very little.
As Alan Kohler recently noted, the economy is so near capacity that approving new fossil fuel projects actually limits the ability to build homes, or productive infrastructure because there are not enough construction workers to go round.
Want to build homes and improve home ownership rates for young Australians? An easy first start is to stop approving new construction worker-greedy mines. But mine approvals are not in the budget.
What is in the budget though is the money spent on Aukus.
All the engineers and technicians (some of our best and brightest) who might be on that project are unable to use any knowledge gained on other projects (the US military very closely guards its IP) and thus there will be no spin-off economic benefits nor productivity gains.
And because those engineers and workers could have worked on projects that would improve our economic capacity, the economic opportunity cost of Aukus is almost guaranteed to be much greater than any perceived benefit.
Governments make choices about revenue as well.
Consider that in 2022 the Russian invasion of Ukraine produced extreme profits for Australian gas companies. And yet because how we choose to tax these super profits, PRRT contributes less to revenue than during the 2000s.
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If the government chose to raise more revenue from gas super profits they could either raise less from other sources, or spend more on services and projects without changing one dollar of the budget balance.
It’s all about choices. Do you choose to direct the recourses of the economy on things that produce good outcomes for Australians, or do you spend $4.6bn to improve the UK economy?
Albanese in 2018 also noted that “budgets should be about real investment and real expenditure and real commitments and real rail lines and real roads”.
One might also say real houses, real cost-of-living relief, real assistance for those in poverty, real investment in education and health.
While whether or not we have a budget surplus tells us little about the worth of a government, what they spend money on and who and what they tax, does.
• Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work
