Saul Eslake has published a very balanced analysis of the Budget, complementing the Government on some of the policy measures while laying down for all to see the very weak spending decisions:
"By my rejigging of the fiscal arithmetic, the budget cuts spending by $17.3 billion over four years with one hand, and increases spending (in other areas) by $17.2 billion over four years with the other. It also increases tax revenues (or, more strictly, cuts ''tax expenditures'') by $4.9 billion over four years, and then reduces tax revenues (or increases ''tax expenditures'') by $1.7 billion (although $1.3 billion of this is once-off in its effect). The net impact of all of the ''policy decisions'' announced over the eight months up to and including last night's budget is actually to increase the deficit by an average of $2.2 billion a year in 2010-11 and 2011-12 (some of that in response to natural disasters), and to increase the surplus in prospect for 2012-13 and 2013-14 by an average of less than $1.7 billion - equivalent to just 0.1 per cent of GDP in each of those years.
There was, in fact, no net reduction in government spending (abstracting from the $2 billion that the government pulled out of its ''contingency reserve''); and the slight increases in the budget surpluses in prospect for 2012-13 and 2013-14 are entirely attributable to tax increases.
Put differently, if the Treasurer and his colleagues had taken no decisions at all since the release of last year's mid-year budget review, there would still have been a budget surplus in 2012-13, and the following year; all of the decisions that have been taken have served to increase those surpluses by an amount that is considerably smaller than the usual margin of error in estimates of the ''bottom line''.
Nor does the budget provide any real comfort about the government's longer-term fiscal strategy. The budget papers reaffirm the government's commitment to keeping real growth in government spending to less than 2 per cent a year and to divert any unanticipated revenue gains to improving the ''bottom line'', only until the surplus reaches 1 per cent of GDP - which, according to longer-term projections in this year's budget papers, will be in 2016-17. That implies that, from then on, the government (if it is still in office then) will be making the same mistakes as the Howard government made in its last term in office - ''giving away'' any revenues that would otherwise result in surpluses of more than 1 per cent of GDP in tax cuts or increased spending in ways that will put upward pressure on demand, inflation and interest rates.
Hence, despite its micro-economic virtues, Wayne Swan's fourth budget does nothing to alleviate the upward pressures on interest rates, in either the near or medium term, that the Reserve Bank pointed to last Friday"
