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The budget position

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D eputy L eader of the Opposition Parliament House Canberra, A.C.T. 26ου



Since the election there has been considerable debate

and comment about the currently projected size of the

1983/84 budget deficit.

The government has already used and will no doubt

continue to use allegations of budgetary problems

claimed to have been inherited from the former

government as an alibi for not fulfilling promises

the Labor Party made during the recent election campaign.

The budget options facing the government will naturally

be an important part of the discussions to take place

at the forthcoming Economic Summit»

With these things -in mind, J. think it is important to

set forth in some greater detail certain developments

in the Australian economy over the past six to nine

months, particularly so far as they have affected the

current budget and therefore the likely shape of next

year's budget.

"In making this statement I attack "the quite cynical and

misleading use to which Mr Hawke and his colleagues

have put the deficit projection of $9,600 million.

. r

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I attack their use of that figure on four grounds.

Firstly, estimates of this kind at this time of the

year are notoriously unreliable guides to the ultimate


Secondly, Mr Hawke and his colleagues know full well -

as do the Australian people - that there is no way

the former government would have tolerated a deficit

anywhere near $9,600 million for 1983/84.

It is -quite dishonest of Mr Eawke \ as "he did In "his

Sydney Morning Herald interview on Saturday 2nd April)

to suggest that the Fraser Government had that kind

of deficit in mind. .

Thirdly, the Labor Party's latter day concern for

the size of budget deficits flys in the face of all

its pre-election statements - particularly those

of Mr Hawke who advocated policies which would have

produced a deficit of at least $6,600 million In

1982/83 and by implication much more in 1983/84. '

Fourthly, the Labor Party made its pre-election

. promises with reckless indifference to their effect

on the budget deficit and now seek to retreat from

them by claiming they were misled by the former

government. · ; · -

2 .

1 I


3 .

I acknowledge that the government does face a difficult

task in framing next year's budget.

That task has been made the more difficult .by the very

expensive range of promises made during the recent

election campaign by the Labor Party.

I emphasise that all of those promises were made by the

Labor Party before any public comment by any member of

the■former government regarding the size of the 1983/84

budget deficit. -

In no way therefore can any member of the government

fairly or truthfully say - as some have implied - that

the Labor Party was induced into making the promises

it did on the basis of some misleading indication about

the likely size of the 1983/84 deficit from the former

government. · .

The truth is that the Labor Party's election campaign

promises were made with very little regard for their

likely effect on the 1983/84 and subsequent budget

deficits. ■

This is hardly surprising as it has only been since

the election that the Labor Party has shown any real

concern for the budget deficit. . -

4 .

During the election campaign the deficit did not

matter much at all to the Labor Party. Mr Hawke

told us all "to throw away our calculators."

I repeat that there is no way that the former

government if re-elected would have tolerated

a budget deficit in 1983/84 anywhere near

$9.6 billion. .

My own views on the size of budget deficits are

well known. During the election campaign I said

on a number of occasions that I was uneasy about

the size of the 1982/83 deficit and that I would

in the event of the then government's re-election

be advocating the lowest practicable deficit in


Estimates of budget deficits made at this time of

the year have proved to be quite unreliable on

-past occasions.

In fact"during the time I was Treasurer, my former

department frequently advised against placing too

much reliance on estimates of likely revenue and

expenditure made several months ahead of the date

or event to which they related.

5 .

This attitude did not surprise me and I fully

understood and sympathised with their reason

for caution. A forecast made five or six months

before a budget is to be brought down, must

inevitably be a very precarious exercise.

Within the space of only a few months - sometimes

an even shorter period - assumptions on which

certain estimates of both revenue and expenditure

have been made, can change very sharply, thus

rendering estimates previously made, guite


The estimates released by the Prime Minister on the

18th March are based upon a very gloomy prognosis as

to economic growth. The Treasurer himself does not

appear to share this gloom. He was widely reported

in the press during the week of the 18th March and

again on the 21st March, as having said that by the

beginning of 1984, the economy would be showing signs

of strong growth. I hope Mr Keating is right. If he

is, then the assumption as to growth on which the ·

figures released by the Prime Minister have been

' calculated, will be proved wrong.

6 .

Furthermore, the Prime Minister himself said at the

press conference the day he released details of the

budget estimates, that he believed growth in 1983/84

would be approximately· double the projection of 0.5%

on which the Treasury estimates had been based.

