Election 2024: Spending plans

 

This blog will take a closer look at expenses in the government’s budget as updated in the 2023/24 Revised Estimates Report (RER) issued 15^th February 2024.

At first glance it is clear that operating expenses show a small decline over the 4 year period, from $9,014 million to $8,987 million.

It is also clear expenses contain an increasing amount of interest/debt servicing costs and depreciation (highlighted in red). If these are removed, we end up with a figure for operating expenses before interest and depreciation which show a fall over the 4 year period. That’s what the current government is planning to do – spend less each year. With services already stretched it is unlikely things will improve. If expenses are adjusted for inflation as per the CPI figures in the RER the situation is even more dire. The following table gives the detail:

General Government expenses $m
	23/24	24/25	25/26	26/27
Expenses as per RER	9,014	9,009	8,877	8,987
less interest & depreciation	927	1,010	1,090	1,154
Operating expenses before interest & depr	8,087	7,999	7,787	7,834
CPI increase %	3.25%	3.25%	2.50%	2.50%
CPI adjustment factor	1.0000	1.0325	1.0583	1.0848
Expenses adjusted for inflation 23/24 prices	8,087	7,747	7,358	7,221

 

Operating expenses before interest and depreciation are forecast to fall over the next 4 years, by $253 million, from $8,087 million to $7,834 million. In real terms after adjusting for inflation the fall is $866 million to $7.221 million (in 23/24 dollars terms).

That’s a fall of 10 per cent? Won’t that mean a reduction in services of around 10 per cent? That’s what the government is planning to do.

Eagle eyes would have spotted negative expenses under the label ‘Other expenses’. These are highlighted in purple. It’s not often one sees negative expenses in an Income Statement. What are they?

In order to arrest the downward spiraling fiscal balance noted in the last blog on Budget Sustainability the government included Budget Efficiency Dividends (BED) of $300 million in its 2023/24 Budget handed down in May 2023. Of that amount $50 million was to be found in 24/25, $100 million in 25/26 and $150 million in 26/27. The process of identifying which programs are to be axed hasn’t been undertaken, hence the BED amounts were lumped in as negative ‘Other expenses.’

That’s the challenge ahead for whoever sits on the Treasury benches after the election, to identify the BED amounts, find funds for all the inevitable election promises yet stop the fiscal balance spiraling out of control. Pollies are living in Dreamland. Either that or they’re conspiring to con voters.

Hopefully electors will start asking candidates how they propose to tackle the challenges ahead.

The next blog will take a closer look at debt servicing costs taking an increasing share of languishing revenues.