Tag Archives: MYEFO

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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Barnaby’s Budget Reply

1 Dec

I’ve been eagerly awaiting this.

Senator Joyce’s response to Wayne’s budget update.

Yes, he’s been busy with the Murray-Darling Basin Plan. But we just knew it wouldn’t take long for Australia’s prophet on debt risk to speak outside his portfolio again … as pledged.

From the Canberra Times (emphasis added):

Swan drowns in a sea of debt

In GK Chesterton’s Father Brown novels the world renowned criminal Flambeau makes a name for himself by forming a successful London dairy company even though he owns no cows, no carts and no milk. Instead, he served his customers by moving the milk bottles outside people’s homes to the homes of his customers.

All very similar to Wayne Swan’s crisis budget. Moving money from his year of surplus to his years of non-surplus years before and after. No cows, no milk, no focus on increased production just a bunch of very tricky, very sneaky accounting tricks. Remember their surplus does not pay off the extra $15 billion they will now borrow this year.

A crisis budget from a crisis government who reflect the sobriety of the situation with the appointment of a new Speaker for the House of Representatives. Greeting the Queen or President at the next official soiree will be; Peter Neil Slipper. Yes all is under control on the Good Green Ship Labor.

There is no better recent portrayal of their exemplary management skills than the announcement of “regional experts” to help the 2.1 million people of the Murray-Darling “adapt” to the challenges of the precision hydrology skills so evidently amorphous in the draft Murray-Darling Basin Plan. I have always thought floor 30, Martin Place, Sydney is precisely the place to be to help those at the south-west NSW town of Griffith who have failed to better appreciate the Green-Labor-Independent government’s empathy and earnest desire to maintain our major food producing asset.

I love the way Labor rise to the challenge. If they are not cooling houses before setting fire to 194 of them, they are cooling the whole planet with a carbon tax and now they are redesigning how we feed ourselves with the glossy wonder of the latest draft Plan for the Murray-Darling Basin.

Canberra you are the canary in the coal mine on Australian Government debt. With debt rising by $2.1 billion, again, last week to $219 billion gross, the crossword puzzle at the bottom of this enclosure is moving into depressing focus as we hold on by our talons to the inverse view of this mad bird cage.

Surprise, surprise then the government has announced further cuts to the public service. Does the $2.5 billion spent on ceiling insulation look smart now? What about $16 billion on school halls? Now’s the perfect time to spend $50 billion on a second telephone network.

Now Wayne Swan predicts that the gross debt will race over our current debt ceiling of $250 billion by the end of this financial year* and over $270 billion by the end of the forward estimates. It looks like that unless we extend the overdraft again next year our nation will get the notice at the checkout “transaction declined, see bank for details.”

Why is it that after years of warning about a lack of cost management we now have to believe that those that are so witless as not to see it coming are competent enough to manage us through it. I publicly offered a bet in 2009 for a thousand dollars, which Mr Swan never took, that Labor would never deliver their predicted surplus. An organisation that delivers week in, week out rolling deficits covered with accelerated borrowing is not going to deliver an annualised surplus. No change in behaviour, no change in outcome.

They told us to throw the scales out the window, it is your net weight that matters and your gross weight is only going up because each week you are wearing an additional two kilograms of clothes, apparently. Oh, it is all so clear now, depressingly so.

The bleeding obvious from years ago has now mugged our inept government and Canberra, the cuts I predicted have now crystallised in their initial stage in Wong and Swan’s announcement. It will get worse.

Yes I have a palpable sense of frustration that not only did the government not react earlier when the remedy would be a less bitter pill, but others, the economic commentariat of the fourth estate, did not forensically question the Government’s rhetoric that we had no issues.

Does the crisis budget deal with the crisis? Nope. Carbon Taxes, NBNs and now shutting down sections of the Murray-Darling, there is no stomach in this management for the hard decisions. The golden rule is invest where you make money and cut where it costs you, prioritise and know your threats and be pragmatic not romantic in your long term plan.

