Hide The Recession: Labor’s Grand Deceit On GDP Figures Exposed

7 Mar

Picture this.

You are a new government, following nearly 12 long years in opposition.

You campaigned with the catchcry, “This reckless spending must stop”.

A global financial crisis has struck within 12 months of your taking office.

Your party’s last term in office presided over a “recession we had to have”, so your economic credentials are poor.

You desperately wish to avoid being seen to preside over a “technical recession”, especially in your first term.

You have embarked on a massive “stimulus” spending spree, drawing criticism from many.

You have blown the $20-odd billion surplus left to you by the previous government, and plunged the nation’s finances deep into the red.

Your government’s financial numbers are terrible.

You are obsessed with “managing” the media cycle, public perceptions, and the popularity polls.

What do you do?

In his post-career book Sideshow: Dumbing Down Democracy, key member of the “kitchen cabinet” or “Gang of Four”, former Finance Minister Lindsay Tanner, informed us that what he did was to become adept in the “dark arts”He employed the “standard tricks” – such as switching between different methods of accounting – in order to “maximise political appearances”.

But how do you cook the books to disguise your massive spendathon – and bury the truth of a technical recession – without the media catching you out?

And how do you cover your tracks, so that noone can ever say you lied?

Easy.

What you do is tell everyone about your change in accounting methods.

But you do it in such a way that no one hears you.

What you do is bury the notice of your change in accounting methods in the fine print of the Mid-Year Economic and Fiscal Outlook (MYEFO) budget update, released 2 November 2009. You do not mention any numbers that might reveal the actual impact of the change. And you include a reference to an obscure Appendix of “revised” historical data*, that you know journalists don’t ever bother to read, much less take the time to cross-reference against previously published budget figures.

In your Treasurer’s press release announcing the MYEFO, you do not mention the changed accounting method at all. Nor do you mention it in Parliament, or in interviews with the media.

Instead, you issue another Treasurer’s press release that, while still opaque and misleading, does admit (in one sentence) to just how much your changed accounting method has impacted on the critical budget number – the GDP figure.

But … you delay issuing that press release until 8 December 2009. Over a month after the MYEFO. Two weeks after Parliament has closed for the year. And, the same day (UTC) as the opening of the 2009 UN Climate Change Conference in Copenhagen, where the eyes of the world are focussed, where your party’s Prime Minister is playing a headline role … and where you have brought a massive Australian media delegation.

Voila!

You did not lie.

No one heard you publicly admit that you cooked the books to hide a recession. And you spend the rest of your days in office loudly and incessantly referring to your brilliant economic management … using figures always expressed in terms of “per cent of GDP”.

A GDP number that you made a “substantial increase” to, just by changing the method of accounting.

Hard to believe that our government is that crooked?

It is true.

They have admitted it.

You just have to follow the carefully hidden trail of evidence, to discover that admission. And the deceit used to hide it.

Two years ago on 3 March 2010, your humble blogger revealed that Labor’s much-heralded low debt-to-GDP ratio figure was a fraud (emphasis in original):

In the 2009-10 Mid-Year Economic and Fiscal Outlook (MYEFO), the government refers to a change in the methodology used to calculate GDP for the previous 2008-09 year, and for the historical data series.  This change results in a “substantial increase” in the published level of GDP.

The flow-on result from this change is obvious. The government’s spending, as a percentage of that artificially increased GDP figure, will appear lower than if the change had not been made.

And because all of its spending is being done using borrowed money, the debt-to-GDP figure will also appear lower too. Perfect cover for a government that needs to defend itself from Opposition attacks, and smooth over public fears, about rising government debt.

Two weeks later, I calculated the actual amount by which Labor had artificially increased the reported level of GDP (see Labor Fakes GDP By 4.5%):

In the fine print on the Rudd Government’s Budget 2009-10 MYEFO website, we learned that Rudd Labor made a change in the accounting method that was previously used to calculate Gross Domestic Product (GDP).  This change resulted in a “substantial increase” to the official GDP figures:

* The 2008-09 Annual National Accounts show a substantial increase in the level of GDP over history due to the ABS adopting the new System of National Accounts 2008. Given the degree of increase in the level of nominal GDP, the Government has released updated tables of fiscal aggregates contained within Appendix D of the 2009-10 MYEFO.

