Tag Archives: treasury

Treasury Ignores Housing Sector In Structural Budget Comparison With Ireland

6 Aug

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The Australian Treasury’s recent update to its working paper Estimating The Structural Budget Balance Of The Australian Government, makes for interesting reading.

Interesting, in that it provides all the reason needed to put a broom through the entire department.

Why so?

Treasury points to an analysis which shows that the IMF has repeatedly over-estimated Ireland’s true structural budget position, and calls it a “cautionary tale” for Australia:

Box 2: Ireland’s structural budget balance

Changing estimates of Ireland’s structural budget balance provide a cautionary tale, highlighting the difficulty of estimating structural budget balances in real time.

Since the onset of the GFC, the IMF’s estimates of Ireland’s pre-crisis structural budget balance have been revised down significantly. While the IMF initially estimated that Ireland had been close to structural budget balance in 2007, its latest (April 2013) estimate now suggests a structural deficit of around 8½ per cent of potential GDP in 2007 (Chart A).

Australian Treasury, "Estimate The Structural Budget Balance", May 2013, page 10

Australian Treasury, “Estimating The Structural Budget Balance Of The Australian Government”, May 2013, page 10

The authors then promptly ignore the striking similarities between Australia’s structural position now, and Ireland’s pre-GFC:

While part of the revision to the IMF’s pre-crisis estimates of the structural budget balance is due to a lower estimate of potential GDP, the main reason for the change is that these estimates failed to capture the dependence of the fiscal position on an unsustainable boom in the housing sector (Kanda 2010). With residential investment and house prices soaring, property-based taxes grew at a pace well above GDP growth. Failure to recognise at the time that the bulk of these revenues were cyclical led to significant tax cuts and expenditure increases, which created a large structural hole in Ireland’s public finances.

Alas, the ivory-towered Treasury wonks fail to see that this is not just Ireland … this is Australia they are talking about.

They are too busy obsessing over the process of estimating the structural budget balance, to notice the stark similarity in what has actually happened out here in the real economy.

Indeed, it is clear from the paragraph preceding all of this, that the only lesson they have learned from the “international experience”, is not to over-rely on “point estimates” in making their calculations:

The key point to draw from the analysis is not the specific year in which the [Australian] budget returns to structural surplus, but the steady improvement over time. Indeed, international experience has illustrated the difficulties in disentangling temporary and permanent economic influences on the budget, which cautions against overreliance on point estimates of the structural budget balance (see Box 2).

Australian Treasury, Estimating The Structural Budget Balance, May 2013, page 9

Australian Treasury, “Estimating The Structural Budget Balance Of The Australian Government”, May 2013, page 9

Australian Treasury, "Estimating The Structural Budget Balance For Australia", May 2013, page 10

Australian Treasury, “Estimating The Structural Budget Balance For Australia”, May 2013, Box 2, page 10

Er … no.

The “international experience” does not caution against “overreliance on point estimates”.

It cautions against allowing “an unsustainable boom in the housing sector … with residential investment and house prices soaring”.

It cautions against government fiscal policy that relies on “property-based taxes” growing “at a pace well above GDP growth”.

It cautions against “failing to recognise at the time that the bulk of these revenues were cyclical”.

It cautions against “significant tax cuts and expenditure increases” creating “a large structural hole in Australia’s public finances”.

It also cautions against something else.

Allowing technical wonks, with no real world business experience, no commonsense, and no wisdom, to be employed in what is arguably the most important department in the Australian Government.

Is it any surprise that Treasury cannot get any of its budget estimates and projections within a bulls roar of reality?

Their over-educated eggheads cannot see the forest for the trees.

Here is another striking similarity with Ireland, that Treasury doubtless has not noticed either.