Barnaby is right.

* And so was I … see Nov 2 post “Australia On Target To Hit Debt Ceiling By Mid-2012”

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Is THIS The “Trend” Growth You Are Banking On, Wayne?

1 Dec

Isn’t it wonderful how inveterate liars and deceivers eventually get caught out?

From the Australian:

The Treasurer today declared the government was banking on growth remaining at trend to deliver its wafer-thin budget surplus in 2012-13, despite the threat posed by worsening economic circumstances in Europe and the United States.

Here is the newly-revised MYEFO budget “forecast” for GDP growth that Wayne is “banking on”:

MYEFO 2011-12, Part 1 Overview | Click to enlarge

Er … 3.25% annual GDP growth?

I have one chart for you Wayne.

From the RBA’s latest chart pack (trend line added):

Click to enlarge

So … Wayne.

“Trend growth” for Australia over at least the past 18 years (since 1993), has been slowly but steadily sinking towards 2%.

And yet, you really expect us to believe that we will witness way above-trend 3.25% growth both this financial year, and next? In spite of all the increasing turmoil and volatility in a debt-saturated world right now?

Mr Swan said revised budget forecasts outlined yesterday were based on the “best judgment” of Treasury.

Having confidence in Treasury’s “best judgment”, is akin to having confidence in the “best judgment” of the band playing “In the Shadows” as the Titanic slowly sank beneath the waves.

Rather like Australia’s GDP “trend growth” slowly but surely sinking beneath the waves of a debt-soaked world economy.

And to think this government is introducing a world’s-highest carbon dioxide derivatives trading scheme scam from July next year.

Based on more modelling tea-leaf reading by the same Treasury “bozos” who originally predicted 4% GDP growth back in May.

The same “bozos” who could not foresee an onrushing GFC that even Blind Freddy could see (“Why Would Any Sane Person Believe Treasury’s Carbon Tax Modelling When Its Budget Forecasting Record Is This Bad?”).

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ABC’s Alan Kohler Mauls Wayne’s MYEFO

30 Nov

In my opinion, ABCTV News ‘Finance’ and ‘Inside Business’ presenter, and Editor-in-Chief of Business Spectator Alan Kohler has increasingly shone as a rare beacon of (usually subtly hinted) truth in the mainstream economic commentariat over recent months. His excellent, pull-no-punches article today is very well worth reading. As Business Spectator viewing requires (free) registration, it is reproduced below in full. Suggest registering for his articles alone, and do follow @AlanKohler on Twitter.

Read on, dear reader (my emphasis added):

Wake up and smell a budget stinker

As everyone in business knows, a forecast is just a forecast. In times like these, it’s not even that; it’s a guess that you hope won’t look too stupid.

The World’s Best Treasurer has had to redo his budget because the one he did six months ago has turned out to be wrong. We told him at the time it would be, and so it was, but the new one looks worse – a shocker.

The forecast for GDP growth this financial year has been cut from 4 to 3.25 per cent, or by 19 per cent; the revenue forecast has been reduced by just 1.7 per cent.

Economic growth for 2012-13, about which nobody has the faintest clue, has been reduced by 13 per cent to 3.25 per cent. Revenue for that year has been trimmed by only 1 per cent.

Total tax receipts in 2010-11 were $280.8 billion (that’s the actual outcome, not a forecast).

In the current financial year receipts are forecast to be $315.3 billion – a rise of $34.5 billion, or 12.3 per cent. In 2012-13 they are now forecast to be $374.5 billion – $93.7 billion greater than the outcome for 2010-11, which is an increase of exactly a third.

Do these forecasts pass the smell test, Mr Chairman? No way Swanny, go back and try again.

In fact, what would happen if revenues for some reason turned to be flat for a couple of years? What would that do to our bottom line in 2013? Er, well, if that happened the 2012-13 deficit would be, um, $50 billion.

