Saturday, April 21

Another look at the Federal Budget

Another chart on which it appears that the problems with balancing the Federal Budget are more on the expenditure side than then revenue side when compared with historical levels.

Revenue is close to returning to its pre-GFC level of 23 per cent of nominal GDP. If things continue at their current pace, it might be achieved by the middle of 2012.

Without a change to the current rate of change, government expenditure will get down to the rate of 23 per cent of nominal GDP towards the end of 2014.

Of course, to balance the Federal Budget, the Government could be looking to a new balance point a little higher than the pre-GFC rate of 23 per cent. It might be closer to (say) 24 per cent of GDP and achieved through adjustments to both arms of fiscal policy: by increasing taxation (or reducing tax expenditures) and further reducing expenditure.

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