When you add the public debt of Australia’s state governments to the federal government debt, Australia’s total public debt position is now worse than Ireland pre-GFC:

Screen shot 2013-08-05 at 7.39.04 PM

Screen shot 2013-08-05 at 7.37.30 PM

And with Australia’s banking system being the most exposed to residential mortgages in the world…

ScreenHunter_08-Jul.-23-08.09

… now you know why Moody’s has warned of an Australian banking system collapse:

The continued strong expansion in real estate loans—at least relative to other lending segments—has raised some eyebrows. The Australian banking sector has the highest exposure to residential mortgages in the world… The high degree of exposure to the domestic mortgage market raises many concerns. Recent experience has shown that house prices can fall significantly and trigger serious banking meltdowns. But what are the chances of a similar housing collapse in Australia? Many international analysts think the chances of an antipodean housing bust are quite high—it would take a bold economist who has been in a decade-long coma to declare that an Australian housing correction was impossible. When trends in Australian house prices are compared globally, the signs look worrying. House prices have increased for longer and faster than in many of the markets where prices cratered during the Great Recession.

With even our panglossian Labor government now predicting rising unemployment, does all this sound rather like Ireland to you?

Can you see the forest … or only the trees?

See also:

Australia Plans Cyprus-Style Bail-In Of Banks In 2013-14 Budget

Australian Banks “Welcome” Cyprus-Style Bail-In Plan

IMF Tells Australian Lawmakers To “Prevent Premature Disclosure Of Sensitive Information” On Bank Bail-Ins

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Crisis Management: APRA To Be Given Power To “Direct” Your Super

17 Jul
Australian Treasury,  Strengthening APRA's Crisis Management Powers, September 2012, page 34 (click to enlarge)

Australian Treasury, Strengthening APRA’s Crisis Management Powers, September 2012, page 34 (click to enlarge)

It’s been a big week for your humble blogger, vis-a-vis finding incriminating evidence on government websites.

Here’s another example of something I have warned of (repeatedly) since the inception of this blog, now coming to fruition.

That like so many other countries in the Western world since 2008, our government too would, someday, use the pretext of “crisis management” to steal your super to prop up an insolvent financial system.

Today, we learn that the Orwellian euphemism that has been chosen to describe this process in Australia, is “direction powers”.

From the Australian Treasury’s Consultation Paper, Strengthening APRA’s Crisis Management Powers, September 2012 (my bold emphasis added):

2.3.1 Potential new direction triggers

…it is being considered whether APRA should have new direction powers in relation to superannuation.

The purpose of the direction powers would be for the rectification of significant problems, in the nature of an enforcement power.

Possible triggers for the issue of a direction might include:

  • a breach of the RSE licensee law or licence condition;
  • an anticipated breach of the RSE licensee law or licence condition;
  • promoting instability in the Australian financial system;
  • conducting affairs in an improper or financially unsound way; and
  • where the failure to issue the direction would materially prejudice the interests or reasonable expectations of beneficiaries of the superannuation entity.

Note carefully what is being described here.

Earlier in the same document, the Treasury department bemoaned that:

APRA has comprehensive direction powers in relation to ADIs, general insurers and life insurers but not in relation to RSE licensees, even though the superannuation sector holds approximately $1.4 trillion in savings and a number of superannuation entities hold tens of billions of dollars in assets.

Oh dear! All that money, just sitting there making private sector fund managers rich on fees, and they (the government) don’t have the power to direct what happens to it. Sacre bleu!

Treasury went on to say that APRA needs an “early intervention tool” that is “preemptive”, and so allows it to “address a superannuation entity’s deterioration or non-compliance with prudential requirements”:

Australian Treasury, Strengthening APRA's Crisis Management Powers, September 2012, page 34 (click to enlarge)

Australian Treasury, Strengthening APRA’s Crisis Management Powers, September 2012, page 34 (click to enlarge)

Now here is where the cunning comes in.

How do you ensure that you give yourself the ability to “trigger” your new “enforcement power”, in order to give “direction” to a superannuation fund to … oh let’s say … direct a percentage of its (ie, yours, dear reader) money into government bonds to support the national government’s solvency? Or to the shares of a collapsing bank? Or to the shares in a new “bridging institution”, as directed by the FSB under its new, G20-wide bank resolution “bail-in” regime?

Easy.

