Phillip Adams in interviewing Ross Gittins recalled that Paul Keating described Ross Gittins as the only economics commentator worth feeding. When doing posts on the budget I initially checked his site and found nothing there. Then I forgot about him! My bad! Now he has assembled an impressive series of articles:
Here are some of the highlights, which of course is no substitute for reading the articles in full.
Gittins finds the budget the product of
a badly rattled government that has put self-preservation ahead of economic responsibility. It will do much to restore Tony Abbott’s political fortunes, but next to nothing to return the budget to surplus or hasten the economy’s return to strong growth.
From the perspective of economic management, this budget represents dereliction of duty.
There is little reason to believe the budget will do much to improve business confidence. It won’t in fact do much to stimulate small business economic activity either, a major selling point of the budget. In any case small business is not the driver of the economy, big business is.
As the budget’s fine print admits, small business accounts for only about 38 per cent of the workforce and about a third of production.
With all the urging to “have a go” the economically illiterate media have been duped into thinking the budget is stimulatory. In fact it is mildly contractionary. But:
there’s one respect in which nothing has changed: the tax perks of the well-off – superannuation concessions, negative gearing, discounted tax on capital gains, family trusts – remain untouched.
Gittins fears that Abbott, having been rewarded for being irresponsible, will continue that behaviour, will never have a tough budget and will never get the budget out of deficit. Abbott appears to believe that an increase in taxes is unthinkable, whereas restoring a balanced budget has always involved both spending cuts and tax increases.
Abbott is seeking to keep two groups of people happy:
- most low and middle income-earners get their benefit from the government via the budget’s spending side, whereas most high income-earners get their benefit via tax breaks on such things as superannuation, capital gains, negative gearing and family trusts.
The Government has not found a way of cutting spending fairly, hence measures are blocked in the senate. Abbott seems keen not to offend the high income earners.
Hockey spoke of a “conversation” about tax reform and appealed for a bipartisan approach to the reform of super tax concessions.
- Labor responded by putting some modest reforms on the table.
But last week Abbott rejected any possibility of adverse super changes, preparing the way for an election fought on the claim that Labor stood for higher taxes while the Coalition stood for lower taxes. Caught with his guard down, Bill Shorten hit back by claiming Labor would cut the company tax rate for small businesses by 5 percentage points, not the government’s 1.5 points.
Great. Tax as a political football. That will fix the deficit.
So bracket creep remains as the one way of tackling the deficit.
Gittins defends Treasury forecasts. He says that a great deal of effort goes into formulating them, in contrast with commentators who glibly make judgements without putting in a comparable effort. Problem is that the economy is essentially unpredictable, so Treasury comes up with what is an educated guess. So you end up with this:
- Treasury has combined its forecasts for the financial year just ending and the coming year to give a forecast average annual growth rate of “around 2.5 per cent”. On the basis of its record of forecasting errors, it says there’s a 70 per cent probability that the actual growth rate will be somewhere between 1.75 per cent and 3.5 per cent. Wow.
In his latest piece The economy: old dog shows signs of life Gittins reminds us that 2.5% growth still leaves us as “one of the fastest growing economies in the advanced world”.
With mining investment evaporating, business investment remains a huge weak spot in the economy. However, with mines coming on stream our exports are growing, and with the lower dollar we earn more Australian dollars for our exports.
Again, with the lower dollar we are travelling overseas less and more tourists are coming here. The Chinese middle class are arriving. In the last financial year more than three-quarters of a million Chinese visitors spent an average of $8600 per person with our businesses. Moreover:
- Now get this: the volume of our exports of medium-skilled and technology-intensive manufactures has grown almost continuously over the past 30 years, as have our exports of high-skilled and technology-intensive manufactures, with the latter now bigger than the former.
It’s really only the low-skilled and labour-intensive manufactures that have fallen back. The starring industries make goods such as pharmaceuticals, professional and scientific equipment, and machinery and transport equipment.
Strikes me we’re not dead yet.
Finally, in his latest book Gittins rates the 13 treasurers who have occupied the office while he has been penning his columns. He told Phillip Adams that Keating stands out by a country mile. Second is Costello. From this column:
- Costello’s greatest achievements were his carriage of the goods and services tax and his reform of the prudential supervision of the financial system, which kept our banks out of trouble in the GFC. The notion that he’s up there with Keating as a reformer is partisan propaganda.
He has Swan third, on the basis of his brave Keynesian stimulus that saved us from the GFC.
I’ve read Swannee’s book and I think Gittins underestimates the quality of the rest of Swan’s work. On the other hand, I can’t forgive Costello for pissing the benefit of the mining boom up against the wall with middle class welfare and tax cuts, for criminally neglecting infrastructure, and for creating superannuation as a giant tax haven for his rich mates, creating the structural budget problems that now bedevil us. But then I haven’t read Gittins’ book. I’d love to know what he really thinks about Johnnie Howard!