OK, how about this Wayne… given we’re facing the most uncertain economic outlook in our lifetime, with the prospect of a severe recession in Europe, possibly one in the US and a slowdown in China, and the probability of much lower commodity prices, the board will allow you to forecast revenue growth of no more than 5 per cent a year for the next two years. That would seem prudent, wouldn’t you say?

Now, as you know Wayne, we do need to run this business at a surplus in 2012-13 because we are facing a takeover from those bastards at Abbott & Co, so what would we have to do with expenses between now and then to report a surplus in 2012-13 under that scenario?

Well, um, that would mean revenue in 2012-13 of $308.7 billion. Actual expenses were $346.1 billion in 2010-11, so that’s a spending cut of $37.4 billion over two years, Mr Chairman. Right Wayne – the board thinks you should implement that.

That just illustrates the political importance of having implausible revenue forecasts that no one can disprove: $37.4 billion is a lot of welfare programs and/or a lot of public servants. Shadow Treasurer Joe Hockey says the Labor government has hired an additional 20,000 staff since 2007; sacking them all would only save less than $2 billion in salary and on-costs.

Will government revenues grow by 10 per cent between 2010-11 and 2012-13 or by 33 per cent, as forecast in yesterday’s MYEFO? Absolutely no one knows, least of all the bozos running Treasury’s macroeconomic models downstairs in Langton Crescent. But does 33 per cent revenue growth feel right, given everything we know about the world at the moment? Nah, it feels ridiculous.

But the wonderful thing about politics, as opposed to business, is that your board consists of executives who want spending cuts even less than you do, and you get to have a press conference at which you announce forecasts and guesses as if they have happened already. No wonder the world is a mess.

Bravo Mr Kohler!

Bravo!!

Now, please note that the above recommendation is not to say that I agree with everything Mr Kohler says. On the contrary, I still find him guilty of occasionally (and hopefully, inadvertently) perpetuating many of the various myths and falsehoods underpinning our Great Australian Housing Bubble, as just one major point of difference.  However, I have been sufficiently impressed with Mr Kohler’s subtle (and sometimes not so subtle) hinting at the truth about both the Australian and more particularly the global financial situation over recent months, that I am happy to give a firm-yet-guarded recommendation.

Given that Mr Kohler is not only “mainstream”, but also a presenter on Their ABC, that is high praise indeed.

(h/t Twitter follower @kawunnee for bringing this article to our attention)

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Missing The Key Economic Point, For Dummies

30 Nov

It is rather bemusing to browse around the economic commentaries on Wayne’s MYEFO (Mid Year Economic and Fiscal Outlook) announced yesterday. In particular, the commentaries from those with a leftist bent.

By and large, from these folk we hear the same refrain as that parrotted on down the line from Treasury via their talking head (Wayne Swan). To wit, “strongest economy in the developed world”, “envy of the developed world”, “lower debt-to-GDP than other advanced economies”, “nothing to see here, move along folks”.

Here’s some good examples that caught my eye:

Secondly, let’s tackle the Opposition canard – gleefully recycled by some media outlets – that somehow we are drowning in debt. It doesn’t take much – like five minutes on the Internet – to show that total government liabilities at around around 22 per cent of GDP are the lowest in the OECD and compare extremely favourably to just about every other developed economy.

It appears rather obvious from The Failed Estate’s analysis, that he did indeed spend “like 5 minutes on the internet” researching his momentous piece of groupthink.

And then there was New Matilda’s Ben Eltham. See if you can spot the drive-a-truck-through-it hole in his effusion (hint, emphasis added):

Step back from all the sound and fury about budget surpluses and the European debt crisis for a moment, and have an unbiased look at the latest Treasury figures on the health of Australia’s economy.

Unemployment is expected to peak at 5.5 per cent next year, and remain at the level into 2013. Inflation will be 3.25 per cent. Wages will grow at 4 per cent. Consumer spending will grow at 3 per cent, and the economy as a whole at 3.25 per cent.

