Tuesday, December 19, 2017

Turnbull's economic luck: more forecast than actual

It's usually in the interests of us followers to have a leader who is lucky. Malcolm Turnbull has had his share of bad luck but, of late, his fortunes seem to have changed. Latest proof is the mid-year budget update.

According to Scott Morrison and Mathias Cormann, everything is much improved. Although previous mid-year updates have revealed less progress than expected at budget time, this time the budget deficit is expected to be $5.8 billion lower than forecast in May.

The overall budget balance is still expected to be back in (a slightly larger) surplus in 2020-21, and this financial year is expected to be the last one in which the government needs to borrow to cover the day-to-day activities of government (as opposed to its spending on infrastructure), a year earlier than expected.

This means the Commonwealth's gross public debt is now projected to be $23 billion lower than expected by June 2021.

As for the economy, the Turnbull government's unwavering pursuit of Jobs and Growth has turned this from slogan to reality, we are told.

The economy is steaming on, but growth in employment – particularly full-time jobs – has been remarkable.

Well, yes – up to a point. There's good luck in the hand, and there's forecast good luck. Federal governments have been forecasting good results since the days of Wayne Swan and Julia Gillard – so far without much luck.

I would say we can give a fair bit of credibility to what is expected to happen between now and June, but forecasts and projections out another three years to June 2021 remain just that – forecasts.

The fact is that the government has had to revise downward its forecasts for the economy this financial year, but has left its forecasts for the following three years largely unchanged. Well, maybe, maybe not.

The government's forecast in May of a return to budget surplus by 2020-21 rested heavily on its prediction that, despite the extraordinary weakness in wage growth over the past four years, over the coming four years it would steadily return to boom-time rates.

Now these highly optimistic expectations have been shaved back, but only a little. I hope they come to pass, but I wouldn't bet much on it.

But what of the government's attempt to claim credit for the remarkably strong growth in employment over the past year?

I hate to shock you, but governments have been known to claim the credit for improvements that came to pass on their watch, even though the seeds of that improvement were sown before their time.

The surge in full-time jobs is explained largely by the delayed rollout of the National Disability Insurance Scheme (initiated by Gillard) and by the NSW and Victorian governments' increased spending on road and rail infrastructure (for which Joe Hockey can share some credit).

But if some of Turnbull's newfound air of success and optimism rubs off on the rest of us that, at least, will be no bad thing.