Last night I listened to the Australian Treasurer's budget speech and to the initial commentary. At the end I was not much clearer than I was at the beginning.
When I first started listening to budget speeches they were on radio and ran for several hours. The speech itself contained the information you need to understand the budget. This is no longer the case. The information content is now very low, packaged for TV. You have to wait for the analysis from those in the budget lock-up or those who have time who have time to download and read the full papers. Alternatively, you can try to access the budget papers on-line once the speech is finished.
Those who are interested can find all the budget papers here. So many people wanted to access them last night that it was almost impossible to get through. One just had to sit and wait. I finally gave up and went to bed.
It is now quite early. Traffic is less. I can get onto the site, but I don't have a lot of time.
The first point to note in the midst of all the hype is that it is projected revenues, not actual revenues, that have declined so sharply. Revenue is projected to decline from 303.7 billion in 07-08 to 290.6 billion in 09-10. That's a substantial decline, but nowhere as scary as the headline numbers based on previously projected revenue.
On the expenditure side, expenditure is projected to rise from 280.1 billion in 07-06 (24.8% of GDP) to $375 billion in 12-13 (27% of GDP), with a fiscal (accrual) deficit in that year of 30.3 billion. Now this actually is a bit scary. By then, the economy is going to be expanding quite rapidly, so the policy focus will have to shift in the opposite direction towards reducing the budget stimulus effects.
I have written quite often about the difficulties most Governments face in quickly expanding capital spending because of the nature of the lags involved. Because of the nature of those lags, I suggested that capital spend in many countries was likely to be slower than projected and then to bunch together at a time economies had in fact begun to turn up. The risk as I saw it was that this plus washing liquidity might then force contractionary measures including rising interest rates.
From a purely Australian perspective, I have argued that our export mix meant that we were likely to see upturn in advance of a number of developed economies. This needed to be taken into account in planning. In simple terms, the window we had to take advantage of expansionary measures was likely to be less.
I haven't looked yet at the economic assumptions underlying the budget. The reporting I have heard suggests sharp downturn, followed by sharp upturn.
My view all along, and I have had to grit my teeth on this one, is that the Australian downturn was likely to be more moderate than allowed for by the Government and many commentators, including some comments from Access Economics.
This remains my view. If I am in any way right, the big economic policy challenge in the not too far distant future is going to be the management of current spend to accommodate rising capital spend at a time when the economy is once again growing quite rapidly.
I will comment in more detail once I have time to read the budget papers properly.