Is this the end of the 'annual' budget as we know it?

Thu, 19 May 2011 13:23:00 +1000

Events can occur that render forward estimates in budgets obsolete in a relatively short time frame.

Given the increasing emphasis on forward estimate figures in government budgets, it is timely to examine past budgets to determine their accuracy. Take the Commonwealth budget released three years ago in May 2008. That budget projected a surplus for each of the 2010-11 and 2011-12 financial years of approximately $19 billion. The budget released yesterday now projects these figures as deficits, not surpluses, amounting to $49.4 billion and $22.6 billion respectively. Hence, the total turnaround in the budget outcome for the two years 2010-11 and 2011-12, from that projected three years ago, amounts to $110 billion.

Budget credibility must increasingly be questioned given the many uncertainties inherent in forward estimate figures, as exemplified in the current Commonwealth budget. Budgets are no longer applicable to only the ensuing 12 month period after their release. Despite yesterday’s budget being designated as covering the 2011-12 financial year, and the related appropriation bills also being for that annual period, the figures in the forward estimates are being given greater prominence than ever before.

Take, for example, the first figure stated in the budget speech. The treasurer announced the delivery of $22 billion in budget savings. But further examination reveals that only 17.3 percent of these savings are to be in the next financial year. The greatest portion of the savings for a single year, slightly over 7 billion or 32 percent of the total spending, will not be delivered until the 2014-15 financial year, the last year of the forward estimates. That will also not be until after the next election.

A similar picture emerges for spending initiatives, as summarised in the budget overview. Spending under the heading ‘Investing in regions’ is projected to amount to $1.5 billion. But less than 12 percent of that will occur over the next financial year. Slightly over half a billion dollars, or 34 percent of the total amount, is budgeted to commence only after 1 July 2014.

Much was made in the treasurer’s speech of mental health spending. For this initiative amounting to $918 million, only $36.7 million, or four percent, will occur over the next financial year. Again the largest proportion of this initiative for a single year, $407 million or 44 percent, is not projected to occur until the 2014-15 financial year. When the budgeted expenditure for the 2013-14 year is also considered, the result is that over three-quarters of the mental health initiative will not commence for two years.

A similar picture emerges for the ‘Building Australia’s future workforce’ initiative, amounting to almost $600 million. Only $101 million, or 17 percent of this amount, is budgeted for the next financial year. Over one-third of the expenditure will not commence for three years.

Any projections can be notoriously unreliable, but this is especially the case for forward estimates in Commonwealth budgets. As the forward estimates extend over four financial years, they will always encompass an election period. Can anybody really take any projections extending past the next election seriously?

This article first appeared on Deakin Speaking,  a blog for Deakin University’s academics to provide diverse and robust opinion and comment arising from their key areas of expertise as well as about issues and contemporary news in their areas of interest within society as a whole. We hope you find the commentary interesting, informative and insightful.


Professor Graeme Wines
Professor Graeme Wines
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  • Budget credibility must increasingly be questioned given the many uncertainties inherent in forward estimate figures, as exemplified in the current Commonwealth budget.
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20th August 2012