News & Current Affairs
10 October 2014
by Kaye Lee
How to pay for a war
ADF blows up missiles that don't fit planes, construction, Joe Hockey, MYEFO, nominal GDP, paying for the war, PEFO, real GDP, Revenue
The Treasurer said if Mr Shorten was “honest” about his promise of bi-partisan support for Australia’s mission in Iraq, he would pass budget measures currently stalled in Parliament. Is he suggesting that sick people, pensioners, students and the unemployed should fund the war?
I have a suggestion.
When Joe Hockey produced his first fiscal statement in December last year, the deficit over the forward estimates had grown from $54.6 billion in August’s PEFO to $123 billion.
Part of this was due to Joe spending an extra $11 billion in his first 100 days as Treasurer, the most significant payment being the unasked for $8.8 billion gift to the RBA.
But the greatest increases to the deficit (and future debt) came from just changing forecasts. Hockey told us that Labor’s predicitions were unrealistically optimistic, despite the independent PEFO coming up with the same figures.
In almost every parameter, Hockey lowered PEFO forecasts, often dramatically, for the performance of the Australian economy . He insisted on the worst possible forecasts in order to exaggerate the “mess” he inherited.
Real GDP forecasts from PEFO were 2.5% and 3%, written down in MYEFO to 2.5% and 2.5% for the years 2013-14 and 2014-15.
The quarterly national accounts figures show the trend annual real GDP growth of 3.2% which is right on the 25-year average and significantly higher than predicted in either PEFO or MYEFO.
The IMF expects the Australian economy to grow by 2.8 per cent in 2014 and 2.9 per cent in 2015.
As for nominal GDP, PEFO predicted 3.75% and 4.5% – Hockey’s MYEFO 3.5% and 3.5%.
He decreased nominal GDP forecasts to their lowest level since the global financial crisis. This has a massive impact on revenues, which are very sensitive to changes in nominal GDP growth. This had the effect of reducing projected revenue over the forward estimates to $51 billion less than projected in PEFO.
In fact our annual nominal GDP rose by 4%. This is less than the 25-year average of 6.1% but once again, significantly higher than predicted by Hockey and even higher than PEFO.
Joe’s predictions about construction were even worse.
In MYEFO, housing construction growth was reduced to only 3% rather than 5% as forecast in PEFO.
Private dwelling investment actually increased 3.2% in the June quarter and 9.5% in the past year, the strongest pace of growth recorded in the Housing Industry Association Performance of Construction Index nine-year history.
As these few examples have shown, and as was muttered at the time (or shouted loudly by some of us), Hockey’s predictions were unnecessarily pessimistic in an obvious attempt to artificially create the debt and deficit disaster you have when you aren’t having a debt and deficit disaster.
Change a couple of assumptions and hey presto, we’re rolling in money. Bombs away.
Speaking of which, did you hear that the ADF just threw away $400 million worth of missiles that don’t fit their new planes?
You wanna talk waste, start with a group who plan that badly.