You establish a set of “triggers” for your new “direction power”. Just like those they have listed above. Including, most notably, the trigger that — in their judgment — “the failure to issue the direction would materially prejudice the interests or reasonable expectations of beneficiaries of the superannuation entity.”

In other words, if APRA (or the IMF, or FSB, who now tell APRA what to do) were to decide that it “would materially prejudice” your interests if they did NOT “direct” your super fund to do whatever the government wants, then that is all the “trigger” they need to enforce a “direction” on your super savings.

Don’t believe me?

Think I’m twisting what they said?

Read it again.

Very carefully.

With special note of this:

Enhancing direction powers in superannuation would allow APRA to detail specifically how an entity must address an identified concern. Direction powers would enable APRA to direct the entity as to what should be done to remedy the situation…

What if the “identified concern” is that failure to issue the direction would materially prejudice the interests or reasonable expectations of beneficiaries of the superannuation entity”?

Or what if the “identified concern” is simply that the super funds are not parking your money in the “investments” that the government wants them to, and that this is or could be “promoting instability in the Australian financial system” — another one of the “triggers” listed?

By this action, the government is effectively abrogating to itself what is essentially an unlimited power to “direct” your super fund to do “specifically” whatever the government says with your money, under the dangerously broad, and subjective, Big-Brother-Knows-Best pretext that “failure to issue the direction would materially prejudice” your interests.

See also:

Your Super Screwed By The Laboral Party

Stealing Our Super – I DARE You To Ignore This Now

P.S. I Just Had To Do This

4 May

* Apologies – it seems the Youtube video is not available in Australia. Although strangely, I can watch it with no problem. Oh well … a couple hours of video editing to entertain myself only. As you were.

UPDATE: Try this instead –

Wayne’s “Per Cent Of GDP” Lies Debunked

3 Apr

“As a percentage of GDP”.

Possibly the most common phrase of deception in the average Treasurer’s armoury.

In the case of the average economist, the most common phrase of self-deception.

Let us take a look at how The World’s Greatest Treasurer Wayne Swan the Treasury department’s economists have used the “as a percentage of GDP” lie as the foundation of steaming bovine faeces for an entire speech delivered to the Australian Business Economists’ Breakfast on 29 March 2012 by the Treasury’s muppet.

Here’s Wayne:

The GFC hit all our revenue heads, as production, consumption, profits and employment all tumbled. The tax-to-GDP ratio fell 4.2 percentage points to 20.0 per cent. Compare this with the Howard Government’s peak of 24.2 per cent, and we’re looking at a massive write-down in tax receipts across the board.

Wayne Treasury had prepared some charts showing GDP and Tax Receipt estimates for the period 2007-08, through 2011-12 (MYEFO). Expressed “as a percentage of GDP”.

But let us set aside the “per cent of GDP” measure, and dig deeper.

What about the raw figures?

2007-08 Final Budget Outcome Taxation Revenue (actual) – $286.22 billion

2010-11 Final Budget Outcome Taxation Revenue (actual) – $309.89 billion

2011-12 Mid-Year Economic and Fiscal Outlook Taxation Revenue (estimate) – $323.63 billion

An increase in Taxation Revenue from 2007-08 (actual) to 2011-12 (estimated) of $37.41 billion.

Back to Wayne:

Collections, particularly relating to company profits, have been lower than expected. In part, our lower tax take reflects reduced tax receipts following the GFC…

We have already seen that the second part of this statement is a lie. Actual tax receipts are higher now, than they were in the 2007-08 (pre-GFC) Final Budget Outcome.

It is only when one uses the misleading and deceptive “as a percentage of GDP” measure, that black can become white. Or in the case of a government budget, black can become red. Or red can become black, depending on the political lie of the moment.

For the sake of thoroughness, let us break down “Tax Receipts” to just look at “Company Tax”. Perhaps Wayne Treasury is right, and Company Tax receipts have fallen since the GFC?

2007-08 Final Budget Outcome Company Tax revenue (actual) – $66.48 billion

2010-11 Final Budget Outcome Company Tax revenue (actual) – $57.31 billion

2011-12 Mid-Year Economic and Fiscal Outlook Company Tax revenue (estimate) – $71.80 billion

Yes, there was a decrease of $9.17 billion in actual Company Tax revenue between 2007-08 and 2010-11.