These are figures that would make finance ministers in Europe weep. The Australian economy is growing. We’re adding jobs and keeping unemployment low, consumers are still spending, and inflation is modest. And yes, the budget will return to surplus.

Note to Mr Eltham: These are “estimates” and “projections”. Not outcomes. “Expected” does not equal “will”.

Indeed, as regular readers know, both the budget and MYEFO are all about “estimates” and “projections”.  And the Treasury department has a sterling record of abject failure when it comes to getting within a bulls roar of accurately predicting the final budget outcomes. Indeed, in less than 6 months, their “truly extraordinary” growth forecasts underpinning the May 2011 budget “estimates” and “projections”, are already shot to hell.

But our purpose today, dear reader, is not to dissect the ignorant parrotry of “leftist” journalists and bloggers.

Or “rightists”, for that matter.

Our purpose is to identify the key economic point that they are all missing.

One that even respected mainstream economic commentators like Access Economics’ Chris Richardson, here implying that it may not be wise for the government to be cutting spending at this time, have universally overlooked:

Deloitte Access Economics director Chris Richardson said the government planned to cut spending when the Reserve Bank of Australia (RBA) had cut its cash rate in early November.

The RBA cut the cash rate from 4.75 per cent to 4.5 per cent to provide some stimulus for a slowing economy.

“What the government is doing here is actually taking money back out again solely to get a surplus next year,” Mr Richardson told ABC Radio on Tuesday.

“It is not clear that it is smart to have the Reserve Bank tipping money but the government then taking it back out when the outlook especially with Europe is somewhat fraught.”

Let’s help out Messr’s Denmore, Eltham, and Richardson, with a brief guide on how to miss the key economic point.

For dummies:

1. Focus on the Federal government public debt figure.

2. Emphasise comparison of Federal government public debt-to-GDP versus other “developed” countries, praise Labor government for comparatively “low debt-to-GDP”.

3. Downplay importance of return to balanced annual budget / budget surplus. Cite 2. as primary justification.

4. Belittle any who express concern over ever rising government debt trajectory. Cite 2. as primary justification.

Commonwealth Government Securities On Issue | Source: Australian Office of Financial Management (AOFM)

5. Ignore the fact that while Federal Government public debt is “only” relatively small, our total Net Foreign Debt at June 2011 was almost $675 Billion, or over 50% of GDP (RBA Statistics, H5).

6. Ignore the fact that our banking system (thus, economy) relies on international money markets for some 40% of its “wholesale funding”.

7. Ignore the fact that in May 2011, Moody’s downgraded our Big Four banks’ credit ratings, cited their wholesale funding dependence as a key concern, and tacitly threatened the government that without the government’s explicit and implicit Guarantees propping them up, our Big Four banks would have their credit ratings slashed by at least two more ‘notches’.

8. Ignore the fact that in late June 2011, Fitch Ratings warned that Australia’s banks are amongst the most vulnerable in the world to the EU debt crisis, due to their reliance on wholesale funding from international money markets.

9. Ignore the fact that the spread on bond yields for Australia’s Big Four banks (versus non-financial institutions) have just hit record highs (from Bloomberg via SMH):

 Yields on bonds of Australian banks reached a record high relative to debt of the nation’s nonfinancial borrowers as Europe’s debt crisis threatens to freeze credit markets…

Lenders including Commonwealth Bank, Westpac, ANZ and National Australia Bank Ltd., may need to sell about $144 billion of bonds in the 12 months ended June, 2012, according to a July research report from Deutsche Bank …

Trading conditions in the euro area have deteriorated this month as the region’s sovereign debt crisis deepens. Germany failed to get bids for 35 per cent of the 10-year bonds offered for sale on November 23 and traders were left seeking prices in the aftermath of a Spanish debt sale on November 17.