So just how much is that “substantial increase”?

4.5%. Or $47bn. In just one year.

Of course, we can easily perceive just why Rudd Labor would wish to do this.

By making “revisions” to the historical data – revisions that all very conveniently result in a “substantial increase” in reported GDP – their spending (as a percentage of GDP) looks lower.

Their annual spending growth (as a percentage of GDP) looks lower.

Their debt as a percentage of GDP looks lower.

And their Interest-on-debt as a percentage of GDP looks lower too.

Fast forward another two years, to this week.

In response to my mentioning the fudged GDP figure, fellow Macro Business reader Steven Shaw kindly drew my attention to Treasurer Wayne Swan’s press release No. 122.

While it is gratifying to see confirmation that my March 2010 reverse calculation of the “substantial increase” to the GDP figures was accurate, it is far more interesting to observe the date of the press release – 8 December 2009.

A press release date (in Australia) that happily coincided with the opening day of the Copenhagen Climate Change Conference:

The Annual National Accounts also show a substantial increase in the level of GDP over history due to the ABS adopting the new System of National Accounts 2008 standards.

The ABS has taken the decision to adopt these new standards to better capture new economic developments and to reflect revised international standards issued by the UN Statistical Commission.

The level of nominal GDP is now 4.4 per cent higher in 2007‑08 than published in the 2007-08 Annual National Accounts, bringing the size of the Australian economy to $1.25 trillion in 2008-09.

Given the degree of increase in the level of nominal GDP, the Government has released updated tables of fiscal aggregates contained within Appendix D of the 2009-10 MYEFO. These tables include receipts, revenue, net debt, payments and expenses as a proportion of nominal GDP and are available at: www.budget.gov.au. The adoption of the new standards only affects those Budget aggregates which are expressed as proportion of GDP.

Quelle surprise!

Have you ever noticed, dear reader, that this government always … always … boasts of its economic record by quoting figures expressed as a proportion of GDP?

How very, very convenient that “substantial increase” in nominal GDP has turned out to be.

No need to worry about two consecutive quarters of negative GDP (a “technical recession”) making your new government look like it has blown tens of billions of borrowed dollars on “rushed and bungled” “stimulus” for nothing.

Simply change accounting methods. Tack on an extra 4.4% of GDP “growth” out of thin air to the year’s “official” figures. And revise all the historical data as well.

And make sure you tell everyone … in such a way that no one hears you.

Mind you, dear reader, the reason for the change in accounting method was solely to “improve the accuracy and comparability of the data through time” (MYEFO excuse). And/or “to better capture new economic developments and to reflect revised international standards” (Treasurer’s belated-and-buried press release excuse).

Of course it was.

Nothing to see here. Move along now.

If a corporate executive engaged in these kinds of “dark arts”, these “standard tricks”, they would be prosecuted and jailed for fraud.

Our government is a pack of crooks.

If you accept any claimed government statistic at face value, you are a fool.

It is that simple.

* On Labor’s revising of historical budget data, reader “vk” summed it up best two years ago: “Any similarity with the book 1984 – where the Ministry of Truth kept revising old encyclopedias and newspapers in the libraries – is purely coincidental.”

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13 Responses to “Hide The Recession: Labor’s Grand Deceit On GDP Figures Exposed”

  1. The Old and Unimproved Dave March 7, 2012 at 4:37 am #

    Can we be sure that the Treasurer is responsible for his actions ?

    His recent “Descent Into Madness” meltdowns in the media have the look of someone setting themselves up to cop an insanity plea.

  2. Oliver K. Manuel March 7, 2012 at 5:11 am #

    Unfortunately government deceit is now rampant, at least in most governments of the former “Free West” nations.

