With so much commentary out there on the 2014 Federal Budget, there is probably not much left to contribute but here are a couple of thoughts.
First, I don’t agree that this is a minimalist or do-nothing budget or boring budget. This budget essentially balances the books and sets the groundwork for major tax or expenditure initiatives in advance of the 2015 election. That is doing something. It also cements the government's vision of a much smaller federal government though what such a small government plans to do with the forecasted surpluses is something that has not received much attention.
Second, as Figure 1 shows, the budget balance act is a function of two things – continued anticipated revenue growth and a slight decline in total budgetary expenditure from 2013/14 to 2014/15. Despite the spending announcements made - most of which are spread years far into the future - spending is actually planned to decline from 280.5 to 279.2 billion dollars in 2014/15 before resuming an upward trajectory in 2015/16 – below but parallel to revenues. Much of the announced spending is spread out years into the future. According to the figures in the budget, over the period 2013-2018, the average annual growth rate for revenues works out to 4.6 percent while expenditures are expected to grow at an average of 2.6 percent. The relatively strong revenue growth is what I find the most intriguing - at about this time last year, I would not have thought revenues could continue growing as much as they have or indeed are forecast to.
The longer term implications of all this are presented with historical context in Figure 2. Barring any unanticipated economic shocks, both the revenue to GDP and the expenditure to GDP ratios for the Federal government will fall below 15 percent – the lowest they have ever been since 1966. By 2018/19, the revenue to GDP ratio is anticipated to reach 14.4 percent and the expenditure to GDP ratio will hit 14 percent. This sets the stage for potentially large surpluses – as much as 10.3 billion by 2018/19. Assuming this all comes to pass, what will the vision be for a much smaller federal government with large projected surpluses?