Tag Archives: Budget 2014

Abbott explodes his economic credibility

Barrie Cassidy has called it a breathtaking shift in economic management.

Laura Tingle took the gloves off in an article Being governed by fools is not funny:

A bit like the old story of the frog that gets boiled alive because the temperature of the water in which it sits rises only gradually, we don’t seem to quite be able to take in the growing realisation that we actually are being governed by idiots and fools, or that this actually has real-world consequences.

We finish the week with a Prime Minister who has lost his bundle and is making policy and political calls that go beyond reckless in an increasingly panicked and desperate attempt to save himself; a government that has not just utterly lost its way but its authority; and important policy debates left either as smouldering wrecks or unprosecuted.

When debt under Labor reached 13% of GDP Abbott characterised it as a “disaster”, likely to send the economy down the Greek path. Suddenly, with 20% of his 2014 budget savings stalled in the senate, we have “done the heavy lifting” and the prospect of debt 50 to 60 per cent of GDP “is a pretty good result looking around the world”.

Here’s the graph of the forecast underlying budget cash balance from the Intergenerational Report:

IGR_underlying cash balance_BCEEB43A56494316992285B7177270E5.ashx

It shows the “currently legislated” path reaching a deficit of 6% of GDP in 40 in years.

Here’s Abbott, pointing to the wrong line, showing us that we’ve done the heavy lifting:


Standard and Poor have warned that if debt, federal and state, goes beyond $30 billion we can expect to lose our prized AAA credit rating.

Laura Tingle and Phillip Coorey say that the federal budget’s forecast bottom line has gone backwards by at least $80 billion since the Coalition came to office.

Abbott and Hockey would have us believe that the bottom line on that graph represents the legacy from Labor. In fact the following set of graphs from Tingle’s article shows the deterioration in the hands of Abbott and Hockey. The first set on the left represent Labor’s legacy:

Tingle Mr 15_1426753757023_600

To emphasise the point about Labor’s legacy, this is the 10-year projection from the Pre-Election Fiscal Outlook (PEFO) prepared independently by Treasury and Finance and published under the charter of budget honesty in August 2013 before the last election is shown:


That’s from this post.

Laura Tingle says that Labor’s focus groups keep throwing up the word “idiot” in relation to Tony Abbott. Swinging voters in Western Sydney in polling commissioned by Fairfax described the Prime Minister as “incompetent, an international embarrassment and a fool”. She thinks that there are “signs that our political system really is in deep trouble – not as a polemic point, but in a very real sense.”

Peter Martin tells us that:

In Labor’s last financial year in office, spending exceeded revenue by 5.4 per cent. This year it will exceed it by 13 per cent.

The budget does have to be fixed. The Reserve Bank Governor, Glenn Stevens, recently warned that in a recession a deficit of 3% of GDP will quickly balloon out to 6 to 7%. That allows no space for government stimulus of the economy.

Apparently Hockey has been sitting on a tax white paper for several months which is to be released next Monday, after the NSW election. Peter Martin looks to the savings available from super:

Treasury’s most conservative estimate has the concession for contributions to super funds costing $15.5 billion this financial year, climbing to $18 billion over three years. The tax concession for the earnings of funds costs $12 billion and is set to almost double to $22 billion. By way of comparison, Medicare costs $20 billion.

Peter Lloyd, Professor of Economics at University of Melbourne, puts forward some ideas, including:

  • Eliminating negative gearing for housing investments
  • Restricting the allowable deductions for depreciation and other business expenses
  • Revising rules relating to income from trusts
  • Tightening the rules for fringe benefit taxation
  • Reforming the taxation of super contributions and income
  • Reducing tax concessions for not-for-profit organisations

As he says, each one of these will meet objections from tax payers. But then the art of taxation was always plucking the goose without too much squawking.

A prime minister fighting for political survival appears to have thrown in the towel.

Update: I meant to mention that Labor had the budget remaining in surplus over the remaining part of a 10-year projection in order to show how Gonski and NDIS would be paid for, whereas Abbott/Hockey planned to slash schools and Hospital funding by $80 billion dollars.

Abbott is now saying that a surplus will be achieved within 5 years, whereas Mathias Cormann is saying “as soon as possible”.

See also They tell us lies, but are they clunkheads?

IGR – garbage in, garbage out

I’ve borrowed the title from The Australia Institute because it reflects how I feel about the Intergenerational Report.


Hockey told a business briefing “When people see some of the graphs in the intergenerational report they are going to fall off their chairs.” Richard Denniss said, yes, “we’re rolling around on the floor laughing”. He finds it “a deeply flawed document based on deeply flawed assumptions.”

Peter Martin warned us that when governments lose their authority, they try to scare us. Michelle Grattan warned that the government wanted the public to take several political messages out of the IGR:

Stated crudely, these are: first, that Labor’s policy settings would have taken us to hell in a hand basket; second, that but for the pesky Senate, the budget would have been in good shape relatively soon; and third, that despite the obstacles, the government is making progress towards bringing us to fiscal health.

She was right.

The Intergenerational Report is accessible here. See also the ABC article and The Conversation’s panel of experts.

Three scenarios

The Report paints three scenarios. The first dubbed “Proposed Policy” is the Abbott Government’s 2014 Budget. It would bring a surplus within five years. That is, if the revenue stream holds up as predicted, which we know it hasn’t. Also some ‘saves’ of the budget have been abandoned. That’s the first bit of fiction.

The second scenario is termed “Currently Legislated Policy”. That’s what the Opposition, the Greens and crossbench senators have passed. That will lead to a deficit of 6% of GDP in 2055.

