The first thing we look at in the Federal Budget is the table which quantifies the Government’s policy decisions since the last Budget update.
This can provide a quick insight into the likely economic impact of the Government’s discretionary policy decisions (compared with the budget effects of underlying changes in the economy and program-specific parameter variations).
Economist Chris Richardson has labelled this the “table of truth”.
But we think the table of truth is hiding a sleight of hand - it would be a stretch to call it a little white lie.
It relates to the National Disability Insurance Scheme (NDIS).
In short, over the 4 years to 2027-28 the Budget has included a $14.5b increase in NDIS-related “parameter and other variation” payments AND an equal and offsetting decrease in payments under “policy decisions”.
Consequently, the net impact on the budget balance since MYEFO from the NDIS is forecast to be negligible. BUT this treatment had the effect of dampening economists’ high-level interpretation of the impact of the budget on the economy via government policy decisions.
Our view is that this NDIS sleight of hand needs to be excluded to better gauge the effect of policy decisions in the Budget.
The NDIS sleight of hand explained
The Budget showed an expected increase in government payments from policy decisions of more than $32b by 2027-28 (see table). An additional $11.2b in payments is expected from parameter & other variations (or closer to $15b excluding the current fiscal year which is almost complete).
But these figures bury offsetting forecast NDIS-related spending and savings.
The additional spending shows up in higher parameter & other variations, but the saving is captured in policy decisions. Obviously this matters for interpreting the size of policy decisions in the Budget even if the overall impact on the budget balance is almost a wash.
This has come about because the NDIS Actuary provided revised projections since the December MYEFO showing higher forecast spending of $14.4b over the 4 years to 2027-28 on supports for NDIS participants under the status quo (see table). This increase in expected payments was (rightly) captured as a payment “variation” in the Budget.
But the Government has introduced Getting the NDIS Back on Track legislation which it believes will dampen growth in NDIS-related spending back to that projected at the 2023–24 MYEFO. This has been incorporated in the Budget as a reduction in forecast payments of $14.5b by 2027-28 under policy decisions.
While all this is above board from a Budget accounting perspective, it affects the way economists have gauged the likely impact on the economy from policy decisions. Moreover, the budgeted “savings” on NDIS-related spending may be tough to achieve if the history of the NDIS is anything to go by.
To get a ‘cleaner’ view of policy decisions on the payments side in the Budget, our suggestion is to exclude those related to the NDIS.
These other payment policy decisions are shown as the dark orange bars in the chart below. On this basis, payments are expected to rise by 0.5% of GDP in both 2024-25 and 2025-26.
Is that huge? Not in isolation.
But given the backdrop of still-elevated inflation and fiscal slippage at the state government level (see chart), does it feel appropriate at this point?
Not really.
Structural budget balance is deteriorating in the near-term
Our second go-to piece of information in the Budget is the chart below.
If the Budget accounting above did your head in, another way to gauge the stance of (federal) fiscal policy is to focus on changes in the structural budget balance (and temporary measures). These estimates are an attempt to exclude the cyclical ups and downs in the budget balance.
On that basis, there is expected to be fiscal slippage of ~0.5% of GDP in 2024-25 and that is expected to continue into 2025-26.
This is consistent with our conclusions above.