10. Ignore the fact that due to the very real vulnerability of our banking system, it is near-inevitable that the government will need to reinstate the Government (taxpayer) Wholesale Funding Guarantee to prop up our Too Big To Fail banks.

11. Ignore the fact that the government’s present “low” public debt comparison versus other countries is largely rendered a moot point, because the credit ratings agencies have already effectively served notice that they will have a lower tolerance for anything less than pristine government finances – and thus, a genuinely convincing case for return to surplus – due to the compulsion upon the Australian Government to (continue to) prop up a highly vulnerable banking system.

12. Blithely skip merrily through cherry-strewn intellectual fields, hand-in-hand with fellow groupthinkers, picking fruit and singing la la la la, wilfully ignoring the reality that (in the words of Senator Joyce) …

… “If you do not manage debt, debt manages you.”

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Wayne’s Budget Is Already Shot To Hell

5 Nov

Fairfax journalist Peter Martin crunches the numbers and glimpses the reality, but still can’t quite admit what barnabyisright.com readers have long known.

That no sane person should believe Treasury’s budget forecasting:

It’s just as well the banks are cutting rates. The budget is getting hammered. In May the budget forecast an massive jump in company tax revenue of 28.9 per cent.

That’s right — around 30 per cent. The company tax take was to jump from $57.9 billion to $74.6 billion in the space of a financial year, an increase of $16.7 billion.

The reasonable-sounding argument was that profits had been bludgeoned by the global financial crisis, the high dollar and the January natural disasters and that these effects would “unwind gradually” during 2011-12.

Ahem.

No Peter. It was only “reasonable-sounding” if one were blithely ignorant of what was happening in the USA, Europe, and China.

To wit, the fact that the GFC never went away; rather, that governments worldwide had merely kicked the can down the road, by borrowing and/or printing trillions (a la Zimbabwe) to spend on “stimulus”. Thus achieving nothing, other than temporarily papering over the root problem (too much private debt) with an even bigger problem (even more debt, now sheeted home to government balance sheets).

But I digress …

But 28.9 per cent was more than an unwinding – it would have driven company tax to a new record high, even after adjustment for inflation.

And it wasn’t gradual. The budget papers partly explain the forecast acceleration by saying very low company tax instalment payments in 2010-11 meant that more than usual of any boost to tax would turn up in 2011-12 rather than 2010-11.

Also several tax breaks would end in 2011-12 and the budget would book “gains associated with increased Australian Tax Office compliance activities”, which would be helpful if it happened.

Superannuation tax revenue would jump as well, roaring back 29.3 per cent or $2.1 billion as the share market recovered.

Combined, these two revenue forecasts – each largely dependent on an improved economy – promised $18.8 billion in extra revenue… enough to pave the way for the paper-thin $3.5 billion surplus forecast for 2012-13.

In addition income tax revenue was expected climb 10 per cent, reflecting “anticipated growth in employment and wages”, contributing another $14.6 billion.

Only a brave or foolish person would call the Treasury over-optimistic. Its tax analysis division has 50 staff. The Finance Department’s budget group has 250 staff. They know far more about the budget position than any of their critics.

Well, I guess that means your humble blogger is “brave”. As must be the folks at Macquarie Economic Research, who called the budget forecasts “truly extraordinary”.

After all, how could we be “foolish” Peter? By your own tacit admission here in your own article, I was right:

But on this occasion the economy was crumbling underneath them as the budget was published. Released in May at a time when all but three of the employment outcomes for 2010-11 were already known the budget went for jobs growth that year of 2.75 per cent. It got 2.2 per cent. For 2011-12 it went for jobs growth of 1.75 per cent. Three months in to that year jobs growth is running at an annualised 0.2 per cent.

Without an economic boost we will have 177,000 fewer Australians working and paying tax by mid next year than the budget was counting on.

Funny that.

Your humble blogger pointed out several times, before and after the Budget was released, that Swan was already lying about past jobs creation. Why?  To distract attention from the upcoming record budget deficit announcement. Thus it stood to reason that his (ie, Treasury’s) “promise” of future jobs “creation” was also a lie.

