by Matt Grudnoff, Senior Economist

Do you remember the debate about whether the budget had a revenue or spending problem? The Australia Institute led the debate pointing out it was a drop in revenue caused by a combination of the GFC and unsustainable income tax cuts from the Costello years. The government would not have a bar of it. According to Hockey and then Morrison after him, the budget had a spending problem and the solution was the slashing and burning of government services.

Well this budget there was far less talk about a spending problem but the Treasurer was still keen to trumpet $41 billion in spending cuts. Most of that came from school and hospital funding and foreign aid cuts. But were those cuts really responsible for the reduction in the deficit?

While spending has fallen marginally, it has been a big increase in revenue that has driven the deficit down.

While spending has fallen by less than one per cent of GDP, revenue has increased by almost three per cent of GDP. In fact if all the savings the government have claimed had not occurred and spending remained at the same level when the government came to power in 2013, the budget would still predict a balanced budget in 2021–22.

But one thing is certain, you won’t hear the Treasurer admit he was wrong. He is ideologically locked into spending being the big budget beast that needs to be slayed.

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