But as at MYEFO Nov 2011, there is an “estimated” increase in Company Tax revenue (versus 2007-08) of $5.32 billion.

So, what is the problem, dear reader?

Quite clearly, the government IS pulling in more actual Total Revenue now, than they were in 2007-08.

Last year (2010-11) the government raked in $23.67 billion more in Total Revenue, than in 2007-08.

Their November MYEFO estimated that the government would rake in $37.41 billion more than in 2007-08.

With all that extra income, why is it that this government cannot seem to achieve a balanced (much less a surplus) budget for a year?

Indeed, their annual budget deficits just keep getting bigger.

Could this government’s spending have anything to do with it?

Wayne Treasury barely even mentioned the government’s actual record of expenditure in the speech to the Australian Business Economists’ Breakfast. A long, tiresome rant, complaining about lower revenue “than expected” … “as a percentage of GDP”. And a mere handful of paragraphs about “Savings” at the end of the speech. Saying absolutely nothing.

Well, except for this doozy:

The savings we find in this Budget will be consistent with the discipline that has been the hallmark of the Budgets we’ve delivered. Remember that in the four Budgets since 2008-09, we have identified over $100 billion of savings.

Really?

2007-08 Final Budget Outcome Total Expenses (actual) – $280.1 billion

2010-11 Final Budget Outcome Total Expenses (actual) – $356.1 billion

2011-12 Mid-Year Economic and Fiscal Outlook Total Expenses (estimate) – $371.74 billion

An actual increase in Total Expenses of $76 billion in 2010-11, versus 2007-08.

An “estimated” increase in Total Expenses of $91.64 billion in 2011-12, versus 2007-08

But that’s ok.

All is forgiven … because they “identified over $100 billion in savings” over those four years too.

And all is forgiven with respect to our economic commentariat, who faithfully repeat Wayne’s Treasury’s misleading and deceptive statements without scrutiny. As illustrated by Alan Kohler in Business Spectator:

In fact, as Wayne Swan pointed on Thursday, Labor has already cut $100 billion from spending and this year’s budget will cut even more…

No, Alan. That is not “in fact” at all. It is what he wanted you to hear, and report. But it is not what he actually said. “We have identified over $100 billion in savings” is not the same thing as “we have already cut $100 billion from spending”.

Let us recap.

According to Wayne’s Treasury’s most recent published figures, in 2011-12 this government will rake in $37.41 billion more revenue than in 2007-08, pre-GFC.

But they will spend $91.64 billion more than in 2007-08, pre-GFC.

All the “as a percentage of GDP” nonsense, is a smokescreen.

The simple reality is, this government is getting tens of billions more annual revenue than the Howard Government did in its last year.

But they are spending a SHIPLOAD of borrowed-from-foreigners money more every year, than they are receiving in increased annual revenues.

Back to Wayne one last time:

It was Stephen Koukoulas who reminded us that … we never exceeded the tax-to-GDP ratio that we inherited…

Hmmmm.

How is that possible?

We have already seen clearly, that this government is getting more total tax revenues than in 2007-08.

So given that their tax take is up, then the only way this claim is possible is if there has also been a truly remarkable increase in the GDP figure.

Oh look!

There has!

How very, very convenient that the new System of National Accounts introduced in the GFC year of 2008-09, just happened to result in a “substantial increase” in the GDP figure. One that you would not be aware of unless you had carefully read all the fine print in the 2009-10 MYEFO. Or if you’d carefully read the Treasurer’s press release sent out on … the opening day of the Copenhagen Climate Change Conference. One month after the MYEFO.

Now that’s creative accounting (see “Hide The Recession: Labor’s Grand Deceit On GDP Figures Exposed” )

RBA & Treasury Coverup – Data Culled At Behest Of Banks

6 Dec

Being the first Tuesday of the month, there’ll be lots of attention on the Reserve Bank today, with many hoping for another cut in the official interest rate in time for Christmas.