Company tax has been going the same way. At budget time the government expected to collect $57.1 billion in 2010-11. It collected $56.3 billion, almost a billion less; hardly an encouraging beginning to an upward trend that was going boost company takings 28.9 per cent.

Superannuation tax earnings missed the mark by 8 per cent, also an unimpressive start to an upward trend that was going boost takings 29.3 per cent.

Since the budget the Australian share market has collapsed a further 12 per cent. The forecast upturn may be underway. The market has been improving since the start of October, but it’s too early to have much confidence.

We urgently need a financial update. The May budget was out of date within days of its release. We’ll get that update with the release of the Mid-Year Economic and Fiscal Outlook (MYEFO), an event often scheduled for Melbourne Cup Day. This year it will be later. Treasury and Finance need more time to put the forecasts together.

Well of course they need more time.

Cooking the books to show that Green-Labor’s financial management is wonderful … without it being dog’s-balls obvious … is becoming ever more difficult. Especially when the facts to the contrary out here in the real world are so clear to every normal person slaving away beneath the politicians’ and Canberra press gallery’s ivory towers.

The only “financial update” we will get from this government, will be as completely fiddled and wholly untrustworthy as the previous ones.

Not only has Labor’s cooking the books been proven time and time again here on barnabyisright.com.

Former Finance Minister Lindsay Tanner openly admitted it in his book “Sideshow – Dumbing Down Democracy”, to the applause of “senior” political editors:

As the budget approaches, his insights into the conjuring that goes on are valuable. He became adept at “the dark arts”, he confesses, “using some of what are now the standard tricks employed to maximise political appearances”.

These included switching between different forms of accounting, choosing different indicators of spending “according to which . . . suited the argument better”, classifying annual spending as capital, and making commitments beyond the years of the budget period.

Treasury “forecasts” are nonsense.

The economists who concoct “forecasts” are practicing pseudo-science. Tea-leaf reading at best. Gross intellectual (self) deception at worst.

As we saw earlier this week, Australia’s all-time record high terms of trade are set to cop a battering, with the 33% collapse in the price of our biggest export (iron ore) since early September:

Steel China Iron Ore Fines cfr main China port USD/dry metric tonne (MBFOFO01:IND)

Not only that, the price of our second biggest export (coal) is down around 24%.

And the reason why, is because China’s manufacturing and construction industries are continuing to slow:

Just as predicted by many for months now.

Even Wayne knows it’s true.

Which is why the loudly shouted “promise” that Green-Labor would spend $3.5 billion less than they expected to earn in 2012-13 … is no longer on the table.

Brace yourself.

Not for a “return to surplus” (ie, a balanced budget, in one year only).

But for new record deficits.

In just 5 months, the Green-Labor 2011-12 budget is already shot to hell.

Quelle surprise.

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Labor Less ‘Creative’ Than Greece

19 Mar

From the Korea Times:

The Greek crisis is a textbook example of the interconnectedness of the global economy and the foreign policy environment.

For most of the last decade, the Greek economy grew faster than others in the euro area. Yet, the country’s balance sheets worsened.

(Sound familiar?)

So, when the global recession hit, and the Greek economy contracted by 2 percent in 2009, international bond markets panicked, fearing that Athens was going to have trouble meeting its obligations. By mid-February the Greek government was paying three percentage points more to borrow money than the interest rate charged Germany, worsening the mismatch between Greek revenues and expenditures.

Wall Street bears some of the blame for this mess. Goldman Sachs and possibly other American financial institutions reportedly helped Athens understate its true indebtedness through the creation of innovative financial instruments.

The Rudd Government has used a more traditional way to understate our true indebtedness. ‘Creative accounting’. Or ‘cooking the books’.

