Swan and plunging revenue
Treasurer Wayne Swan has switched from a “hard Keynesian” to a structural justification of expenditure cuts. Rather than advocating a rapid return to surplus as consistent with macroeconomic balance and full employment, Swan now says cuts are needed because of structural factors like declining capital gains tax revenue, notably omitted the Howard income tax cuts adopted and implemented almost completely by Labor. claiming, as quoted by the Age and other sources.
Tax revenue, which plunged from the 24.2 per cent of GDP once enjoyed by the Howard government to 20 per cent, is set to recover only slowly to around 22.8 per cent by 2016.
Looking that the 2011-12 Budget papers show nothing of the kind. They are for receipts, not revenue, but they show a decline from 24.9 per cent in 2007-08, the last Howard Budget to a low of 21.9 in 2010-11 (I checked and the final figure was 21.7). The 2012-13 MYEFO has (General Government) receipts recovering to 23.9 per cent of GDP by 2012-13 on current policy. Revenue is higher at 24.5 per cent.
Before I talk about the merits and otherwise of Swan’s strategy, I’d like to get the numbers right. Does anyone have any info?
Update An inquiry to the Treasury produced an amazingly rapid response, pointing me to page 363 of the MYEFO, which is the source of the data. I think it’s fair to say that Swan is engaged in cherry-picking the past and relying on rubbery numbers for the future. The numbers represent tax revenue rather than total receipts. The number for the Howard government is not that of its last budget, but is for 2005-06. That was before some big tax cuts, and also before the establishment of the Future Fund, the earnings from which are not counted as revenue, although the debt interest that could have been saved is an expense. The rubbery projections involve claims that the revenue/GDP ratio will remain almost static from 2012-13 onwards, when bracket creep would typically be expected to produce growth, in the absence of policy change.
I’d suggest a more accurate summary of the data is that, on current policy, receipts are projected to be 23.9 per cent of GDP in 2012-13, down from 25.1 per cent in the last year of the Howard government (Labor has, unwisely, pledged to hold itself below this level). The gap is entirely explicable in terms the unaffordable income tax cuts promised by Howard in 2007 and implemented (with modest changes) by Labor.
It would be easy enough to fill this gap by taking a harder line on tax expenditures and tax avoidance, without cutting the services which, according to Gillard and Swan, we are supposed to trust Labor to deliver.