So I thought that today, we might take a closer look at the RBA too.

Remember that critical joined-at-the-hip relationship between our Big Four banks, and the government’s balance sheet, that your humble blogger has been banging on about lately?

The relationship that means our government must get its budget back in shape, else its guarantees that are the only thing propping up our zombie banks will lose credibility with the ratings agencies?

Michael West at The Age has been looking at those government guarantees too. His investigation has dug a little deeper into the dark heart of our government-banker kleptocracy (my emphasis added):

Public information turns confidential – RBA culls data

The Reserve Bank of Australia and federal Treasury have been systematically purging public information from their databases at the request of the big banks.

During the course of an investigation into the wholesale funding guarantee, BusinessDay found large swathes of information relating to the use of the guarantee had been expunged from the http://www.guaranteescheme.gov.au website.

This culling of public data follows revelations here last year that the corporate regulator, the Australian Securities & Investments Commission (ASIC) had been deleting evidence of the waivers it had provided to liquidators.

Commitment to transparency?

Now the RBA and Treasury appear to have made an even greater mockery of the government’s “commitment to transparency and accountability”. The funding guarantee scheme is an unprecedented concession for the banks – they are underpinned by the taxpayer and, thanks to sovereign largesse, cannot go bust.

Nonetheless, almost all detail relating to more than $100 billion in taxpayer-guaranteed funding has vanished. Only the details of current guarantees survive.

We can only surmise that both the government and the banks are trying to pretend there was never any corporate welfare in the first place. For the banks’ part, it is harder to justify $10 million executive salaries for running a taxpayer-guaranteed institution.

And for the government’s part, the censorship can only be put down to an obsequious backpedalling on previous public commitments in order to appease the powerful banks.

Unconvincingly trying to rationalise their role in the purge, Treasury responded that public information about sovereign support for the banks had suddenly become confidential.

“Further data on liabilities issued under the Scheme by individual participating institutions is not provided on the Guarantee Scheme website for reasons of confidentiality,” a spokesman told BusinessDay.

It was the sort of line which would have made Sir Humphrey Appleby proud.

With Europe in disarray, and the impending prospect of further taxpayer support for the banks – the RBA has recently foreshadowed relaxing the rules on what assets banks can swap for RBA cash – this is hardly the time for there to be any question over the integrity of public institutions and their information.

[click the link to read the entire article, including how the RBA and Treasury tried to cover-up in response to Mr West’s investigations]

None of this should come as any surprise to regular readers of barnabyisright.com.

There are already very big questions over the “integrity” of our public institutions.

As we saw in Funding For Policy Scandal – Australia Is A Kleptocracy, our very system of government means that our political parties depend on bank loans to fund their election campaigns.

Why?

It is because the parties do not receive their multi-million dollar handouts from the public trough – a distribution which is based on % of the popular vote – until after the election, when the actual number of votes received by each party is confirmed.

So, they have to go hat-in-hand to the banks, begging for loans, in order to mount their campaigns in the first place.

If that is not a relationship of dependency that is absolutely ripe for corruption, then I don’t know what is.

There really is “An Unholy Alliance Of Politicians And Bankers Versus Ordinary People”

Why Would Any Sane Person Believe Treasury’s Carbon Tax Modelling When Its Budget Forecasting Record Is This Bad?

12 Jul

Adoration of the Golden Calf - Nicolas Poussin, 1629

The Treasury department is – like many false idols – placed up on a pedestal and revered as some kind of infallible authority.

An economic god.

And when it comes to our Green-Labor-Independent minority dictatorship’s newly finalised “carbon pricing mechanism”, the infinite wisdom of the Treasury department will once again be held up as the final Word.

We are talking, of course, about a government department long headed by well known green cargo cult members. True believers in the warmist cult, such as former Treasury secretary Ken Henry. And the latest appointee from among the green faithful, Martin “Mini-me” Parkinson. Previously the head of the government’s new Climate Change department.

So today, I’d like to indulge in a little “Moses” reenactment.

You know … the old Bible story.

