Jim Chalmers says Labor has returned 88 per cent of revenue upgrades to the budget, compared to 40 per cent under the Coalition. Is that correct?

Jim Chalmers says Labor has returned 88 per cent of revenue upgrades to the budget, compared to 40 per cent under the Coalition. Is that correct?
  • PublishedApril 23, 2024

The claim

Ahead of next month’s federal budget, Treasurer Jim Chalmers has looked back on his first post-election meeting with Treasury Secretary Steven Kennedy and revealed how the pair discussed “shooting for a surplus” in Labor’s first term.

“We knew then that if we saw an opportunity to get the budget back into the black at some stage in our first three years, we should go for it,” Mr Chalmers said in a pre-budget address to the Committee for Economic Development of Australia.

“That’s why instead of only banking around 40 per cent of revenue upgrades like our predecessors averaged, we banked 88 per cent.”

Has Labor banked 88 per cent of revenue upgrades, compared to the Coalition’s 40 per cent? RMIT ABC Fact Check investigates.

The verdict

Mr Chalmers’s claim is close to the mark.

Figures supplied by Treasury and verified by Fact Check using budget documents show that Labor has returned 88.4 per cent of its tax revenue upgrades to the budget since coming to office.

The same figures show that the Coalition returned 44.7 per cent over seven revenue upgrades.

These figures only take into account revenue upgrades resulting from increases in tax receipts. However, experts noted that governments can also find themselves with additional money to spend if their expenses turn out to be lower than anticipated.

Taking these and other budget variations into account, which is the methodology preferred by the Grattan Institute, Fact Check calculates that Labor has banked 85.4 per cent of upgrades compared to the Coalition’s 45.1 per cent.

The Coalition’s time spans the peak of the COVID-19 pandemic, which experts told Fact Check should be kept in mind when interpreting the figures. It could be argued, they said, that returning revenue upgrades to the budget at that time was not prudent fiscal management.

It’s also important to note that while the budget treats certain variations as being the result of factors out of the government’s control — and therefore contributing to revenue upgrades rather than budgetary costs — such classifications are open to a degree of interpretation.

Ultimately, the bigger question of which party is a better fiscal manager can not be answered by these figures alone, experts said, and is beyond the scope of this fact check.

What is a revenue upgrade?

Red dirt with mining equipment on top.
External factors such as the iron ore price can affect the revenue the government receives.(AAP Image)

Federal budget documents forecast whether, over the coming years, the government’s spending will exceed its revenue.

While there are several ways to measure this balance, the Parliamentary Budget Office notes that when the government says the budget is in surplus or deficit, “they are generally referring to the underlying cash balance”.

“If the underlying cash balance is in deficit, the government has to borrow money because it does not have sufficient cash to fund its day‑to‑day operations and the net purchases of assets, like the equipment it uses to deliver goods and services,” the PBO says.

Conversely, if there is a surplus, the government has more cash than it needs to operate.

Forecasts of the underlying cash balance are underpinned by estimates of how revenue will be impacted by government policy decisions and, separately, by forces in the wider economy largely beyond the government’s control.

Changes to the latter estimates resulting in more money for the government to spend over the coming budget years are known as revenue upgrades, and are reflected in budget documents as “parameter and other variations”.

These would include higher-than-expected tax receipts resulting from an increase to the iron ore price, for example, but would not include a revenue boost resulting from government-implemented tax increases.

When the government receives a revenue upgrade, it can choose to either spend the additional revenue on policy decisions or return it to the budget as savings.

Parameter variations can also result from lower-than-anticipated payments the government needs to make in areas such as healthcare and welfare.

And they can also affect the amount of non-tax revenue the government receives, such as interest returns from cash deposits.

While Mr Chalmers spoke of “revenue upgrades”, which could be narrowly defined as those relating to tax revenue only, Fact Check acknowledges that other variations can also affect the amount of money the government has to spend in a given budget.

Treasury data

This is not the first time Mr Chalmers has made his claim about Labor banking its revenue upgrades.

In a February media release celebrating the reaffirmation of Australia’s AAA credit rating by ratings agency S&P, the Treasurer said:

“Across two budgets and a MYEFO [Mid-Year Economic and Fiscal Outlook] we have returned 88 per cent of revenue upgrades, compared to 40 per cent under the former government.”

Fact Check contacted Mr Chalmers’s office to ask for the source of his claim. His spokesman did not respond on the record.

Fact Check asked Treasury to supply calculations for budget upgrades and amounts returned to the budget bottom line. A spokeswoman responded with a list of budgets and mid-year updates going back to the 2013-14 MYEFO, which was the first update prepared under the former Coalition government.

The list contains a tax revenue upgrade figure for each budget document, along with figures showing the impact of policy decisions and the remaining revenue returned to the budget.

The methodology

A man wearing a navy suit grasps a blue booklet in two hands, in front of two microphones. The book is titled Budget Paper No. 1
Revenue upgrades and spending decisions are contained in the budget papers.(ABC News: Matt Roberts)

The revenue figures used by Treasury do not include upgrades resulting from reductions in government payments. They also exclude Goods and Services Tax (GST).

Stephen Bartos, a professor at the University of Canberra’s Centre for Environmental Governance and former deputy secretary in the Department of Finance, told Fact Check that in the context of Mr Chalmers’s claim, it was reasonable to exclude GST revenue because the federal government distributes this to the states.

“If, for example, the GST revenue estimates are upgraded … the federal government would not return this to the budget — the full amount of the upgrade would be transmitted on to the states and territories,” he said.

However, Saul Eslake, an independent economist and member of a panel of expert advisors to the Parliamentary Budget Office, told Fact Check that Treasury’s calculations should take account of any GST revenue variations caused by policy decisions.

