CANBERRA - Boring people like me spent yesterday and last night going through the fine detail of Papua New Guinea’s just released budget numbers.
As this was written in anticipation and facing the battle to stay awake with too many cups of coffee, I thought it might be useful to reflect on the likely accuracy of the big picture budget numbers we would see.
A good test case for accuracy is the 2016 budget, released in November 2015 one year after the fall in international commodity prices.
2016 is also good because we should have numbers of the actual outcome. We certainly don't have all these numbers for the 2017 outcome as yet.
2016 is also an interesting year to examine because the starting numbers are almost exactly the same as the estimates in this month's 2018 budget strategy.
Both 2016 and 2018 have expected revenues of K12.7 billion. Both have expenditures of about K14.7 billion. So 2016's experience may provide a preview of the 2018 budget experience.
The key starting difference is that the 2016 revenue numbers were much more conservative. They expected almost exactly the same level of revenue as in 2015.
Extraordinarily, however, the 2018 budget strategy's starting point for revenues is 18% higher than the expected 2017 revenue figure of K11.0 billion.
So how did the accuracy of the 2016 budget numbers go?
Unfortunately for PNG, not very well. The biggest budget error was that revenues were over-estimated by K2.2 billion - a 17% inaccuracy.
Once again, it’s interesting that the 2018 budget strategy revenue figures are assuming an 18% increase (which is not realistic).
With the collapse in revenues, it looked like the government was taking some corrective action and reducing expenditure (in the wrong areas such as health, education and infrastructure but that is another story).
The 2016 supplementary budget aimed to cut expenditure by around K1 billion, and the final budget outcome indicated that expenditure did end up K1.2 billion lower.
But then came along the PNG's central bank's (BPNG) latest Quarterly Economic Bulletin released late last week.
On the top of page eight of that report, it explains the continuing rapid increase in public debt in 2017 with an extraordinary explanation: "…and the encashment of presented cheques from the previous year, totalling K829.4 million". So BPNG admitted there was another K829.4 million in unpresented cheques from 2016 which are only now being paid.
In any decent accrual system of accounting, these cheques should be allocated to when the expenditure obligation arose - back in the previous year - that is 2016.
This extra K829.4 million in expenditure needs to be added to reported expenditure in 2016. This then lifts the deficit from K3.1 billion to K3.9 billion.
The deficit to GDP ratio then increases from the claimed figure of negative 3.1% at the time of the 2017 Budget to the best estimate now of negative 5.8%.
Deficits of 5.8% of GDP simply are not sustainable when PNG's growth rate is back at around 2%.
In economic terms, that is a huge difference: K1.8 billion - a near doubling of the original budget deficit estimate.
And of course, we still don't know if more "cheques from the previous year" will be presented.
On other figures, the 2016 budget assumed real GDP growth would be 4.3% but the outcome more than halved to 2%. Many analysts consider the figure was actually negative based on falling sales, falling employment, falling credit, falling imports and falling tax receipts in 2016.
The GDP measure was a bit of a farce in 2016, in part reflecting the National Statistical Offices changes to GDP methodology.
There were also serious games with the reported debt to GDP ratio. The legislative limit for this ratio was 30% in 2016. So you could have expected some horror in the prime minister's office when the budget said this limit would be exceeded.
Then the fixers went in and suddenly the debt to GDP ratio dropped from 35.8% to 29.4%, just uner the legislated limit.
But by the time of the more independent final document, this figure had moved back above 30%.
For those of us examining the details of the 2018 Budget, with starting numbers almost identical to the 2016 budget, there is a need to be careful.
Games have been played in the past. There is a need for a detailed and realistic examination of budget assumptions to determine if they are credible.
Frankly, the reported started point of an 18% increase in revenues in 2018 when the economy is struggling is very, very worrying. If the updated 2017 revenue estimate is even lower, then the 2018 budget will lose all credibility.
Given the similarities with 2016, I fear the people of PNG already need to get ready for some big expenditure cuts in the 2018 supplementary budget along with a blowout in the budget deficit and public debt levels.