The one where Moses smashed in pieces the golden calf that the people had taken to worshipping.

The Treasury department is our modern equivalent.  It has become a sacred cow.

I think it is high time we ritually slaughtered this sacred cow.  In much the same way as our minority dictatorship has slaughtered Aussie farmers’ cattle export industry.

It seems that we are all expected to (once again) bow and scrape to the Treasury sacred cow, when our dictators tell us that the economic modelling for their new “carbon pricing mechanism” all stacks up.

Yes indeed, we are all expected to accept in blind faith, that the Treasury department’s forecasts and predictions of the financial effects of this great new economic reform bankers’ money-go-round, are solid and sound.

Hmmmm.

Perhaps if Treasury’s forecasts and predictions as prophesied in past budgets can be shown as having been accurate, then we might have some basis, some reason, for placing our faith in them regarding this new carbon dioxide mega-scheme … right?

Well, let’s take a look at them, shall we.

And let’s keep it really simple.

Let’s not slice and dice every line item in their past Budget forecasts. Let’s just see how accurate they were with the two (2) basic, headline Totals.

1. Revenue (ie, income), and

2. Expenses.

Let’s look at the original Budget forecasts that our Treasury gods made in 2007-’08.  And especially, let’s note their “forward estimates” made back then, for the following 3 years.

After all, the Government’s “carbon pricing mechanism” plan has an initial 3 year “fixed price period”.

So, if we can see that Treasury got their Budget forecast reasonably accurate for the three years from 2007-’08, then maybe … just maybe … we can have a little confidence in their abilities, and their forecasting accuracy.

Note too, that the 2007-’08 Budget forecasts – prepared by the Ken Henry-led Treasury department – were for the Howard-Costello Government. So we are talking here, about the Treasury sacred cow’s forecasting effort for the so-called “World’s Greatest Treasurer” Peter Costello’s final budget.

Let’s get into it, shall we?

Here’s the original 2007-’08 Budget document, showing “estimates” and “projections” for Revenue:

2007-'08 Budget Paper No. 1, Statement No. 5

Ok.

So, in the May 2007-’08 Budget, Treasury “estimated” Revenue of $246.8 billion for the year 2007-’08.

And they “projected” Revenue of $260.7 billion for the year 2008-’09, and $274.6 billion for 2009-’10.

(Unfortunately, we cannot compare the forecast versus actual Revenue and Expenses for the 4th year (2010-11) of the 2007-’08 forward estimates, because the Final Budget Outcome for that year will not be released until September 2011.)

How well did our Treasury gods do on those “estimates” and “projections” for Revenue?

Let’s take a look.

Here’s the Treasury’s Final Budget Outcome for Revenue in 2007-’08:

2007-'08 Final Budget Outcome - Revenue - Part 1, Table 2

Hmmm. $303.7 billion in actual Revenue, versus the $246.8 billion they “estimated” just 1 year earlier.

An error factor of 23%.

Here’s the Treasury’s Final Budget Outcome for Revenue in 2008-’09:

2008-'09 Final Budget Outcome - Revenue - Part 1, Table 1

Hmmm. $298.9 billion in actual Revenue, versus the $260.7 billion they “projected” just 2 years earlier.

An error factor of 14.6%.

And finally (for Revenue), here’s the Treasury’s Final Budget Outcome for Revenue in 2009-’10:

2009-'10 Final Budget Outcome - Revenue - Part 1, Table 1

Hmmm. $292.8 billion in actual Revenue, versus the $274.6 billion they “projected” just 3 years earlier.

An error factor of 6.6%.

Summary – Revenue.

Treasury’s 2007-’08 Budget “estimates” and “projections” for Revenue in the following 3 years, were wrong by a factor of +23%, +14.6%, and +6.6% respectively.

Or to put it another way, in the 2007-’08 Budget the Ken Henry-led Treasury department underestimated future government revenue by a grand total of $113.3 billion over the first 3 years of their “forward estimates”.

Incredible. They actually received $113.3 billion more than they originally forecast through to EoFY 2010. And yet, these Treasury gods and their Rudd-Gillard-Goose muppets have still managed to plunge Australia into $194 billion in gross debt by mid-2011.

