Cossie's budget wrong again, net worth of Government in the red

4. How Cossie gets his budget badly wrong every year



By Stephen Mayne

Alan Kohler was right to give Peter Costello a spray on Inside Business yesterday in an editorial that opened as follows:

The 2005 financial year Budget outcome was published on Friday, with a final surplus of $13.6 billion. That means the estimate in the May federal Budget was out by more than 50 per cent, or $4.4 billion. Now that's bad enough, after all it was only a month before end of the financial year. That sort of error in the corporate world would see the chief accountant counselled, if not sacked. But in the government world he'll be made chief executive.

We've crunched the numbers and the table below shows they are not pretty as far as Cossie's record as a budget forecaster goes. On average since 1999-00 (when accrual accounting was introduced), his full year-ahead projections of the underlying cash balance have been out by more than 200%; the Mid-Year Economic and Fiscal Outlook projections (typically made about 7 months before the end of the financial year) have been out by almost 200%; and the projections made in the budget for the following financial year (ie, about seven weeks before the end of the financial year) have been out by about 75%.

And have you noticed that the final outcome has almost always been "better" than projected, whether in the original budget, MYEFO or the budget for the following financial year – with the exception of 2001-02 which was the year when the economy slowed unexpectedly and the budget went into deficit. Typically, the biggest taxing Government in Australian history underestimates its tax take.

If Costello was CEO or CFO of a publicly-listed company, and sat for more than 3 months on knowledge that the company's end-of-year financial result was materially very different from that expected by the market, he would be guilty of a pretty serious offence. Indeed, ASIC has just been given new powers to issue on the spot fine for companies that fail to comply with continuous disclosure requirements that investors must be kept fully informed.

The Commonwealth bond market appears to have been seriously misinformed. Why, in this as in so many other aspects of financial reporting, is the Government not bound by the same laws and regulations that governments impose on corporations?

Cossie's lame forecasting record - the evidence

Year	Budget	Mid-year update	Next Budget	Outcome
1996-97	-$5.65bn	not done	-$6.89bn	-$5.28bn
1997-98	-$3.85bn	-$2.75bn	-$1.1bn	$1.17bn
1998-99	$2.69bn	$3.27bn	$2.88bn	$4.34bn
1999-00	$5.21bn	$2.69bn	$7.79bn	$13.06bn
2000-01	$2.84bn	$4.33bn	$2.25bn	$5.97bn
2001-02	$1.52bn	$0.5bn	-$1.19bn	-$1.06bn
2002-03	$2.09bn	$2.14bn	$3.92bn	$7.48bn
2003-04	$3.66bn	$4.64bn	$4.59bn	$8.04bn
2004-05	$2.39bn	$6.21bn	$9.23bn	$13.62bn
2005-06	$8.92bn	to come	to come	to come

22. Negative net worth of the Commonwealth



By Stephen Mayne

Here's an interesting chart in light of the Federal Government's staggering $13.6 billion cash surplus for 2004-05, which was confirmed by Peter Costello at 11am on Friday in a brief Melbourne press conference called at short notice that was scantily reported amid the grand final excitement.

It tracks the net worth of the Federal public sector and shows that despite this avalanche of cash, we're still technically insolvent. However, having inherited a negative net worth of about $65 billion and a budget deficit of almost $10 billion from the Keating Government, Cossie has certainly turned things around dramatically.

You can see how important T3 will be in the quest to achieve the wonderful goal of the Feds being worth nothing by 2009-10. For some reason, the Howard Government never talks about this negative net worth, preferring to bang on about reducing $70 billion of Labor's $96 billion debt.

Of course, this conveniently ignores the $15 billion blowout in unfunded super liabilities to $90 billion over the same period, but this is belatedly being addressed with the so-called Future Fund.

Commonwealth Government Net Worth

1996-97: -$74.35bn
1997-98: -$68.54bn
1998-99: -$76.15bn
1999-00: -$40.55bn
2000-01: -$43.30bn
2001-02: -$48.32bn
2002-03: -$53.25bn
2003-04: -$39.59bn
2004-05: -$31.98bn
2005-06: -$27.78bn
2006-07: -$20.42bn
2007-08: -$13.71bn
2008-09: -$5.92bn

Copyright © 2022 The Mayne Report. All rights reserved

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