Wayne Swan’s Booker Prize Budget

There’s been a lot of talk about last week’s budget.  Was it a Robin Hood budget, taking from the rich and giving to the poor?

Was it a surplus budget, showing a new determination by Wayne Swan to keep the finances under control?

Was it a genuine Labor budget showcasing traditional Labor values?

Joe Hockey called it a confused budget with no particular economic theme.

I would call it a Booker Prize Budget.  The Booker Prize is the famous British Prize awarded each year for the best work of contemporary fiction. 

I reckon Wayne Swan’s budget would be a serious contender.

Any business person would regard this budget as a joke.

Its centrepiece is the promised surplus of $1.5 billion.

But this number really means nothing without some context.  If total revenue is $10 billion, then a surplus of $1.5 billion is pretty impressive; in business terms you would say it is a profit margin of 15 per cent.

However Wayne Swan’s surplus of $1.5 billion is struck on planned revenues of almost $369 billion.  So it’s a wafer thin profit margin – of just four tenths of one per cent.

In business, when you are considering how realistic a budget is, the first thing you do is look at how it compares to what the business achieved last year.

Wayne Swan is telling us that in 2012-13 the Australian government is going to have revenues of $369 billion and expenditure of $364 billion.  (The revenues include Future Fund earnings of $3 billion and this is stripped out before arriving at the surplus number of $1.5 billion.)

How does this compare to last year?  Revenue last year (2011-12) was $330 billion – so Wayne is assuming revenue will jump by $39 billion in one year. 

This looks very optimistic.  If we take the three previous years, the revenue jumps were -$8 billion, $17 billion and $28 billion.  That is, in the first year revenue actually fell, rather than jumping; in the next two years the jumps were considerably less than Wayne is assuming this year.

On the expenditure side, Wayne’s budget is even harder to believe.  He is promising that spending in 2012-13 will be $7 billion less than last year’s figure of $371 billion.  But in the previous three years, spending jumped each year, by $21 billion, $9 billion and $25 billion. 

How likely is it that Wayne’s good intentions will be achieved, and spending will be turned around as he predicts?

Well another thing you do in business, when you are looking at the likelihood that a management team will meet a budget, is look at its track record with previous budgets.  If they promised a number last year, and that was what they delivered, you are much more likely to believe their promises this year.

Wayne’s track record of delivering on his promises is hopeless.

In May 2011, Wayne stood up on budget night and told us that in 2011-12 the Commonwealth of Australia would record a budget deficit of $12 billion.

On the latest forecast – revealed by the government in this year’s budget papers – the deficit for 2011-12 is now expected to come in at $44 billion.

To believe that the Gillard Government are going to deliver the numbers in their 2012-13 budget, you have to believe they are going to change their behaviour completely.

After years of profligate spending, they will now achieve a reduction in total spending.

At the same time, they will enjoy extraordinary good fortune – a revenue jump of a magnitude never seen before.

As a work of fiction, it’s not a bad read.

As a budget – you’d be a mug if you believed it.