The economy is getting worse, but the Budget’s getting better.Chris Richardson, Deloitte Access Economics
Ah yes, the Federal Budget. The annual event that mixes economic promise with so much overused jargon that even economics students blink twice. Best of all, it’s happening TODAY!
But reality check: after I read the above quote from Deloitte, I got inspired to write this blog post. It sounds like a really simple question but it could be very muddied up during election campaigns as I’ve found out already first hand.
What is the real difference between the Federal Budget and the economy?
So I decided to ask some experts. Here’s what they came up with:
Lesson 1: The Budget is only PART of the economy – no matter how much they try to make you believe otherwise
Consider this well-rehearsed economics equation. (Ta, Tim Harcourt of UNSW Business School). It’s lesson one (or two) in first year macroeconomics and simply explains how a nation’s GDP is calculated.
In this case, let’s talk about C + I and most importantly: G. G is the economics code word for “government spending” — and that’s where YOU come in. And by you, I mean your taxes. For all the parties’ rhetoric, it’s your cash that’s being spent towards all sorts of projects – i.e. the economy.
So that’s the first thing. The Budget is only part of the economy – but whatever comes out of it significantly impacts the economy. That’s why even if you don’t love learning more about the workings of money: you should pay attention.
Lesson 2: It’s good as long as it’s a priority – or at least, not theory
“Fictional”, “theoretical”, “hopeful” — three words that probably sum up most voters whether you’re talking about the Budget or not. But James Whelan of VFS Group is not wrong. While tax cuts, spending for more hospitals and infrastructure project plans toot people’s horns and first preferences – they’re only as good as the time it takes for the government to keep them as a priority.
In other words: hold your horses and against all moral virtue, keep your expectations as a voter low.
Lesson 3: Just like Christmas, it’s a lingering memory until next year.
I love this analogy from Shane Oliver, Chief Economist of AMP Capital. It’s like a once a year hangover and it doesn’t even require beer. The Christmas effect will be (unfortunately but understandably) extra true this election year. After all, swing voters are everywhere and some 1 in 4* of us (estimate) only cast a vote because we have to. So handouts are particularly terrific if that’s all you need to make up your mind!
Of course, if you’re not as easily convinced – then you’d be in Shane’s camp. Your contribution will only come by real, hard work and not just a one-night wallet boost.
Lesson 4: Budget numbers are accurate as long as they’re tested in … a dirty economy
This one is particularly true – and speaks for itself. The Budget is after all, hallmarked by a speech. A speech that provides an estimate of the future by a government who hopes to keep said promises and deliver them in some form of exact dream sequence.
Unfortunately for them, there’s a little thing called ‘uncertainty’ – a little spanner in the works which can ruin such plans. While the pollies may be great with words, it’s the economy’s numbers that don’t lie. In the economy, it’s the observers who interpret the numbers while at the Budget and you – the consumer – who react to those numbers whether you understand the impact of your decisions or not. There’s context for every policy proposal!
(I mean, no one has time to read through every single page of the darn document. The first part of last year’s budget alone is 342 pages long!)
The above may have all been obvious to you – but if at least one part of it hasn’t, then at least my explainer partially worked. So back to that opening quote: how can the budget get worse when the economy is getting better?
Unemployment is improving. The last survey came in at 4.9% – an 8 year low. But corporate profits are booming and we have ultra low wage growth in this country – it’s so low that some are proposing the living wage to take the place of the minimum wage. Exports are moving in the right direction – but how long can it last considering ongoing trade tensions between the world’s two largest economies and falling commodity prices:
But what about house prices I hear you say? Well that’s a bubble that’s been waiting to burst for years and as any rational human being would do – hold out until you think it’s hit rock bottom. Unfortunately, that means not putting money towards other forms of economic stimulation while you try to hold out. So while the budget may produce that wonderful buzzword:
How long can it really last? And is the “better” and surplus-alleged budget a one off? A change of government might determine the fate of that too.
The Budget is bound to have more money for the coffers and for your wallet. But don’t forget – the cash splash still lasts one night only. The economy doesn’t and neither does the impact of your vote. You’re welcome.