It was a good story to tell. And Treasurer Josh Frydenberg was out there on budget night 2019 telling voters what had been achieved.
“Tonight I am pleased to announce a budget surplus of $7.1 billion,” he told the House of Representatives.
“A $55 billion turnaround from the deficit we inherited six years ago. In 2020-21 a surplus of $11 billion. In 2021-22 a surplus of $17.8 billion. In 2022-23 a surplus of $9.2 billion.
“A total of $45 billion of surpluses over the next four years.”
It wasn’t quite as bad as Wayne Swan’s budget speech of 2012, when he declared “the four years of surpluses I announce tonight” only to find within eight months the budget ripped to shreds as if it had gone a round with a velociraptor.
But it was a sign of the government’s own short-term memory. Joe Hockey had promised ahead of the 2013 election a series of budget surpluses. But his first budget showed deficit after deficit after deficit as $37 billion was wiped from expected revenues because of soft economic conditions.
Scott Morrison, in his time as treasurer, failed to deliver a surplus although he did manage to forecast one. By 2020-21, he predicted in his last budget, the nation’s finances would be showing a surplus of $11 billion.
It was left to Frydenberg to deliver. But events may be getting in the way.
The grand vision was already in trouble at the mid-year update. Cumulative surpluses over the coming four years were downgraded to $23.5 billion.
That $7.1 billion surplus for this financial year was sliced to $5 billion. Figures released last Friday show this is in all sort of trouble.
By the end of January, the budget was $3.7 billion behind where it needed to be to reach the $5 billion surplus.
Finance Minister Mathias Cormann argued that the December-January figures are notoriously volatile, urging analysts not to read too much into the shortfall.
Senator Cormann is right. The figures for these two months are volatile, but for the past five years that volatility has been in the government’s favour.
Last year the budget, to the end of January, was $2.9 billion in front of expectations. The year before that it was $6.1 billion ahead.
Which gets us to the Jurassic Park-sized issue facing Frydenberg and the rest of the government.
The Treasurer will be tempted to move cash around (as Swan did in 2012) to manufacture a surplus this financial year so as to deliver on the political promises of last year’s budget. He could also cut spending in some areas and move it into others.
But the question is whether he should.
Put it this way.
If the Reserve Bank has official interest rates at 0.25 per cent and Philip Lowe is out in Martin Place running a printing press for $100 and $50 notes, it would make no sense for the government to be running a surplus.
Remember, a surplus is the government taking money out of the general economy. There would be no clearer indication that monetary and fiscal policy were moving in opposite directions for the budget to be in surplus while the RBA has rates, in real terms, in negative territory.
Before the summer’s fires and the coronavirus outbreak, the economy was already showing signs of softness.
Outside of the housing market (itself an issue worthy of debate) the general economy is barely out of first gear. The virus will put a hole in the budget, the issue being whether it is the size of a stegosaurus or an Argentinosaurus.
Dr Malcolm and his team managed to find their way off Isla Nublar. It’s not yet clear how Frydenberg and his team will escape.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.