One of the rituals of the federal Budget cycle is the release of a final budget outcome for the preceding financial year around the end of September. For many of the past 10 years, this has been an unhappy experience for the government of the day, but the final budget outcome for 2017-18 released today is different.
The government can point to a deficit that’s lower than estimated when the budget was tabled in May 2017 and lower than at the time of the 2018-19 budget just five months ago. In a budget of $450 billion the underlying cash deficit of $10 billion is small enough to be characterised as close to balance, and the momentum appears likely to carry it to a literal balance or small surplus quite soon.
The deficit is the smallest of the long stream that started in 2008-09. Moreover, the improvement from five months ago is due entirely to lower than estimated outlays — not higher tax revenue — which will be welcome news to those who have always seen the budget problem as one of excessive spending rather than insufficient revenue (although the improvement since May 2017 is due more to higher revenue).
Last year is likely to have been the year of peak debt, with net debt at 18.6 per cent of GDP — similar to the 1996 peak — although gross debt is higher, and the highest in 47 years of budget results.
Does the 2017-18 budget outcome mean we can declare an end to the post-GFC budget ‘emergency’ (if there ever was one)? The answer almost certainly is ‘yes’, but it has taken too long to get here. Eight years have passed since the peak deficit, compared with the five years it took to reach a similar point in the 1990s episode and three or four years in the deficit episodes of the 1970s and 1980s.
The slow unwinding of the deficit in this episode has been due largely to spending remaining elevated. While spending as a share of GDP in 2017-18 was the equal lowest since 2007-08, it remained well above the pre-GFC level. Although tax revenue is still lower than before the GFC, it is lower by a smaller extent than spending is higher.
Not only have governments failed to pursue budget correction vigorously through expenditure savings, but there has also been a lot of spending on new programs such as the NDIS and childcare. It should also be said that when the Abbott government attempted to ramp up expenditure savings in the notorious 2014 budget, much of what they proposed was blocked in the Senate.
Looking ahead, although the budget is likely to improve further, we may have seen most of the improvement already. The new spending on programs such as the NDIS and Gonski school funding is largely ahead of us, and new pressures are likely to arise from sources such as aged care — now to be the subject of a royal commission. In the shorter term, fiscal discipline is at risk of being sacrificed to the political imperatives of vote buying.
Robert Carling is a Senior Fellow at the Centre for Independent Studies.
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