That probably has something to do with their out-of-control spending, right?

Indeed.

Let’s move on to Expenses.

Here’s the original 2007-’08 Budget document, showing “estimated” and “projected” Expenses:

2007-'08 - Budget Paper No. 1, Statement No. 6

Ok.

So, in the May 2007-’08 Budget, Treasury “estimated” Total Expenses of $235.6 billion for the year 2007-’08.

And they “projected” Total Expenses of $247.5 billion for the year 2008-’09, and $259.7 billion for 2009-’10.

How well did our Treasury gods do on those “estimates” and “projections” for Expenses?

Let’s take a look.

Here’s the Treasury’s Final Budget Outcome for Expenses in 2007-’08:

2007-'08 Final Budget Outcome - Expenses - Part 1, Table 3

Oops. $280.1 billion in actual Expenses, versus the $235.6 billion they “estimated” just 1 year earlier.

An error factor of 18.9%.

And don’t forget, ladies and gentlemen … the GFC had not even hit yet! That came 4 months later, in September 2008. Our new PM Kevin07 evidently got off to a treasury-emptying head start, even without a GFC as the excuse.

Here’s the Treasury’s Final Budget Outcome for 2008-’09. This is the year that included the GFC panic, from September ’08 through early 2009:

2008-'09 Final Budget Outcome - Expenses - Part 1, Table 1

Oops. $324.6 billion in actual Expenses, versus the $247.5 billion they “projected” just 2 years earlier.

An error factor of … gulp31.1%.

And finally (for Expenses), here’s the Treasury’s Final Budget Outcome for Expenses in 2009-’10:

2009-'10 Final Budget Outcome - Expenses - Part 1, Table 1

Oops. $339.2 billion in actual Expenses, versus the $259.7 billion they “projected” just 3 years earlier.

An error factor of … gulp30.6%.

Summary – Expenses.

Treasury’s 2007-’08 Budget “estimates” and “projections” for Expenses in the following 3 years, were wrong by a factor of +18.9%, +31.1%, and +30.6% respectively.

Or to put it another way, in the 2007-’08 Budget the Ken Henry-led Treasury department underestimated future government expenses (ie, spending) by a grand total of $201.1 billion over the first 3 years of their “forward estimates”.

Incredible. These Treasury gods and their Rudd-Gillard-Goose muppets spent $201.1 billion more than they originally forecast through to EoFY 2010.

Here’s another way of looking at the Treasury department’s forecasting genius.

It’s a chart showing the Treasury’s 2007-’08 Budget forecast for Revenue over the following 3 years (blue line), versus the actual Revenue in the Final Budget Outcome for each of those years (green line):

And here’s another chart, showing the Treasury’s 2007-’08 Budget forecast for Expenses over the following 3 years (blue line), versus the actual Expenses in the Final Budget Outcome for each of those years (green line):

It’s interesting to note that Treasury underestimated both Revenue, and Expenses.

Convenient. Very convenient.

After all, most citizens will take more kindly to a government Budget that “forecasts” a total tax take … and total government spending … that are 20% – 30% less than they eventually turn out to be. And the odds of getting caught out are low – how many citizens (or journalists) ever bother to check how close the Treasury/Government’s final budget results came to their original “forward estimates”?

Now, there will doubtless be those who will cry out, “But wait! What about the GFC?! The Treasury forecasts were wrong because of the GFC!”

Indeed.

Our Treasury gods, with all their degrees and PhD’s … did … not … see … the … GFC … coming.

Think about that.

Why would any sane person believe in Treasury’s economic forecasting abilities now … after they totally failed to see that one coming?

After all, it’s not as though there is any shortage of dire warning signs out there right now, alerting us to an impending GFC 2.

A “bigger Armageddon”.

We have been documenting these warning signs coming from all over the world – and from here in Australia too – right here on this blog.

