The Australian budget emerges from 'dog days'

Figure 3: Nominal GDP Growth

SOURCE: Budget Paper No 1, Chart 7, Page 2-23

The effect of the recovery in commodity prices and the Australian terms of trade can be seen in Figure 3. This is drawn from Budget Paper No. 1, Chart 7, page 2-23. We can see the extremely low level of nominal GDP from 2012 to 2015. We can also see that the recovery in 2016-2017 merely took nominal GDP growth to around the long term average. The forecast for the future period is lower than this. We think this is just prudent budgeting. Higher growth levels might actually be achieved.

Where the money goes

In Figure 4 below, we see expenditure outlined in Budget Paper No.1: Budget Strategy and Outlook 2018-19; Statement 6, Expenses and Net Capital Investment. This Budget proposes to spend a total of $488.6 billion. The largest section of spending by far remains Social Security and Welfare. This will consume $176 billion or 36% of total spending. Next comes Other Purposes. What you ask, is Other Purposes? This is the servicing of Australia's sovereign debt. It is the money we pay in interest for the national credit card. Spending here at $98 billion is bigger than every other sector of spending with the exception of one. This will consume 20% of budget expenditure.

Figure 4: Estimates of Australian General Government Expenses by Function

SOURCES: Budget Paper No.1: Budget Strategy and Outlook 2018-19 Statement 6, Expenses and Net Capital Investment; Morgans

Next comes Health which is expected to cost $79 billion or 16% of total spending. Following this is Education which should consume $35 billion or 7% of total spending. Defence follows with $31 billion or 6% of total spending. Transport and Communication spends $9 billion, or 1.9% of the total. Fuel and Energy spends $7.5 billion of the total. Other sectors spend even smaller amounts.

In Figure 5 below, we see expenditure outlined in Budget Paper No.1: Budget Strategy and Outlook 2017-18 & 2018-19; Statement 6, Expenses and Net Capital Investment. We see the estimated increases in Australian government spending by sector. We calculate these as the increase in the Budget for 2018-2019 over the budgeted expenditure a year ago in the Budget for 2017-2018.