    We must now find a way to condemn:

    a.) Deceit in Government Science, and
    b.) Elimination of the Rights of Citizens

    Without vilifying politicians and scientists who could find no better way to avoid the dangers of:

    1. Mutual Nuclear Annihilation;
    2. Pollution of the Environment;
    3. Overpopulation of the Earth; and
    4. Natural Aggressiveness in Humans

    Those noble goals were apparently behind decades of government deceit during my career (1960-present) that finally culminated in the release of Climategate emails and documents in November 2009.

    See: “Video Summary of Research Career”
    http://dl.dropbox.com/u/10640850/Summary_of_Career.pdf

    And: “House Resolution (H.R.) 347”
    http://www.gpo.gov/fdsys/pkg/BILLS-112hr347enr/pdf/BILLS-112hr347enr.pdf

    http://www.dailykos.com/story/2012/03/06/1071613/-What-s-up-with-HR-347-?via=siderecent

    With kind regards,
    Oliver K. Manuel
    Formed NASA Principal
    Investigator for Apollo

  3. Tomorrows Serf March 7, 2012 at 6:56 am #

    Is there anything the UN DOESN’T have a Commission on? (A statistics commission??)

    And talking about bodgy statistics, here are some “un-tricked-up” figures from the real world…

    NSW Land Tax:(for one specific individual) UP 17.3%, Council Rates: UP 12.1%, Housing Insurance: UP 8.6%, and horror-of-horrors, my football rego fees:UP 10.71% .

    3.1% CPI- my arse!! And WE pay these dorks (ABBS-Aust.Bureau of BS) to lie to us!!

  4. Betty Whiffin March 7, 2012 at 9:29 am #

    Don’t speak to the media or talk about this fraud. You will be taken to Court for speaking the truth. For goodness sake, wake up Australians. It is getting too late – the government must get out soon for the sake of the future of Australia and Australians. Surely there are some ALP members who can see through this fraud but perhaps they are too stupid or haven’t the guts to get up and go.

  5. Richo March 7, 2012 at 10:23 am #

    Since it states in MYEFO it was ABS who adopted the new System of National Accounts I have to ask, how much control does the Government have over ABS methodology?

    • The Blissful Ignoramus March 7, 2012 at 10:39 am #

      The head of the ABS, the “Australian Statistician”, is a public servant with the status of “Permanent Head”, and is directly answerable to … surprise surprise, the Treasurer. Draw your own conclusions.

      http://www.abs.gov.au/websitedbs/d3310114.nsf/51c9a3d36edfd0dfca256acb00118404/f24771a747e805e9ca256c86007cc61b!OpenDocument

    • lachlan March 7, 2012 at 4:52 pm #

      The information paper written in september 2007 by the ABS, actually shows where there have been manipulations by the government in how the GDP figures are different.
      This also shows where the 4.15% increase in the 2007-8 GDP current prices actually came from: R&D investment (about 1.5%) and captial used by non profits (2-3%).

      http://www.abs.gov.au/ausstats/abs@.nsf/mf/5310.0.55.001
      So that shows that there was influence by the government, but that wouldn’t have a material impact on growth rates.

      • The Blissful Ignoramus March 7, 2012 at 7:16 pm #

        I remain unconvinced Lachlan.

        The paper referenced does not assist in explaining why the government failed to draw public attention to the changes at the time of the release of MYEFO, instead preferring to mention a “substantial increase” to GDP only in the fine print of MYEFO. It cannot explain why the government chose not to detail the actual magnitude of the change in the MYEFO, but rather in a single sentence in a press release one month after the MYEFO, and buried in the news frenzy on the opening day of the Copenhagen Conference. Nor can it explain why that (belated and buried) press release concedes the actual magnitude of the change for one year only (2007-08) … the magnitude of the adjustment for the critical (viz possible “technical recession”) 2008-09 year is not given.

