Ross Greenwood speaks to Deloitte’s chief economist, Chris Richardson, about how the government managed to claw back $4billion in budget deficits through cut to social welfare and the NDIS.
Introduction: Federal Government $4 Billion better off
Ross Greenwood: Welcome back to Money News, right around Australia. As I told you, at the top of the program, the federal budget is coming better than expected. It’s around $4.4 billion better than expected. A part of this is, as a result of the government collecting more tax now. In particular, more tax from big corporates it would seem to be. It has been one area where there’s been more money comes through the door. But also, it’s actually spent a little less money than what was anticipated, around $2.9 billion less.
Now of the $2.9 billion less the government spent, it’s total expenses were $447.8 billion. Most of that saving, or whatever’s taken place has been in social security and welfare. It’s around two and a half billion dollars less than expected that the government spent. Let’s try and interpret this now. One of the very best people to talk to, the Chief Economist at Deloitte, Chris Richardson is on the line, right now. Chris, many thanks for your time. It seems the government’s collected more tax. Where does that come from, to start with?
Interview with Chris Richardson, Chief Economist, Deloitte
Chris Richardson: It’s basically come from a better economy, as the International Monetary Fund says. Right now, is the best and most synchronized global growth we’ve seen for a while. It’s not just one big nation or group of nations you’ve seen good news, pretty much around the board. That’s showing up in a bunch of ways. Yes, you’re right. Better profits means extra company taxes than the government was expecting. Also, more jobs mean more personal taxes. More spending by families means more GST. You’re seeing a range of taxes doing better than the government expected just a handful of months ago.
Ross Greenwood: Okay, it is good news, technically. We can’t, let’s forget that still, the budget deficit. In other words, the losses that the government is incurring is still some $33 billion. This is actually adding onto the pile of debt that the government already has got the tax-payers are having to pay interest on. It also goes without saying that though this is improved, it is not actually in the black. It’s a long way from being in the black.
Chris Richardson: No look, a long way from being in the black. It has been for the better part of a decade now. Basically, the most prosperous generation Australia’s ever seen has not been it’s own weight. As a nation we chose over the last decade and more to move a bit away from a US low taxing, low spending stamp. Closer to Europe. There are things we should do. Spending more on those with disabilities. We haven’t closed the gap, by agreeing what spending we’ll cut, what taxes we’ll raise up to make our deficit more sustainable.
Ross Greenwood: Okay, then we go to the other side of the government’s — rather expenditure years. The government has spent two and a half billion dollars less than expected on social security and welfare. And quite clearly, Christian Porter was put in charge of that. Was told to clamp down on welfare cheats and so forth. But what’s the real reason for that lack of spending on welfare?
Chris Richardson: Look it this, some of it is indeed the government clamping down. Other of elements of it, you see the good economy, mostly has an impact on taxes. It has an impact on spending, unless unemployment benefits. In the education budget less subsidies of students because even more of them are taking jobs. And in fact, giving housing costs, more of them are staying at home. They aren’t collecting the bigger subsidies if you’re living away from home.
The biggest savings in spending bill are probably temporary. We have a government, who is looking to do more relatively fast. It wants to do that in helping those with disabilities. It wants to do that in road transport spending. That’s been hard to do. They’ve fallen behind there. Those savings are just temporary. We didn’t spend that money, last financial year but it will catch up.
Ross Greenwood: Okay. The other point also that is worth noting from this, today is that the level of the Australian government net debt is $322.3 billion, 18.4% of the GDP. In global terms that is not dramatic. It has been going the wrong direction, quite clearly. It is better than expected by some $2.8 billion. If you’re going to play that down, you’ve got to get yourself back into the black. Don’t you?
Chris Richardson: Look, you do. We shouldn’t get carried away. Yes. A government that’s trying hard and even more so, an economy that’s doing well. Those things do mean better news on the budget but made it for the numbers out today which will, the last year it will carry over to this year. We remain extremely dependent on China pumping out stimulus and its construction sector, its apartments, the iron ore price that it drives.
Those things are starting to wobble a bit and may fall away a bit further after the big party congress in China next month. That combination says, what it says for a very long time now. This budget deficit is– There should be no mission accomplished flags going up. We need as a nation to compromise our way to spending for the extra things we’ve promised ourselves with. It’s cutting the other spending. It’s raising some taxes and we’re not there yet.
Ross Greenwood: The final one, just a little trivia for people. If you want to stick it into your head and throw it out in the dinner party or work colleagues or whatever, is the interest payments that Australia is now paying on it’s debt. I did mention how big that debt was. The interest payments are now $12.4 billion per year. You can actually call it a billion dollars a month. That is the interest that Australian tax-payers are now paying. As I say, it’s not– In global terms, massive Chris. The fact is, it’s still going in the wrong direction until the government gets back in the black.
Chris Richardson: Yes, we did waste that big boom that China handed us on a platter some years ago. We didn’t walk away and improve the budget. Don’t forget at some stage, interest rates will be higher than they are today. And at that stage you will see the interest bill climb relatively rapidly. Yes, we could and should have done this better.
Ross Greenwood: I’ll tell you what. Chris Richardson, the Chief Economist, at Deloitte. Always great to get your interpretation. Many thanks for tonight.
Chris Richardson: Thanks, Ross.
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