A variation of a mere 1% in the forecast for average

weekly earnings can mean a change of approximately ;

$300-$40O million in a revenue forecast. This is a

further illustration of the difficulties inherent in

forecasting exercises of this kind. ;

I have no doubt that the expenditure estimates released

by the Prime Minister do contain - in the words of the

Treasury minute attached to the Prime Minister’s

.statement - some "fat". ·

Now that the government has released 'fuller details

of forward estimates of expenditure it will be

possible to make a clearer determination of this.

7 .

In assessing how genuine the allegations of the Prime

Minister are against the former government, two very-

relevant considerations should be borne in mind.

Firstly, the Labor Party has always believed in and

advocated much higher budget deficits than did the

former government. For seven years the Labor Opposition

complained that -the deficits of the Liberal Government

were too small, too contractionary, too mean and too

obsessed with the cause of budgetary restraint-

Both before and during the election campaign the Labor

Party adopted a cavalier approach towards the size of

the budget deficit. '

The Economic Statement released by the Labor Party

on the 22nd February last, which was Labor's main

economic statement during the election campaign, .

described the expanded budget deficit for 1982/83

(which was by then in the order of $4,000 million)

as being "still contractionary".

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8 .

It is worth setting out what is said on page 10 of

that statement regarding the budget deficit. It

clearly portrays Labor Party thinking about budget

deficits and in so doing reveals the hypocrisy of

the hand wringing exercise in which the new government

has indulged over the past few weeks.

" ... It is clear that the Treasurer intends

_- that the next budget should continue the

contractionary policies of the past. The

deficit increase during 1982-83 was

overwhelmingly the result of the depression

causing increases in unemployment benefit '

payments and reducing taxation receipts..

However, this deficit is still contractionary

for if there were full employment there would

be a huge surplus." .

Secondly, the Australian economy deteriorated much

more sharply and went into deeper recession during

the last half of 1982 than had been predicted at

the time the last budget was brought down.

9 .

This is the major - although not the. only- -■ reason

for the far more difficult budgetary task in 1983/84.

I recognise that the last budget contained certain

measures the full year effect of which meant a higher

deficit in 1983/84 and therefore a more difficult

budget task in that year.

In this same context it should also be recognised that

if the former government1s wage pause initiative

continues, this too in the short term will have the

effect of enlarging the budget deficit. However, in

the longer term, the beneficial employment consequences

of the wages pause will produce favourable budgetary

consequences. These factors are expressly canvassed

in the Treasury minute attached to the Prime Minister's

statement of 18th March.

The 1982/83 budget was by far the most difficult of

the 7 budgets the former government framed. '

When brought down, It projected a deficit of $1,674

million which was then calculated to be about IS of

Gross Domestic Product.

1 0 .

As I said in my budget speech, it was necessary for the

government on the one hand to recognise that the then

economic conditions caused real hardship to many

Australians and on the other not to lose sight of the

need to maintain an economic strategy which was "both

responsible and which effectively addressed those

economic developments which had contributed to our

present situation.

The Government endeavoured in that budget to balance

those two considerations in the fairest and most

responsible way possible.

Amongst other things, the budget contained significant

personal taxation relief and other assistance,

specifically designed to give maximum .help to Australian

families, especially those on lower and middle incomes

and also a significant shift in emphasis towards capital

works expenditure including a special roads program,

with, beneficial employment consequences. - '

1 1 .

i;t should be recalled that both the level and the

structure of the personal taxation concessions contained

in the budget had an eye to the cause of wage restraint.

The Government had extensively consulted the trade union

movement before details of the budget were settled.

Many of the points put to the Government by representatives

of the trade unions in those discussions found their

way into decisions ultimately taken by the government.

The Government had genuine reason to believe at the time

the budget was brought down, that the taxation and

other concessions would greatly increase the climate

.for wage restraint which was then seen as being absolutely

critical if some of the worst effects of the recession

were to be mitigated.

It is worth, recalling now the response of the then

Opposition to the 1982/83 budget.

Mr Hayden described the concessions contained in the

budget as "limited and belated and cynical".

The Labor Opposition argued that the government should

have provided much larger tax cuts and .in his .reply to

the budget speech, Mr Hayden said:

1 2 .

"But even though we're anxious that the people get some

of the compensation they deserve, they shouldn't be

misled into thinking that it's as much as they deserve.

This sole positive point in the Budget is neither as

positive nor as bountiful as the government says it is."

In his- reply to the budget speech he advocated a

domestic deficit of between $1,000 and $1,500 million..

