Wake up and smell a budget stinker: Kohler

As everyone in business knows, a forecast is just a forecast. In times like these, it’s not even that; it’s a guess that you hope won’t look too stupid.

The World’s Best Treasurer has had to redo his budget because the one he did six months ago has turned out to be wrong. We told him at the time it would be, and so it was, but the new one looks worse – a shocker.

The forecast for GDP growth this financial year has been cut from 4 to 3.25%, or by 19%; the revenue forecast has been reduced by just 1.7%.

Economic growth for 2012-13, about which nobody has the faintest clue, has been reduced by 13% to 3.25%. Revenue for that year has been trimmed by only 1 per cent.

Total tax receipts in 2010-11 were $280.8 billion (that’s the actual outcome, not a forecast).

In the current financial year receipts are forecast to be $315.3 billion – a rise of $34.5 billion, or 12.3%. In 2012-13 they are now forecast to be $374.5 billion – $93.7 billion greater than the outcome for 2010-11, which is an increase of exactly a third.

Do these forecasts pass the smell test, Mr Chairman? No way Swanny, go back and try again.

In fact, what would happen if revenues for some reason turned to be flat for a couple of years? What would that do to our bottom line in 2013? Er, well, if that happened the 2012-13 deficit would be, um, $50 billion.

OK, how about this Wayne… given we’re facing the most uncertain economic outlook in our lifetime, with the prospect of a severe recession in Europe, possibly one in the US and a slowdown in China, and the probability of much lower commodity prices, the board will allow you to forecast revenue growth of no more than 5% a year for the next two years. That would seem prudent, wouldn’t you say?

Now, as you know Wayne, we do need to run this business at a surplus in 2012-13 because we are facing a takeover from those bastards at Abbott & Co, so what would we have to do with expenses between now and then to report a surplus in 2012-13 under that scenario?

Well, um, that would mean revenue in 2012-13 of $308.7 billion. Actual expenses were $346.1 billion in 2010-11, so that’s a spending cut of $37.4 billion over two years, Mr Chairman. Right Wayne – the board thinks you should implement that.

That just illustrates the political importance of having implausible revenue forecasts that no one can disprove: $37.4 billion is a lot of welfare programs and/or a lot of public servants. Shadow Treasurer Joe Hockey says the Labor government has hired an additional 20,000 staff since 2007; sacking them all would only save less than $2 billion in salary and on-costs.

Will government revenues grow by 10% between 2010-11 and 2012-13 or by 33%, as forecast in yesterday’s MYEFO? Absolutely no one knows, least of all the bozos running Treasury’s macroeconomic models downstairs in Langton Crescent. But does 33% revenue growth feel right, given everything we know about the world at the moment? Nah, it feels ridiculous.

But the wonderful thing about politics, as opposed to business, is that your board consists of executives who want spending cuts even less than you do, and you get to have a press conference at which you announce forecasts and guesses as if they have happened already. No wonder the world is a mess.

This article first appeared on Business Spectator.