Labor's Budget Lie

In a desperate bid to escape responsibility for their gross fiscal mismanagement, the Gillard Government today announced that this year's Federal revenue will be $12b less than expected.

This is, of course, primarily the fault of the government, as a combination of poor economic modelling, ill thought out policies (like the mining tax that raised... nothing... and the (predictable) collapse of the European Carbon Market to which our carbon tax is linked), and the effects of economically contracting tax hikes like the  carbon tax finally take hold. However, this isn't the important thing to note. Focussing on the 'deficit' actually misses the point:

Australia does NOT have a revenue problem. We do not even have a 'deficit' problem. We have an OVERSPENDING problem. 

Revenue has keep increasing. As the Australian points out "on today's update, federal tax revenue will be about $340bn in 2012-13, down from the forecast of $352bn last October but up about 7 per cent on tax revenue in 2011-12 of $316.8bn."

Professor Sinclair Davidson post this graph to help illustrate the point:

It is is crystal clear that the problem ISN'T revenue, but rather out of control spending.

But - even if there was a revenue problem - the solution is STILL to cut spending. In the same way that a family cuts spending with their revenue decreases, then so must the government. Particularly at this point in the economic cycle, where the economy is rather fragile,  tax increases are out of the question. Similarly, continuing deficits at a time the economy is growing is something not even the most hardened neo-Keynsians who support deficit financing in principle during economic downturns would accept.

Unfortunately, it seems our government is set to continue it's foolish course of recklessly spending ourselves into bankruptcy and hastening our decline to the status of Greece.


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