Why has there been such a difference in Budget Stances for the Labor and Coalition Governments?

Written by Keith Lee

“The Coalition’s new government budget released on the 13th May 2014 was pitched by Tony Abbott as a “necessity” to maintain budget commitments. Controversial changes such as the proposed $7 GP co-payment, the uncapping of university fees and future interest rate payments on FEE-HELP loans are indicative of just how tough the budget is. However, what is the motivation for the coalition government’s tough fiscal stance on the budget?

This was the government budget deficit. But how come the Coalition’s proposed budget is so much stricter than the previous Labor government’s? There are primarily two different budget forecasts, The Pre-Election Economic and Fiscal Outlook (PEFO), which is the earlier version released by the Labor government in August 2013. The election took place in September 2013, and then the Mid-Year Economic and Fiscal Outlook (MYEFO) was released in December 2013, by the newly-elected Coalition Government (refer to Figure A).

The Coalition government’s forecasts show a far more pessimistic outlook than the previous government (refer to Figure B). There is a large disparity between the estimated cash flows for the next four years between the PEFO and the MYEFO reflected by the $68 billion difference between the two government’s respective deficit outlooks. This has been driven by changes in key economic assumptions. The Coalition’s outlook is rather pessimistic predicting a 2.5% real GDP growth compared to the RBA’s 2.75%. There have also been pessimistic outlooks towards unemployment compared to the leading economic predictions of the IMF and OECD. While one can argue it is more optimal to ‘prepare for the worse’ and reducing spending, there have already been signs that these predictions are underrated, with the national accounts showing that the economy outperformed expectations for economic growth.


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