Election year Budgets, illusions and conjuring tricks

Dr Bryce Wilkinson
Insights Newsletter
26 May, 2017

On television early yesterday evening I saw a well-known presenter give Budget 2017 an 8 out of 10 for massaging the electorate. A subtitle read “something for everyone”.

Really? Can shuffling the same deck of cards improve everyone’s hand? That would be a conjuring trick.

Election year Budgets are first and foremost about taking and spending voters’ money. They don’t create more money. They reshuffle it. Billions more dollars are to be spent.

How can everyone be better off? Actually, we probably would be if we were spending our own money. Otherwise we would not spend it. That is the virtue of freedom of exchange. Mutual benefit from voluntary exchange is no conjuring trick.

Let’s look at Budget 2017 from that perspective. (In a longer article we evaluate it from the ‘what needs to be done’ perspective of our Manifesto 2017.)

The Budget-at-a-Glance document highlights new spending of $1 billion on a “growing economy”, $4 billion on infrastructure, $7 billion on public services, $2 billion in a family incomes package, and $321 million to improve the lives of the most vulnerable.

If that seems a bit parsimonious, turn to the Capital-at-a-Glance document. It pledges to spend $11 billion in new capital from 2017-2020. Adding existing commitments takes the total to $32.5 billion over the next four years. This is ‘the biggest increase in decades”. Are you feeling a warm glow now?

So, who is paying for all this? Not us workers surely. We are getting tax cuts because tax thresholds are increasing, lowering our average rate of tax.

That’s the conjuring trick. Check out the budget tables. Forecast tax revenues rise by 28% between 2016 and 2021. That matches the forecast growth in gross domestic product. (CPI inflation is 10-11%.) That’s a classic election year “tax cut”.

Basically, that additional spending represents less spending by those who earned the income being spent. Are we all better off nonetheless?

We would be if we would have spent or given away our money on the same things.  But then it would not have been necessary to tax us.

In short, what is critical is the quality of existing and proposed spending. Don’t expect much information about quality in an election-year Budget. If enough voters want the illusion of a lolly scramble, that is what we will all get. 

Stay in the loop: Subscribe to updates