        Even if one were to cautiously accept the paper’s position, that a base level adjustment/increase in GDP (ie, across the entire historical series) will not materially affect growth rates (ie, quarter on quarter), it is important to note that we are not informed in the Treasurer’s press release (or elsewhere?) that the amount of increase has been uniformly applied across all years. If a revision of (eg) 3% is made to one year, and a 4% adjustment made to the subsequent year, then the net effect of the two non-uniform adjustments will be to show an artificial increase in YoY GDP growth in the second year versus the first.

        According to my calculations, which yielded a 4.49% result for 2006-07 (the last year that I could cross-reference to previously published budget figures under the “old” system), it appears that the adjustment to GDP was not applied uniformly across all years, as the chart I posted at the time indicates:

        By my calculations the government adjusted historical GDP upwards by (eg) 2.75% for 2001-02, 3.52% for 2002-03, 2.89% for 2003-04, 2.56% for 2004-05, 3.46% for 2005-06, and 4.49% for 2006-07.

        The fact that we are only informed (belatedly, on a huge international news day) of the magnitude of the change for one year (2007-08), and not for 2008-09, must prompt the question of whether the (unknown, unstated) amount of “adjustment” for 2008-09 may have continued the rising trend indicated by the adjustments to the immediately preceding years 2004-07.

        Finally, it’s worth noting that while this paper gives us some very approximate indications of what the ABS intended to do back in September 2007, it does not help us to know what they actually did do regarding the magnitude of the impact on the GDP number for the key year of 2008-09, in which, if we believe the government, we narrowly escaped a “technical recession” due to their “decisive” stimulus.

        • lachlan March 7, 2012 at 8:06 pm #

          Well if you want to check the before and after revision GDP figures correctly, go to the original source documents.
          The system of national accounts at the ABS has the complete range of figures.
          the 2008/09 figures are at
          http://www.abs.gov.au/AUSSTATS/abs@.nsf/allprimarymainfeatures/5D5846E18D54CB5CCA2577CA0013978C?opendocument
          and the 2007/08 figures are at
          http://www.abs.gov.au/AUSSTATS/abs@.nsf/allprimarymainfeatures/B980DDC305434401CA25768500158258?opendocument
          You can find spreadsheets with the complete GDP figures under downloads. Table one is good becuase it has the complete range of GDP figures. If you just compare the numbers you can see how the change has happened.
          This information has been in the ABS website the whole time, just waiting for you to find the Implementation of new international statistical standards in ABS National and International Accounts, September 2009
          http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/5310.0.55.002Main%20Features5September%202009?opendocument&tabname=Summary&prodno=5310.0.55.002&issue=September%202009&num=&view=
          Try chapter 3, where there are nice tables with the exact
          I don’t know what you were doing on the 28th of October 2009 but the ABS website had this information avialable right then, when it was relevant, when the actual changes were made and when the media would have actually looked at the GDP figures.

          Hoepfully you will actually look for the information in the future before you claim that it was hidden.

          • The Blissful Ignoramus March 7, 2012 at 9:40 pm #

            Thank you Lachlan. A few points in response –

            >>“The system of national accounts at the ABS has the complete range of figures.
            the 2008/09 figures are at..”

            As noted at the link you’ve provided, this data was prepared per the new system, and thus (on brief scan) appears to be of little help in determining what the reported GDP for 2008-09 would have been if prepared under the previous system of accounting. However, I will certainly look into this data in more detail when time permits, to determine if there is anything contained by which to identify the specific quantum of GDP in 2008-09 that is solely attributable to the changed system of accounting.

            >>“This information has been in the ABS website the whole time, just waiting for you to find the Implementation of new international statistical standards in ABS National and International Accounts, September 2009… I don’t know what you were doing on the 28th of October 2009 but the ABS website had this information avialable right then, when it was relevant, when the actual changes were made and when the media would have actually looked at the GDP figures.”

