Thursday, April 23, 2009

The Numbers Don't Lie

I see that Labor is “leaking” that the budget deficit could be as high as $50 Billion. This is about right when you look at the numbers.

Here’s the ABS report on tax revenues for the last few years. It features never ending increases in taxation income from all sectors – not one tax area declining – wouldn’t we all love a revenue side like that! The Howard government benefited from ever increasing taxation revenues as the economy boomed.









Look at the Commonwealth’s profit and loss for the last two quarters:

$m



Sep Qtr 2008

Dec Qtr 2008

GFS Revenue



Taxation revenue (a)

60,829

73,736

Sales of goods and services

1,578

1,557

Interest income

1,651

1,386

Dividend income

1,996

366

Other

1,245

1,958

Total

67,298

79,003

less



GFS Expenses



Gross operating expenses



Depreciation

680

712

Employee expenses

5,648

5,729

Other operating expenses

13,741

15,161

Total

20,070

21,602

Nominal superannuation interest expenses

1,519

1,629

Other interest expenses

1,105

1,072

Other property expenses

0

0

Current transfers



Grant expenses

21,527

22,541

Subsidy expenses

1,883

2,018

Other current transfers

22,004

30,968

Total

45,414

55,527

Capital transfers

1,960

1,435

Total

70,067

81,265

equals



GFS Net Operating Balance

-2,769

-2,263

less



Net acquisition of non-financial assets



Gross fixed capital formation

1,143

498

less Depreciation

680

712

plus Change in inventories

25

123

plus Other transactions in non-financial assets

30

34

Total

517

-58

equals



GFS Net Lending(+)/Borrowing(-)

-3,286

-2,205

We see here that before the last two payments to bludgers which has added to government debt rather than going through these books, that they are already running a $2-3Bil per quarter deficit. Let’s assume that expenditure will not decrease or increase. Or, any extra payments for increased unemployed will be offset by some minor cuts in services or increases in taxes.

Cost blow out is not the problem – it’s the revenue side. It gets a great deal scarier here. Revenues from everything simply have to decline.

For the full year 2007-8, government revenue was made up of the following:


2007-08


$m

Taxes on income


Income taxes levied on individuals


Personal income tax

124,212

Prescribed payments by individuals

0

Fringe benefits tax

3,796

Other income tax levied on individuals

0

Total

128,008

Income taxes levied on enterprises


Company income tax

66,661

Income tax paid by superannuation funds

11,916

Prescribed payments by enterprises

0

Total

78,577

Income levied on non-residents


Dividend withholding tax

408

Interest withholding tax

1,179

Other income taxes levied on non-residents

409

Total

1,996

Total

208,580

Employers payroll taxes


Other employers labour force taxes


Superannuation guarantee charge

381

Total

381

Taxes on property


Taxes on financial and capital transactions


Government borrowing guarantee levies

15

Total

15

Taxes on the provision of goods and services


General taxes (sales taxes)

1,105

Goods and services tax (GST)

44,381

Excises and levies


Crude oil and LPG

15,085

Other excises

8,441

Agricultural production taxes

600

Levies on statutory corporations

170

Total

24,297

Taxes on international trade

6,081

Total

75,863

Other

832

Total

285,672

Let’s say the current run rate of revenue per quarter is $67B. Revenue is therefore $268Bil – already down on last year by $17B.

Now let’s look at how the revenues are likely to deteriorate further:

Company tax – this must be at least halved and quite possibly worse if you take into account the accelerate depreciation provisions the government is pushing ($33B)

Superannuation tax – contributions will still be taxed but there will be less of them, however, the 15% tax on capital gains is GONE. Let’s assume that half the income from this tax is the gain part and we end up with a net loss ($6B)

Other Income stuff ($1B)

The next biggie is the GST and here we see the benefit of the government’s largesse coming back to them because all that money they have borrowed and put into the economy as payments to bludgers will come back in part as GST revenue…does it get any better? Given retail sales declines expected, unless they keep borrowing and stimulating, then we should see a marginal decline in GST revenue. I’m picking 5% decline or ($2B)

Fuel excise is determined by the overseas price of oil and the pump price and also reflects the power of the economy. Oil prices have dropped and so has petrol (but not by as much of course) and we're consuming less. I reckon take 20% off or ($3B).

Total lost revenue: $45B

I would expect that the government will raise a whole host of indirect taxes as well as prattle on about how they are going to target the rich to stop them avoiding tax (but not trust funds of course). It will be the usual claptrap.

Add the current run rate of, say, a $10B deficit to the new lost revenue of $45B and we get to around the “leaked” expected deficit figures.

What I am most interested in hearing is the government’s forward estimates which will tell us about what the balance sheet will look like after 4 years – about the end of this recession – so we can see what this whole thing will end up costing the kids.

We have some serious increases in taxes coming that I am sure of!

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