The actual deficit in the government's budget, implied

a domestic surplus of $230 million so Mr Hayden in

effect advocated at the time of the budget an overall

deficit of $2,800 to $3,300 million which was almost

double that for which the government aimed when the

budget was brought down. .

Whilst the deficit aimed for in last year's budget

was seen ±>y some as too high it was still only 1% of

Gross Domestic Product which by the standards of the

OECD areas was still a very small deficit.

1 3 .

Indeed, the present Prime Minister was to say on a

number of occasions after the budget was brought down

that it would have been perfectly in order to have a

budget deficit the average of those countries belonging

to the OECD.

In other words, Mr Hawke was advocating a

budget deficit in 1982/83 of about 4% of Gross

Domestic Product.

Translated into dollar terms a deficit in 1982/83 of

4% of Gross Domestic Product would imply an outcome of

about $6,600 million or more which is in fact about

half as much again as the present projection for the

1982/83 budget.

This in turn would have inevitably meant a much

higher figure still for the 1983/84 deficit.

14 .

If Mr Hawke's views had been adopted when preparing

the last budget, then on the basis of the calculations

now being used by the Treasury, the "starting point"

figure facing the government for the 1983/84 budget

deficit would be in the order of $11,000-$12,000 million.

When last year's budget was put together, the economic

forecasts available to the government indicated a

stronger economy than has in fact been the case as

the financial year has unfolded.

For example, the expectation then was that seasonally

adjusted unemployment might rise to around 525,000 '

by June 1983 with a peak level of about 560,000 or

around 8% of the labour force in February 1983.

Likewise private consumption expenditure was then expected

to grow by between 1 and 2 per cent.

As is now known, forecasts of economic activity were

revised downwards quite sharply in the months

following the bringing down of the last budget.

As the outlook for the economy deteriorated with

employment ..becoming much worse and growth even slower,

there were significant effects upon the budget from

these adverse developments not only for 1982/83 but

also by implication for 1983/84,

1 5 .

When the decisions for the 1982/83 budget had been

completed, I obtained from the Treasury a forecast

of the likely budget position for 1983/84.

There was an inevitable difficulty in making such, a

forecast so far in advance, however subject to these

qualifications this forecast suggested a deficit in

1983/84 of some $4,200 million.

The expenditure assumed for the purpose of this exercise

was $52,710 million or an increase of 11.8% over 1982/83.

The revenue forecast for 1983/84 was of $48,506 million,

or an increase of 7% over 1982/83.

These forecasts were made on the basis of a continuation

of then existing policy and took account of the

full year effects of the various taxation and other

measures contained in the budget which was brought down

on the 17th’ August 1982.

1 6 .

A review of the 1982/83 budget estimates was carried out

in November and the results of that review provided by

the Minister for Finance and I to the government.

That review revealed that the projected deficit had

increased from a figure of $1,674 million to $3,795

million. That particular review formed the basis of

the advice I gave the Premiers at our meeting on the

8th December, that the budget deficit was approaching

$4,00 0 million." ".... ..... ' ' -

At the time of the November review, outlays were

anticipated to exceed the budget estimate by some

$1,343 million of which $936 million resulted primarily

from the changed economic outlook (including the sharp

upward revision in the number of unemployment benefit

recipients) and $406 million was accounted for bj the

post-budget expenditure decisions of the former

government. The great bulk of this figure of · $406

million was due to drought relief measures introduced

by the government. · '

That same review showed that receipts were expected

to be $778 million below the budget estimate.

17 .

This figure included substantial reductions in projected

PAYE tax collections deriving from both lower earnings

growth and a greater deterioration in employment than

had been forecast at budget time.

Collections of provisional tax were also forecast to be

significantly lower than the budget figure, mainly

reflecting the increased severity of the drought.

It was also forecast that there would be a reduction

of $155 million in estimated collections from the

recoupment tax legislation resulting from some changes

made to that legislation during its passage through

parliament and associated delays in commencing collections

The present indications are that the figure of $100

million will in fact be achieved in 1982/83» Indeed,

most recent reports directly contradict claims made

-by the .Labor Party during the recent election .campaign

that the amendments which the government agreed to

insert in the legislation during Its passage through

the parliament, would put in danger collections of tax

under the legislation........."

1 8 .

