CHART OF THE DAY: The Nasty Fall In Government Spending Is About To Get Worse

The Government releases it’s Mid Year Economic and Fiscal Outlook (MYEFO) today and it is widely expected to be Nasty.

Today’s chart comes from the Commonwealth Bank and shows that the “Fiscal consolidation does not come without economic costs”.

The CBA economics team says the last financial year saw an extraordinary “decline in the nominal amount of spending undertaken by the Federal Government. For the first time in more than 50 years of readily available data, Federal Government spending actually declined.”

This fall of $3.8 billion in spending between the 2010-11 financial year and the 2011-12 year was the result of “fiscal bulldozing”.

The result of the rush to surplus of the previous government looks set to be built on by the Abbott Government. But with the MYEFO expected to show a much bigger deficit and weaker fiscal position for up to a decade, the contribution of Government to GDP growth in coming years could continue to be negative.

It makes the transition from the mining investment boom and RBA’s job all the more difficult.

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