A simple guide to reading the federal budget papers

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The federal budget is just around the corner.

As usual, we’ve heard a little about what to expect in terms of housing, immigration, education, and cyber security.

But when it comes to the budget papers, they are hefty even in a digital form and finding anything can be challenging.

With that in mind we thought we would spell it out for you so that when it is released at 7.30pm on Tuesday, May 9, you will know where you need to look.

Here’s a simple guide to reading the federal budget papers to get you on your way.

1. Start with the budget speech

This gives you an idea of what the Treasurer wants you to know. Typically, the treasurer will explain the level of the deficit and its projected path, as well as the key new spending programs or taxes being announced, along with some commentary supplying economic and political rationale for the decisions in the budget.

You’ll be able to find it at budget.gov.au on budget night. Here’s what last year’s looked like.

www.budget.gov.au

2. Read the budget at a glance

This is a quick summary of everything the government wants you to know.

www.budget.gov.au

3. Get stuck into Budget Paper No.1

There are a number of parts to this first paper.

You’ll find the “budget aggregates” in Statement 1 setting out the deficit for the current year and future years. This is where you find the deficit for this year and the forecast deficit for the coming years listed under “underlying cash balance”.

Note: with the federal government announcing that it plans to place more emphasis on the “net operating balance”, there might be some changes to the budget aggregates this year. The net operating balance is the cash position before deducting net capital expenditure and is typically smaller than the underlying cash balance. More details on that here.

Next we get a vitally important set of numbers: the assumptions that the government is making on economic growth, the unemployment rate, inflation, and wages growth over the coming years. Here’s what that looks like:

This is critical because a small error in these forecasts will have a significant impact on the budget outcomes. For example, if wages do not grow as fast as forecast, less revenue from income taxes will be collected.

Look next for the statement on Revenue (in Statement 4 last year). There are some reconciliation tables showing variations from last year’s budget and the mid-year budget update. But there will be a current budget statement which tells you which taxes raise how much money. Be warned: the figures here are large.

And next comes the Expenses and Net Capital Investment statement. This presents estimates of government spending, based on function rather than department of agency. It sets out how much the government is spending on what. It breaks down what the spending programs are by function:

And usually sets out a list of key programs — the big ticket items — that explain where all the money goes:

4. Budget Paper No.2 has all the details

This will tell you what programs have been added and axed in finer detail. The Revenue Measures set out each of the policy decisions that affect the government’s projected taxation income, and the Expense Measures explain any adjustments to spending programs. To give you an idea of how to navigate it, here’s the contents page from last year, showing department by department how the revenue and expense measures are set out.

Some of these expense measures can be cuts in “expenses”, meaning there is a reduction in spending, while others are new outlays. Here’s how to see the difference:

In the revenue section, this works the other way around: a new tax will show as a positive number, while tax reductions will be negative numbers (as they are revenue negative).

Paper No.2 also includes capital investment outlays.

These are the key papers for understanding how the Australian government taxes and spends. Papers 3 and 4 set out the details of federal-state payments and how the government is financing the running of government departments, respectively.

Happy budgeting!

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