There were further additions to the deficit for

1982/83 so that at the time of the defeat of the

former government the advice available to that

government was that this year's deficit would be

approximately $4,300 million, . ■

Those additions included some items of further expenditure

decided upon by the government as well as more additions

to .outlays arising from still further increases in

payments for unemployment benefits and public debt charges

on account of the need to finance a larger budget -deficit,,,

It will be apparent therefore that although the former

government took a number of decisions after the last l

budget was brought down - particularly in the area of

drought relief - which added to outlays, the greater

proportion of the deterioration in the budgetary

position was due to the changed economic outlook, and

in particular the fact -that -the unemployment position

proved to be much worse than predicted at the time of

the budgets . ·

At the Premiers' Conference on 8th December I provided

to Premiers the latest economic forecasts available

to the government. I subsequently published the text

of those forecasts, together with some revisions on

the 16th December 1982. . . .


Those forecasts presented a markedly different picture

than that available to the government at the time the

August budget has been put together.

In particular they showed a severe deterioration in

the unemployment situation. They suggested a 2% fall

in Gross Domestic Product during .19 82/83 and revealed

that the effects of the drought had proved to be much

more severe than had been suspected at the time of the

budget. . '

Following "the November revi-ew ±he Department of "Finance

prepared some fresh estimates of 1983/84 expenditure.

These contained a projection into that financial year

of the effects of the revisions of outlays for 1982/83

to which I have just referred.

On the 21st February during a press conference when

releasing details of the costings of the Labor

Party's election promises, I first publicly used a

figure of $6,000 million in relation to the possible

size of the 1983/84 deficit.

As appears from the attached transcript, I used that

figure in a heavily qualified fashion.

2 0 .

At the time I used the figure the 1982/83 budget

deficit projection had increased by more than $2,000

million to approximately $4,000 million. I was of

course aware that the budget task facing the

government in 1983/84 would be very difficult due

to the rapid deterioration in the economy and the

full year effect of certain measures introduced in

the 1982/83 budget- No firm projection about the

.size of the 29 83/84 deficit was then available.

On the 28th February I was orally advised by Treasury

officers that the '"first run" of figures -projecting

next year's deficit had been completed and that they

showed a starting point deficit of approximately

$9,000 million.

I was informed that the major reason for these

gloomier progections was the sharp fall in revenue

forecasts due to low collections of company tax,

provisional tax, the crude nil levy and PAYE tax


2 1 .

I was informed that the major reason for these gloomier

projections was the sharp fall in revenue forecasts due

to low collections of company tax, provisional tax, the

crude oil levy and PAYE tax collections.

During that same conversation those officers reminded

me that on an earlier occasion in a minute dealing with

another subject it .had been suggested -that although no

firm figures were available, the 1983/84 budget deficit

might be approaching double the 1982/83 likely outcome.

I subsequently established that this had been a minute

of the 19th January 1983 which dealt with an ACTU

proposal for a national economic summit. Similar comment

had been contained in a "minute sent bo the Minister for

Finance at the beginning of February..

Later that day I told the Prime Minister that the

Treasury had given me preliminary advice regarding

the "starting point" for the 1983/84 deficit and

that although the figures were not completely firm,

they indicated a significantly worse situation than I

had previously believed.

2 2 .

I made no further reference to a figure of $6,000

million, or indeed to any other figure in respect

of 1983/84 during the remainder of the election campaign.

On Friday, 4th March I was informed by the Secretary

to the Treasury that having exchanged calculations

that day with the Department of Finance, the Treasury

had determined the projected starting point for the

19 82/83 deficit „to be ,$,9.. 6 Jbillion and the details of

the basis on which this figure had been calculated would

be provided to the new government immediately after the

election. This advice was also oral.

I have compared the estimates provided by the Treasury

to me on the 4th August 1982 (which projected a deficit

in 1983/84 of $4,200 million) with the details published

by the Prime Minister on the 18th March this year.

The estimates published by the Prime Minister show an

-expenditure projection in 1983/84 of $54,594 million

or 12% greater than the presently anticipated expenditure

in 1982/83.

On the revenue side, the figures released by the Prime

Minister project revenues in 1983/84 of $45,032 million

or only 1.4% more than currently estimated revenue

collections in 1982/83.

2 3 .

This contrasts very sharply with the previous revenue

projection of $48,506 million made in August 1982

which then represented an estimated increase of 7%

over anticipated revenue collections in .1982/83.

The deficit projected for 1983/84 in August 1982 was

$4,200 million.

On the basis of the figures issued by Mr Hawke on the

18th March, that figure is now $9,600 million,

The difference of about $5,500 million is made up of

a rise in anticipated spending of approximately

$2,000 million and a fall in expected revenue

collections of no less than $3,500 million.

