Embarrassment of unexpected riches points to deficit of ideas
'There has been a suggestion that the full-year figure may turn positive but ... it is too early to draw any conclusion.'
'There has been a suggestion that water is wet but ... it is too early to draw any conclusion.'
AND I THINK a touch of mockery is the right way to deal with officialdom's disinclination to tell us that our fiscal balance has come back into surplus within nine months of an official forecast that this would take five years to achieve.
What we had from our government to prompt the uncertain hand-wringing comment above was an announcement that the budget deficit for the first eight months of the fiscal year (it ends in March) was $3 billion.
There was a sleight of hand trick here as the actual figure up to November was $29 billion, but no matter.
The crucial point is that looking at the fiscal balance on a year to date basis is the wrong way of looking at it and the first chart tells you why. The red bars represent a five-year average of government revenue each month as a percentage of the total for the fiscal year. It should immediately be obvious that the bulk of the revenue comes in towards the end of the year.
In fact, the eight months to November account for less than half the average year's total. It is the four months from December to March that really matter.
But expenditure, represented by the blue bars, is much more consistent throughout the year and the natural result, of course, is that our government's fiscal accounts are almost always in deficit for the first eight months of the year, with a return back to balance or surplus in the last four months.
Thus to report the figures on a year to date basis, as the government does, is always to distort the true state of the fiscal balance, particularly at this time of the year. It presents a false picture and is thus a worse than meaningless way to do things.
The much better way to do it is to report the figures in the form of a moving 12-month running total. This way you get a full year representation of what is happening and the seasonal distortion in revenues is eliminated.
And this is what I have done in the second chart. It shows you that in the 12 months to November the fiscal balance actually moved back into surplus to the tune of $6.3 billion and the trend is firmly up.
It is also likely to remain so. The tax receipts now coming in are almost certain to be better than last year's and it is entirely possible that the surplus for the full fiscal year will be in the region of $20 billion.
In fact, the economic recovery we are now enjoying has propelled fiscal revenues so strongly that in the 12 months to November they were up 42 per cent over the previous year, while cost-cutting measures have restrained expenditure growth over those 12 months to less than 1 per cent.
All this, by the way, is also after eliminating the sleight of hand dodge that our bureaucrats used to boost the revenue figures. They included the $6 billion proceeds from a Toll Revenue Bond in May and the $20 billion from a general bond issue in July.
Ask yourself, would you treat the proceeds from selling some shares you own as regular monthly income? Of course you would not. Our bureaucrats effectively did this, however. I have therefore taken that $26 billion in revenue out of my calculations of the fiscal balance in the second chart.
I grant you that the real picture may not be quite as straightforward as this. Our government has developed a habit of making its payments with grants of land rather than with cash and of not treating this as expenditure in its accounts.
Ask yourself a question again. If you sold your home and bought a car with some of the money, would you say you got that car for free? The real fiscal expenditure figure is higher but I cannot put a number to it.
These calculations are also done on a cash basis only and our bureaucrats are now moving to a more comprehensive accruals basis, although this is likely to show an even bigger surplus for the year.
But they are still the figures as our bureaucrats report them and the point is that they present them the wrong way. We are back in fiscal surplus, long before we thought we would be, and this has profound implications for revenue-raising measures in the future. We ought to be addressing them.