If the impact of the GFC is your excuse for the Treasury’s abject failure to get within a bull’s roar of predicting the Budget revenue and expenses for 3 years ahead of time … that they only got it so very, very wrong because they did not see that impact on the Budget coming … then I rest my case.

By your own words … and their own data … they stand condemned.

(And by the words of Macquarie Economic Research too. Click here to see what they had to say about the “truly extraordinary” Treasury modelling underpinning the recent May budget)

UPDATE:

A late thought that just occurred to me.

At precisely the time that Peter Costello was handing down the Treasury department’s 2007-’08 Budget “forward estimates” that we have just examined – in early May 2007 – your humble blogger was commanding his superannuation fund manager (contrary to strenuous “expert” financial advice) to put all his super into cash –

Why?

Because thanks to the clear evidences already coming out of America and elsewhere in the world, even I could see that a GFC was bearing down on us.

The overpaid, tea leaf reading numpties led by former Treasury secretary Ken Henry … could not see it.

UPDATE 2:

Feb 7, 2012

Reader and Twitter follower @Ayeshavit asked me to update this post to capture the Final Budget Outcome for 2010-11 … the last year of the 2007-08 “forward estimates” by the Treasury genii.

Recapping – way back in the (Coalition’s last) May 2007-’08 Budget, Treasury “estimated” Revenue of $287.3 billion for the year 2010-’11.

And they “projected” Expenses of $272.7 billion for the year 2010-’11.

Now, from the 2010-11 Final Budget Outcome, here’s what the Labor government actually achieved in 2011-’11:

Final Budget Outcome 2010-11, Part 1, Table 1

Oops.

$302.0 billion in actual Revenue, versus the $287.3 billion they “projected” just 4 years earlier. An error factor of 5.1%.

And ‘Payments’ (ie, Expenses)?

Double Oops.

$346.1 billion in actual Expenses, versus the $272.7 billion they “projected” just 4 years earlier. An error factor of 27%.

Yup. The Labor Government spent more than one-quarter more money in 2010-’11, than Treasury had “projected” in 2007-’08.

Isn’t it interesting how the Treasury department’s “forward estimates” actually turn out?

What a shame for all Australians, that the lamestream financial and economic commentariat never bother to go back and compare what Treasury originally said, versus the reality of what actually happens.

Instead, sheep-like, they lap up and bleat on to the public whatever nonsense “projections” the Treasury puts out on Budget night … as though it has actually happened.

When as you can see, the Treasury’s “forecasts” are not worth the paper they are printed on.

Barnaby Mocks Swan’s Modelling As “Self-Serving Wonder And Light”

7 Jun

Media Release – Senator Barnaby Joyce, 7 June 2011:

I saw a model and I assumed it wasn’t – Swan

Well Mr Swan has told us that under his modelling with a carbon tax, employment will grow, gross national income will grow and if he had been pressed, no doubt he would have told us the dahlias would grow and Pinocchio would have been truly excited.

In his ivory tower, assumptionless modelling is self serving wonder and light.

The other day I was reading modelling by government economists lauding the fact that a Doha trade agreement would lead to a “substantial” rise in world output of 0.1 per cent.1 Now we learn from the Treasurer that actually a change in output of 0.1 per cent due to a carbon tax is only modest. It would seem that economists choose the wrapping depending on what they think of the package inside.

In amongst Mr Swan’s lunch time thrashing around, we are told that China is driven by a moral imperative to reduce emissions and we should catch up and be like China. So what is all that black stuff that we sell them that is propping up Mr Swan’s budget figures?

Effusive would be a very kind word to describe Mr Swan’s speech. It was trust me this will not hurt a bit, taxes are good for you especially ones that can cool the planet, oh do not look at me like that I have a model that can prove it.

1 ABARE found in a paper titled “Increasing benefits to Australia from WTO agricultural trade liberalization”:

“The global gains in GNP amount to US$47 billion, about 0.1 per cent of base levels in 2010.”

The abstract of the paper reports these findings as:

“In this paper it is shown that global benefits from agricultural trade liberalisation are substantial.”

http://adl.brs.gov.au/data/warehouse/pe_abarebrs99000425/PR11448.pdf

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