Whilst some of the increase of approximately $5,500

million can be attributed to past budget decisions by

the former government, the great tmlk of it results

purely and simply from the far more pessimistic

economic assumptions on which the most recent calculations

particularly for revenue - have been based.

Overall, these comparisons clearly demonstrate the

inherent variability of forward estimates of

expenditure and revenue whenever made.

In a relatively short period, dramatic changes in

economic conditions can produce equally dramatic

changes in official forecasts of the budgetary


These comparisons lend weight to. the criticism some

commentators have made that the growth forecasts on

which the projections of the 18th March are based,

are too pessimistic and that on this score alone,

the figure of $9,600 million is an unreliable guide

as to the ultimate shape of the 19 83/84 budget


,1 conclude this statement by saying that the budget

deficit for the current financial year is of course

the responsibility of the former government.

On present indications that deficit will be about

$4,000 million. The likelihood of that outcome was

fully and publicly known throughout the recent election.

2 5 .

It is an outcome about $2,000 million lower than

the deficit advocated by Mr Hawke for 1982/83

before he became Prime Minister.

The deficit for 1983/84 "will be what the Hawke

government determines it to be. It will be the

responsibility of that government to ensure that

it is fully consistent with the economic welfare

of Australia.



7 April 1983

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and what sort of policies are in place.

Its very very hard to ... the calculation

is very much based on the same calcua.ltions on which the estimate contained in our own

policy speech was based.

Q The last quarter for both, is that the

answer to the question?

A Yes · : ■

Q What deficit for 1983/84 was the Government

looking forward to before it made any promises in the election policy speech.

A We hadn't been provided with the media

review of how this year's budget was going and "therefore the first tentative estimates of what next year's budget deficit was likely to be, but I think its a very relevant

question and I don't mind trying to answer

it in this way. .

The present indication is that the budget

deficit for 1983/84 will be in the order

of $4000 million. I believe that next year's budget deficit will be higher than

that. Some estimates have put it as high

as $6000 million.

Q 1984/85 you mean, or are you talking about

$6 billion for 1983/84.

A 1983/84. Sorry did I say 1984/85 ... slip

• . of the tongue, yes.

Some estimates have put it at that order.

I can't put it any more firmly than some



estimates because the nature of calcualting these things is such that you really don't

know until much closer to the event precisely where revenue and expenditure are going to go and that's not an attempt to fend off a hard

question. Let me point out that this time last year when the Government got its first

look at the likely shape of the 1982/83 budget it appeared on the basis of calculations

then that our deficit position would be a great

deal better -than what it ultimately turned out to be and the estimates of revenue which made

certain assumptions about wages growth and certain assumptions about activity growth .

were much more .buoyant- 1 genuinely believe that its impossible to go hard on the size of next year's deficit beyond saying that 1 believe on present trends, and given the present activity levels in the economy, it will obviously be higher than what this year's deficit is and obviously further

additions to it are going to aggravate

the situation - I don’t think I can be any more precise than that because 1 don't have

any more detailed information available to

m e .

This is a political exercise. Can you justify

-using the overall taxpayers' money in Government resources to compile a report

“ like this?

1 think its legitimate to use the resources

of the public service to have the costing of alternative policies done- I should

indicate that during the course of the election campaign I received a request

from Mr Hurford for advice from the

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A I ’ll just say something on that figure of $6000 million. I want to make it perfectly

clear that that is by no means a prediction

of what size its likely to be. Its subject

to all the variabilities that I tried to explain and in mentioning a figure like

that one has a problem. On the one hand

if we go through the course of the election campaign not stating what is obvious that

next year's deficit is likely to be larger

than this year's deficit. That really is holding back what is relevant in (inaudible)

• · for people during the course of the campaign,

___ but on the other hand I have to stress the precariousness of' that kind of projection ■ at this -stage, simply for the reasons I

tried to explain earlier- _I decided to

mention that figure to give some kind of

broad indication, but I certainly acknowledge that on the way things are trending at the

present time the deficit next year is likely

to be larger and that of course underlines the even greater absurdity and inanity .

• of adding another $4000 million to it.

.1 just wanted to make those qualifications about that figure. I don't want that to be seen as being a firm -prediction so that if

sometimes its changed in either direction

people are saying that there are more projections that are wrong. its not even got the status of a projection but its the kind of broad

order of magnitude that, assuming the

present situation continues, we might find.