            I very strongly doubt that the media would have been looking at an obscure ABS Information Paper on Implementation of new international statistical standards in ABS National and International Accounts at all, much less in October, given their attention would naturally be on the Treasurer’s coming MYEFO release and related speeches/interviews in November. The fact that the sole mention of the changed accounting methods resulting in a “substantial increase” to GDP (but nil quantifying details) and reference to revisions to the historical series, was buried in the MYEFO fine print, further suggests that it is highly unlikely that many if any journalists would notice it at all, much less think there was any obvious or compelling reason to question what might be the actual quantum of the change, and refer back to the ABS archives for more information.

            >>“Try chapter 3, where there are nice tables with the exact”

            The linked Information paper and the Table 3 you refer to, is of no value in clarifying the magnitude of the actual changes made to GDP. Indeed, it carries the following clear warning at the top (my emphasis added):

            Warning: The estimates in this publication are indicative. They are presented to give an indication of the magnitude of the impacts of proposed change to Australia’s macro-economic accounts. All estimates are subject to refinement and revision in the compilation of the annual Australian System of National Accounts to be published on 8 December 2009 and in the quarterly Australian National Accounts to be published on 16 December 2009.

            Your failure to observe and mention this, along with your continued failure to make any attempt to account for the questionable actions of the Treasurer in his (lack of) clear and upfront communication of the changes in accounting methodology, and especially of the actual quantum of their impact (why reference only the 4.4% adjustment for 2007-08 in his buried press release of 8 December 2009, when the all-important 2008-09 figure was also known by then?), causes me to question your motivations and sincerity in your comments to this post.

            I have made my position, references and calculations clear, and available to all for cross-reference and refutation for some 2 years now. If you believe I am wrong, and that the government has not done anything untoward in order to “narrowly escape” a “technical recession” in 2008-09, then you are welcome to prove it. Thus far, it remains my view that you have failed to do so

          • Lachlan Wallace March 7, 2012 at 9:44 pm #

            So now you’ve had a chance to look through the actual ABS reports, you should pay attention to the published dates. Notably, the 2008/09 system of national accounts was released on the 8th of December, the EXACT date of Wayne Swan’s press release 221 you linked to in your article.
            That this would have publicized the change to the press, as well as prompting a release of a revised figures from MYEFO historical debt to GDP ratio, (while keeping the original figures around for completeness sake.) If the figures weren’t updated you would have blamed Wayne for “hiding the true GDP figures”
            Anyway, which is a more likely explanation? That the ABS released the updated anual GDP as scheduled on 8/12/10 and Wayne Swan desperately released a press release to distract from the Wikileaks saga, or Wayne Swan leaked the US diplomatic cables just in time to cover a large and complicated change in statistical standards? Frankly, I want to believe that Wayne Swan is really Julian Assange with a face mask because that would be awesome, but it’s likely not the real answer.

            Also, what other way of making a meaningful comparison of government finances over time and between countries, if not by comparison to the size of the economy as measured by GDP?
            For example, New Zealand had about 60Billion NZD in debt at 30/6/11, while Australia had about $85 Billion AUD in net debt then. Just comparing dollar amounts, New Zealand seems to have less of a debt problem than Australia. But if you compare the ratio to GDP, New Zealand ratio to GDP is over 30% compared to 6% in Australia. So how would you avoid this sort of confusion happening?

            • The Blissful Ignoramus March 7, 2012 at 10:03 pm #

              It appears that you have typed this (9:44pm) while not being aware of my own response just posted (9:40pm) to your previous comments. I leave it to you if you wish to respond further.

              I have no substantive comments to make in response to this, Lachlan. It is my view that the evidence (incl. timing, choice of information included/not included in Treasurer’s press release/s, etc) all speaks for itself, as outlined in the article and earlier articles from 2 years ago. The only additional observation I would make is that the Information paper dated 28 October 2009 that you referred to previously, advises that the Australian System of National Accounts (new system) with final figures would be released a little over a month later, on December 8 – note well that the period where there was a risk of the economic numbers going into “technical recession” was way back in the Dec 2008 – Mar 2009 quarters. The government knew years in advance the dates of the Copenhagen Conference. If we take Lindsay Tanner at his (post-career memoir) word regarding having engaged in “dark arts”, including “switching between methods of accounting” in order “to maximise political appearances”, then IMHO it is entirely plausible that back in the GFC peak period, the government/”Gang of Four” chose to instruct the ABS (the head statistician is a public servant directly answerable to the Treasurer) to ensure that adjustments to GDP under the new system of accounting were sufficient to avoid a second negative quarter of GDP in March 2009, knowing full well they could bury the evidence in fine print, and in happily-timed, vague and misleading press releases.

