Monday, 5 March 2012

Mr Hockey's Black Hole From a Different Perspective

Over the course of two interviews today – one with Sky and the other at the ABC’s 730 - Shadow Treasurer Joe Hockey has set the framework for cuts in spending under a Coalition government.

As per my earlier post on Mr Hockey’s guarantee to have a lower tax to GDP ratio than Labor  (a point he reiterated on 730), Mr Hockey has also promised to deliver Budget surpluses.

Fair enough.

But let’s have a look at the task he has set for a Coalition Government in terms of cuts in spending.  With one side of the equation set in concrete (the tax to GDP ratio), there are some great big cuts in spending that must be found if the Coalition is to deliver surpluses of the same size as those projected by the Government in the MYEFO with the tax to GDP ratio no higher.

The table below sets out a few easy to read points for the Budget figuring.

Hockey Revenue* assuming tax to GDP at 21.2%
MYEFO estimate of government spending
MYEFO surplus estimate
Cuts in spending needed to break even

* Revenue is tax plus non-tax receipts as estimated in MYEFO.

Over the 3 years, the cuts that need to be found to meet the Hockey Guarantee are $61,865 million.  My guess is that when we see the forward estimates out to 2015-16, there will be another $25 billion of so, making the total cuts in Hockey Guarantee a $85 billion problem.

Use these numbers carefully:

This is but a snapshot of the issues confronting Mr Hockey and his spending cuts.  There are additional accounting complications about where to account for the rescinding of the carbon and mining taxes and the compensation and linked spending.  These are far too complex for a quick blog, but I think you get the picture.

Either the cuts wont be delivered; or Mr Hockey is not telling the truth about tax and the tax take will be higher (more likely given the history of the Coalition as the biggest taxing side of politics in Australia’s history) or most worrying, the cuts in spending will be very deep in areas yet to be identified.


Estimates of nominal GDP implied from MYEFO documents:

2012-13   $1.566 trillion
2013-14   $1.647 trillion
2014-15   $1.735 trillion


  1. The preferred answer is that Hockey has no idea what he is talking about and, when it comes to economics, never has.
    He does, however, like a tasty-sounding soundbite. There more fun and far less work.

  2. Presumably his argument is that by not having a carbon tax and a MRRT, they will therefore tax less.

  3. australiana, are you implying that swann actually does have an idea when it comes to the economy?

  4. Dan, that 'world's best finance minister' award suggests he does.

  5. "If they keep borrowing like drunken sailors - if they keep borrowing every three weeks more than the mining tax will deliver every four years - then the whole country has got a problem."

    This sounds like another soundbite moment from Andrew Robb today?