What does IMF data say about Australia’s spending and net debt?

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What does IMF data say about Australia’s spending and net debt?

Posted 13/06/2014 by Daniel Weight

On page 3 of the 2014-15 Budget Overview, the Government stated that:

the International Monetary Fund (IMF) warns that, without policy change, Australia would record the fastest spending growth of the top 17 surveyed advanced economies and the third largest increase in net debt as a share of the economy.

These claims were based on charts published on page 24 of the IMF’s Article IV Consultation—Staff Report for Australia, which was released in February 2014. One of the IMF’s charts appeared to show that Australia had the highest forecast change in real expenditure between 2012 and 2018 amongst all IMF advanced economies. Another chart appeared to show that Australia had the third highest forecast change in net debt as a percentage of GDP between 2012 and 2018 amongst all IMF advanced economies.

Even before the release of the 2014-15 Budget, the ABC’s FactCheck website concluded that Treasurer Hockey’s ‘comments on growth in spending and debt compared to the 17 nations surveyed by the IMF check out.’  However, economist Steven Koukoulas blogged:  ‘I smell a big, dirty, dead rat in the IMF report on Australia.’  The Kouk (as he is known) asked why certain countries had been omitted from the IMF’s analysis.

The IMF classifies 36 counties as ‘advanced economies.’  These are: Australia, Austria, Belgium, Canada, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong SAR, Iceland, Ireland, Israel, Italy, Japan, Korea, Latvia, Luxembourg, Malta, Netherlands, New Zealand, Norway, Portugal, San Marino, Singapore, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Taiwan Province of China, United Kingdom, and the United States.

In its World Economic Outlook (WEO) database, the IMF releases economic data and forecasts for IMF member counties, including the 36 advanced economies.  The latest release is the April 2014 WEO, which is later than the IMF’s Article IV report, but which predates the 2014-15 Budget. 

Using the April 2014 WEO database to calculate all advanced economies’ forecast change in real expenditure between 2012 and 2018 provides the following results:

Change in Real Expenditure, 2012-2018 (in percent, general government)Graph showing change in Real Expenditure from 2012-2018 (in percent, general government)

Source: IMF World Economic Outlook database, April 2014; Parliamentary Library analysis

While Australia’s forecast real change in expenditure is higher than the average for advanced economies, the claim that it is the fastest amongst all IMF advanced economies is incorrect. The relevant chart in the IMF’s Article IV report, however, tends to suggest otherwise as it omits the following countries, all of which have a higher rate of growth than Australia: Hong Kong SAR, Luxembourg, Estonia, Norway, Israel, and Singapore.

Likewise, using the April 2014 WEO database to calculate all advanced economies’ forecast change in net debt as a percentage of GDP between 2012 and 2018 provides the following results: 

Change in Net Debt, 2012-2018 (in percent of GDP, general government)

Graph showing change in Net Debt from 2012-2018 (in percent of GDP, general government)

Source: IMF World Economic Outlook database, April 2014; Parliamentary Library analysis.
Note: the 2014 WEO does not hold net debt data for: Cyprus, Czech Republic, Hong Kong SAR, Luxembourg, Malta, San Marino, Singapore, Slovak Republic, Slovenia, or the Taiwan Province of China.

On this measure, Australia is forecast to have higher growth in net debt as a percentage of GDP between 2012 and 2018 than the average for IMF advanced economies.  Again, however, the relevant chart in the IMF’s Article IV report may not provide the true picture, as Japan, Finland and Spain are omitted.  The April 2014 WEO database shows that these three countries have a higher forecasted growth in net debt as a percentage of GDP than Australia.

In the IMF’s report, the choice of 17 countries is not consistent between the two charts in question, with the Czech Republic, Finland, Great Britain, Greece, Iceland, Ireland, Japan, and Portugal appearing on one chart but not the other.  Some IMF advanced economies, such as Spain, are not depicted at all.

In response to Senate Estimates questions on the charts in the IMF Article IV report, the Treasury Secretary, Dr Parkinson, agreed that 'having a ... differentiating subset through that series is obviously going to give you a different story compared to one that actually compared Australia against all advanced economies'.  He added that:

definitely switching between different subsets is not something that we would encourage people to do.  

To the extent that the Government and commentators rely upon what is stated in the IMF’s Article IV report, they are not inaccurate.  However, the IMF’s Article IV report may not actually be saying what some people presume it does. 

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