And in contrast to Treasury’s approach of only considering tax receipts when calculating revenue upgrades, Elizabeth Baldwin, an associate in the Grattan Institute’s budgets and government program, said:

“Grattan Institute’s preferred way of looking at what treasurers have done when faced with favourable upgrades is broader, covering both higher-than-anticipated revenues and lower-than-anticipated expenses.”

When parameter variations aren’t clear cut

A woman's hand holding an elderly patient hand.
Is funding mandatory pay rises for aged-care workers a parameter variation, or a policy decision?(Supplied: Rosie O’Beirne)

In the budget, the decision to categorise a revenue impact as being the result of either a policy decision or external factors is somewhat subjective.

The Australian Financial Review has, for example, raised how the budget treats the government’s policy to fund any aged-care sector pay rises mandated by the Fair Work Commission.

Although mandatory wage rises must ultimately be paid out by aged-care operators, a great many of these employers rely on federal government subsidies to stay afloat.

The FWC’s 15 per cent interim pay rise decision in March 2023 was treated as a parameter variation in the 2023-24 budget, resulting in a smaller revenue upgrade but meaning the government could claim credit for banking more of it.

A Treasury spokeswoman told Fact Check this classification was “consistent with the usual approach to updating the budget estimates in response to changes in parameters that are not a direct decision of government”.

Martin Hensher, the Henry Baldwin professorial research fellow at the University of Tasmania’s Menzies Institute for Medical Research, told Fact Check that, hypothetically, the government could have chosen not to increase aged-care subsidy rates.

However, he added: “Such a choice would almost certainly bankrupt a number of providers in an industry which is already struggling to break even.”

“I think it is pretty much inconceivable that a future government would make such a choice, because its disruptive impact on the sector and on residents would be catastrophic.”

Professor Bartos said that if the Coalition were still in government, it too would be obliged to fund the decision, which would still be recorded as a parameter variation.

“What makes this particular instance unusual though is that Labor intervened in the Fair Work Commission case in support of the change — so they actively encouraged it …

“Nevertheless, it probably should still be considered a parameter variation. Whether [Labor] argued for or against the FWC case does not change the underlying fact that it has to be put into effect automatically; the government does not have discretion to change it.”

Meanwhile, Mr Eslake opined that the funding increase was a policy decision “and should be treated as such”, though he said there were a number of shortcomings in making these distinctions in general.

He pointed to changes made to the distribution of GST under the Morrison government, when the federal government agreed to top up the pool of GST funding so that no state would be worse off.

“[This] was initially estimated to cost $8.2 billion over 8 years … but that cost has now blown out to $39.8 billion over 11 years and it is treated as a ‘parameter variation’. I think that’s wrong.”

Given the difficulties in classifying parameter variations and policy decisions, and the likelihood of there being yet more examples such as those above, Fact Check will, for the purposes of this analysis, only consider figures as they have been categorised in the various budget papers.

What does the data show?

Treasury’s data shows there have been 10 budgets or MYEFOs containing tax revenue upgrades since 2013-14, with seven for the Coalition and three for Labor.

The following graph shows what share of each upgrade was returned to the budget.

(Fact Check also calculated these figures accounting for the effect of policy decisions on GST, but found it did not alter the figures significantly.)

Separately, Fact Check has calculated the share of upgrades returned to each budget using the Grattan Institute’s broader methodology, which takes into account revenue upgrades due to lower-than-expected government expenses. These numbers are not net of GST.

For each methodology, aggregating the figures in the various budgets yields similar results.

Treasury’s methodology shows Labor returned 88.4 per cent of its revenue upgrades, in line with Mr Chalmers’s claim, while the Coalition banked 44.7 per cent.

Using Grattan’s methodology, Labor returned 85.4 per cent, and the Coalition 45.1 per cent.

Fact Check adjusted both sets of figures for inflation using the consumer price index and projections contained in the latest MYEFO (2023-24) but found this did not alter the figures significantly.

What do these figures say about fiscal responsibility?

Whether these figures say anything meaningful about either party’s economic credentials is another question.

Ms Baldwin noted that Mr Chalmers’s calculations for the Coalition included a period of great budget uncertainty: namely, the pandemic.

She said that saving “the windfalls from [the] faster-than-expected recovery of tax receipts was not a clear priority for good fiscal management while the pandemic was still unfolding”.

Removing the pandemic-era forecasts (MYEFO 2020-21, budget 2021-22 and MYEFO 2021-22) from the equation, the share of revenue upgrades banked by the Coalition jumps to either 62.9 per cent using Treasury’s methodology or 65.0 per cent using Grattan’s.

Mr Eslake agreed that the budget outlook during the pandemic was a “fair qualifier” to the Coalition’s record, but said it was important to note that the pandemic upgrades “were as large as they were because the initial downgrades to forecasts of economic activity — and hence revenues — when COVID first hit were way too pessimistic”.

“The Coalition didn’t really make any meaningful expenditure savings once the worst of the pandemic had passed,” he said.

Professor Bartos said that a broader discussion of fiscal responsibility was outside of the scope of these simple budget figures.

“In almost all recent budgets there have been exceptional circumstances of one sort or another”, he said, noting that not just the pandemic but also various geopolitical factors were continuing to affect the budget.

“Today you could also consider the impacts of the Russian invasion of Ukraine and how that has affected global supply chains, or the slowdown in the Chinese economy following a significant change in PRC national policy priorities under Xi Jinping. Indeed, my view is the latter is the more important factor affecting Australian budget revenue estimates.”

He said the question of “which government dealt with changes in the global environment better” was a difficult one to answer.

“It takes it into the realm of competing judgement calls, [which is] not something that can be fact checked.”

SOURCE: ABCNEWS

Leave a Reply

Your email address will not be published. Required fields are marked *