Wine the big winner post 2011 Budget night

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It's hard to please all of the people...

Yes, that’s right. You heard all about it here first. The good news of the day is the successful launch of Fosters’ wine business as a company of its own – Treasury Wine Estates. I for one, intend to celebrate that with a lovely glass of red at the earliest convenience. And while i’m at it, maybe there will be time to read some of the fine-print on the 2011 Budget…

Last night Australians switched their TV sets to the news channels to learn all about the latest changes to the Federal budget that will enable us all to live healthier, wealthier and happier lives.

Most promptly switched back.

Of those who did not, polls reliably tell us that 83.7% had fallen asleep, while 16.2% were bored men who were sleeping on the couch for one reason or another, and couldn’t find the remote or be bothered changing the channel. The remaining 0.1% of the viewing population were gripped with tension as they worked through the likely ramifications to their world of budget changes. This post is not for those people. They have already worked through a series of spreadsheets, and determined their likely position to within a 4% error margin.

This post is devoted to the 99.9% of the population who are only vaguely interested in something that compels the Australian Financial Review newspaper to add a 32-page liftout to their financial daily. Simon in our office here had only one comment, “there must be a lot of pictures”.

Having trawled through the “we’ve stayed up all night to bring you the definitive budget analysis” reports waiting for me in my inbox this morning, it’s all i can do to stifle a rather large yawn. I have so far read eight of them, and am feeling decidedly deflated.

It seems that there are $22bn of savings but they are offset by $18bn of expenditure – leaving Treasurer Wayne Swan to announce that “The fact is that our saves are $5bn greater than our spends”. Apparently the savings are part of a plan to “limit real growth in spending to 2 per cent each year”… Pardon? Yes, it seems our government is going to save $5bn and magically manage to only spend 2 per cent more. Pardon?

This is where spin meets reality.

Of the $5bn in savings, “$1.3bn will come from Defence capital investment changes and $1.2bn in increased Defence efficiencies”, while $1.1bn will come “from government departments through an efficiency dividend”. Call this little fellow a cynic but half the savings coming from government “efficiencies” sounds a little dubious, and $1.3bn from capital investment changes by the Defence department also sound just a tad vague. No doubt further rumination through the minutae in the wee hours of the morning will enlighten that point. We are up to $3.6bn of savings that don’t seem very concrete (all these quotes are from articles in the AFR liftout 11 May 2011, predominantly “$22bn saved to enable tweaks”). And it seems that “$945 million will be saved by deferring infrastructure projects”. Excuse my merry mirth…. at what point in time did any money ever get saved by delaying infrastructure projects? In an inflationary environment, what is the likely cost of a $945m project in 6 years time?

This is not really a political post, it is more an attempt to highlight some of the money manipulation that goes into setting up a budget on a national scale.

$5bn in savings in a Federal Budget for a government with receipts of $342.4bn is hardly a big effort. You could take the Greens’ political position and argue that too much focus has been put on bringing the deficit into surplus within 3 years. Is it really that important to do this? Only time will tell but it does seem a good idea to keep a tight lid on spending when income is theoretically very high at the moment owing to Australia’s 140 year high point in our terms of trade. In other words, if we are currently receiving above average prices for our exports then it would be dangerous to increase your fixed costs on the assumption that prices will stay that high. So trying to limit expenses is a good idea.

It is a rare thing for me to agree with any politician but there may be more than a little merit in the comments of Colin Barnett – the budget did not seem to do very much at all to address the fact that the vast bulk of the country (ie, outside of the mining industry) is having a very hard time of it currently. The mining industry is massively profitable overall but employs a very small part of the working population (around 2% depending on when you time your survey), and even allowing for a “multiplier” of contractors and hanger-on’ers that figure is unlikely to reach more than 10% nationally (a lot higher in WA and Qld). So keeping mining related businesses aside, a 1% drop in tax rates isn’t going to stop the large increase in businesses going to the wall. Nor were there any national attempts to make genuine changes to Australia’s housing balancing act – yesterday’s Australian newspaper reminded us that on the other side of the world, US home prices have fallen for the 57th consecutive month, with many analysts suggeting a further 5% to 10% fall yet to come! Infrastructure seems to have been given the short end, at a time when forecasters are suggesting the continuation of a massive investment boom.

Looking at the spin again, the articles looking at the budget in more detail are suggesting that the bulk of the savings are coming in later years – i’ll have to check to see whether they are likely to be post the next elections…

Does anyone else feel like we’ve just had the budget you have when you aren’t having a budget?

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  1 comment for “Wine the big winner post 2011 Budget night

  1. May 11, 2011 at 7:50 pm

    I agree Michael, a budget by any other name… The major comic issues such as housing affordability, retirement funding (to name two) take a backseat to pensioner set top boxes and “trimming” the previous budget… A noticeable non-event as far as budgets go, with or without pre-budget releases.

    Thanks again for your musings.

    Ryan Grant | WRS

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