Budget deficit differences

Next Tuesday’s Budget is a hot topic. As is Australia’s deficit. So using a rather creative form of bookkeeping the Treasurer, Scott Morrison has redefined debt as ‘good’ (investment in infrastructure) or ‘bad’ (basically, spending upon welfare).

Respected economists have long noted, both this century and last, that money borrowed for investment in nation building is smart and money spent on shorter-term requirements needs to be closely monitored. So this concept is hardly novel, but what is new is the change in accounting principles in gross national debt by the Turnbull government, so that the newly named’ net operating balance’ will leave out spending on infrastructure. This means that our actual debt will be measured as lower than it was last year, while in essence it will possibly be higher.

An alternative forecast put forward by Deloitte Access Economics suggests that the forward deficits will be $27.5 billion in 2017-18, $20.9 billion in 2018-19 and $14.2 billion in 2019-20. The Government’s deficit expected to be revealed on Budget night, using the rebadged ‘net operating balance’ is $5.5 billion.

There is a lot of daylight between the expected Federal Government projections, using the new good/bad debt paradigm, and that of former Treasury official Chris Richardson from Deloitte Access Economics. The main reason, according to Mr Richardson, is that Federal Government projections rely on the $80 billion cuts to state grants for health and education and other cuts from Budget 2014 that the Senate has so far refused to pass.

Whichever way you wish to look at it, Australia’s debt woes will continue. And changing the way we measure this significant economic indicator does not change the underlying deficit. It just makes it politically more palatable. Or does it? As they say in the classics, you really can’t put lipstick on a pig.

What do you think? Is redefining debt as good or bad a helpful strategy? And if ‘bad’ debt includes welfare, what does this say about Age Pension funding?

Related articles:
Could good debt save the economy?
What’s on your Budget wish list?

Written by Kaye Fallick

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