              EDIT: I see now that you have graced us with your presence previously, Lachlan. You have form. Unless you are prepared to present careful, thorough (ie, read the papers you link to with care first, before quoting them as supposed support for your position), and substantive arguments against the position and evidences I have put forward, your future comments will be rejected. I’m sorry …I do not have time nor inclination for refuting your habit of presenting numerous misdirections and errors, nor for following every link you provide only to discover you haven’t checked it thoroughly yourself, much less bothered yourself to read through and locate specific evidence within the datasets you link to that actually proves my position incorrect.

              EDIT2: By way of example of your penchant for (careless?) errors that waste others (my) time in addressing, I note in your comments at 9:44pm re ABS updated annual GDP, that you have now given the date as 8/12/10. Wrong. You then immediately go on to discuss “the Wikileaks saga”, “leaked US diplomatic cables”, etc. This actually occurred in February 2010 … well after the early December 2009 COP15 Copenhagen Conference. I can only guess that you are confusing the Wikileaks diplomatic cables release, with the “ClimateGate” release of emails from the CRU/UEA which began in November 2009, prior to the Copenhagen Conference. As per above, Lachlan, you have form here; if you are unwilling to carefully check your facts before posting, I will reject your future comments.

  6. Oliver K. Manuel March 7, 2012 at 10:40 am #

    The United Nations was formed on 24 Oct 1945 out of fear of the “nuclear fire” that vaporization of Hiroshima on 6 Aug 1945.

    http://www.spiegel.de/international/spiegel/0,1518,368205,00.html

    Fear of man-made “nuclear fire” convinced world leaders and leaders of scientific community to ignore, obscure or avoid revealing any finding that would lead to the discovery of the trigger – neutron repulsion [1].

    My research mentor, the late Professor Paul K. Kuroda, was Dr. Kazuo Kuroda of the Imperial University of Japan during WWII. The US military relocated Dr. Kuroda to the United States after WWII.

    http://www.omatumr.com/abstracts2005/PKKAutobiography.pdf

    His effort to report in 1956 that a “nuclear fire” had occurred spontaneously on Earth was almost, but not quite successfully, blocked from publication [2-4].

    Government deception culminated in Climategate emails and documents that became public in Nov 2009.

    During this period (1956-2009), a CSPAN video recording accidently caught “one candid glimpse” of government science at work on 7 Jan 1998:

    Unless we can convince frightened world leaders that candid information is the only way to avoid the dangers:

    A. Global Climate Change;
    B. Mutual Nuclear Annihilation;
    C. Pollution of the Environment;
    D. Overpopulation of the Earth; and
    E. Natural Aggressiveness in Humans,

    They may next resort to the use of new technology like this:

    http://www.myfoxorlando.com/dpp/news/scitech/science/030212-japan-invents-speech-jamming-gun-that-silences-people-mid-sentence

    Moral: Power corrupted, but those who misused power are now living in fear.

    1. O. K. Manuel, The APEIRON Journal, in press (2012)
    __ http://arxiv.org/ftp/arxiv/papers/1102/1102.1499.pdf

    2. P. K. Kuroda, J. Chem. Phys. 25, 781 and 1295 (1956)

    3. P. K. Kuroda, Naturwissenschaften 70, 536-539 (1983)
    __ http://www.springerlink.com/content/n556224311414604/

    4. P. K. Kuroda, “Origin of the Chemical Elements and the Oklo Phenomenon” (1982)
    http://www.amazon.com/Origin-Chemical-Elements-Oklo-Phenomenon/dp/3540116796

    Oliver K. Manuel

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