First, Rudd Labor has made changes to the ‘methodology’ used for reporting Gross Domestic Product (GDP).  And they have applied those changes to all the previously reported Budget numbers too.  The result?  A “substantial increase” in Australia’s GDP.  As much as (eg) 4.5% per annum added to the real, inflation-adjusted GDP that was originally reported in the Howard Government’s 2006-07 Final Budget Outcome.

The benefit to Rudd Labor in making this “substantial increase” to GDP in the historical data, is that their spending (as a percentage of that 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. This explains why Rudd Labor politicians always love to quote everything in percentages. “As a percentage of GDP”.

Second, Rudd Labor has also changed the ‘methodology’ used to calculate the inflation-adjusted value of ‘real’ spending growth.  This was a sudden decision, for the November 2009 MYEFO budget update. The result? The Rudd Government’s reported ‘real spending growth’ is a whopping 30.1% lower under their new calculation method.

Finally, Rudd Labor lies about the GFC whenever it needs to defend its massive spending spree. They have repeatedly told the public that “the GFC punched a huge hole in our projected revenues”.  But the official Budget documents show that this is a lie.  In the May 2009 Budget, the estimated government “Receipts” were only 2.7% lower than for the previous year.  And by the November MYEFO update, government revenues were expected to be slightly higher than for the previous year.

Please follow those links. View for yourself the actual Budget documents that show how Rudd Labor have ‘cooked the books’.

You will see that, unlike Greece, our Labor Government does not need to hide our true state of indebtness through the use of creative financial instruments.

They use good old-fashioned ‘creative accounting’ instead.

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Labor Fakes GDP By 4.5%

17 Mar

*This post follows on from my recent article, “Labor: Hide The Increase”.  There, I showed that the Rudd Government has fiddled the books to hide their massive increase in borrowing and spending. Please read the article for background to this new article.

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.

Here’s a chart I’ve put together from the official Australian Government Budget data. It shows my reverse calculation* of the value (in $millions) of Rudd Labor’s “revisions” to historic GDP.

That is, it shows just how much the Rudd government has simply tacked on to the previously-reported official GDP figures (click to enlarge):

Rudd Labor "revisions" to past GDP figures

This chart only goes up to 2006-07.  The last year of a Coalition government Budget report.

That is because the Rudd government has gone back and “revised” the figures in the Rudd Labor 2007-08 and 2008-09 Final Budget Outcome documents too.  So I could not find the original reported figures for those years in order to calculate the GDP, and compare to their newly “revised” figures.

Even so, you can easily see that Rudd Labor’s “revisions” to past GDP are indeed, a “substantial increase”.  For the 2006-07 year – the last year that I am able to compare original vs “revised” figures – it appears that they have adjusted GDP upwards by $47 billion (4.49%) over the original figures reported by the Howard Government.

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

Continue reading ‘Labor Fakes GDP By 4.5%’

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Budget Oversight Office Needed For Australia

6 Mar

From Bloomberg:

Obama Budget Underestimates Deficit Over 10 Years, CBO Says

President Barack Obama’s budget proposal would generate bigger deficits than advertised each year for the next decade, with the 10-year shortfall totaling $1.2 trillion more than the administration estimated, according to the Congressional Budget Office.

The nonpartisan CBO, in an annual analysis of the White House budget proposal, said today that under Obama’s plan deficits would never shrink below 4 percent of the economy between now and 2020. The cumulative deficits would total $9.76 trillion, and debt held by the public would amount to 90 percent of the nation’s gross domestic product by 2020, the CBO said.

By 2020, the federal debt would grow to $20.3 trillion under Obama’s budget, according to CBO.

Those figures are all higher than the administration estimated last month…

On March 3rd I drew attention to how Rudd Labor has doctored the 2009-10 Budget numbers, to show both a higher GDP, and lower government spending, in the current year and in the forward projections.

It is high time that Australia had an independent, nonpartisan Budget Oversight Office, to forensically examine and then alert the public to the highly dubious accounting practices employed by the government to make itself appear far more fiscally responsible than it actually is.

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