The shock horror is in the third scenario, called “Previous Policy”. We are meant to believe that this is what the LNP inherited from Labor. In 2055 on this scenario the annual deficit would be a whopping 11.7% of GDP, with net debt at 122% of GDP.

The deception here is that the Report has not used Labor’s legacy as reflected in the Pre-Election Fiscal Outlook (PEFO) prepared independently by Treasury and Finance and published under the charter of budget honesty in August 2013 before the last election, which had the budget coming into surplus in 2015-16. It has used Hockey’s first Budget Update, after he had added billions of dollars of debt.

The IGR is a document compiled by the Treasurer, not the Treasury. Chris Bowen says that Labor would legislate to have it compiled by the Parliamentary Budget Office to take out the politics.


The Report has put in some scary figures like number of centenarians will grow from 5,000 or so now to almost 40,000 in 2055, spending on aged care and pensions will from from 2.9% of GDP to 3.6%. That’s an increase of 24% when our average income is forecast to lift from $66,400 today to $117,300, or 76%. If that is true (I have my doubts) then we can live very decently and still afford welfare.

Dependency ratio

A really scary figure given is the dependency ratio, which is the number of people of working age (15-65 year-olds) to aged people (65+). The dependency ratio is 4.5 now and will reduce to 2.7.

Again I say, why should we worry that the number of workers is reduced by 45% when each worker will be earning 76% more.

John Quiggin reckons it’s a weird trick that proves the IGR is nonsense. The concept assumes:

* Children aged 14 and under cost nothing to raise and required no public expenditure on schools, daycare etc
* Children leave school at 15. After this, they not only support themselves, but contribute to the support of those over 65
* People retire become eligible for age pensions at 65.

All three are wrong.

Climate change, the environment and population growth

Richard Denniss says the Report is unrealistic because it “barely talks about the threats of climate change or the enormous cost of building the new infrastructure that rapid population growth will require.”

Ian Lowe says:

There is no sign the government even recognises the most serious threats to future generations: liquid fuel security, climate change, water shortages, loss of productive land and loss of biodiversity. These issues require planning and commitment of resources now.

Rapid population growth to reach 39.7 million is taken as a given, not something we have a choice about.

On climate change Ben Eltham says:

Climate change is the dominant geopolitical fact of the future. It will shape the future more surely than tax takes or pension liabilities. It will reshape the global economy, threaten food yields, increase natural disasters, lay waste to Australia’s region and generate hundreds of millions of refugees.

Such blunt realities are absent everywhere from the 2015 IGR. It’s denial writ large, pure and simple. A larger blind spot – a more willful inapprehension of reality – is hard to envisage.

I’d have to agree with his bottom line:

You don’t have to take such shoddy work seriously, and as a busy citizen, you shouldn’t. The Intergenerational Report is not a serious attempt to make projections about government policy. It is an ornament, a prop in a policy theatre, a bell-and-whistle for the next Treasury lockup.

Like most such reports, the IGR will be quickly forgotten.

Update: The Parliamentary Library site Flagpost has a useful comparison of the four IGR reports so far.

They tell us lies, but are they clunkheads?

Back in 2010 just after the election and before the Gillard minority government had been formed, Laura Tingle wrote:

There are two possible explanations for how an opposition presenting itself as an alternative government could end up with an $11 billion hole in the cost of its election commitments.

One is that they are liars, the other is that they are clunkheads. Actually there is a third explanation: they are liars and clunkheads.

But whatever the combination, they are not fit to govern. (Emphasis added)

I visited this theme again in 2013 before the election, when Tingle took a look:

at where the PEFO numbers leave the LNPs budget task and finds that, at best, $25 billion more in ‘saves’ will be required.

She was commenting on the competence of the Joe Hockey/Andrew Robb team. Robb has of course since been replaced by Mathias Cormann.

Peter Martin has now written a searing critique of the Abbott government’s economic performance against what they tell us. Cormann told the ABC

the economy was “heading in the right direction”. He wanted “to build on the achievements we made in 2014”.

Martin comments:

That year began with a quarterly rate of economic growth of 1 per cent. After the budget, it slid to 0.5 per cent, and then to 0.3 per cent. It’s falling, rather than rising. The direction is down. (Ignore the through-the-year figures Cormann quoted. They make the budget look good by including the very strong economic growth that preceded it.)

Here’s what the Reserve bank said:

“In Australia the available information suggests that growth is continuing at a below-trend pace, with domestic demand growth overall quite weak.”

It’s weak and it’s bleak. It isn’t heading “in the right direction”.

Hockey and Cormann will tell you that while unemployment is growing, employment is too.

The Reserve Bank points out that monthly hours worked have scarcely changed since December 2011 despite three years of population growth. They barely moved at all in 2014.

Hockey told us the poorest Australians “either don’t have cars or actually don’t drive very far in many cases.” They do. Petrol is a bigger part their budget than it is for the rich.

Hockey said:

his own wealthy electorate of North Sydney had “one of the highest bulk-billing rates in Australia”.

Make that one of the lowest in Sydney.

Hockey said that typical Australians pay nearly half their income in tax. They don’t. Even those on $200,000 pay only 36%.

Then this:

Hockey said Australia was on track to run out of money to pay for its health, welfare and education systems. The figures put forward by his then health minister suggested otherwise. In ten years the cost of Medicare had climbed 124 per cent, the cost of the Pharmaceutical Benefits Scheme 90 per cent and the cost of public hospitals 83 per cent. But Australia’s gross domestic product – the money we would use to pay for these things – climbed 94 per cent.

Trust has evaporated, and without trust consumers and business lack confidence, which has been sliding since September.

Specific businesses are at a standstill. Universities don’t know what fees they will be allowed to charge, students enrolling don’t know what fees they will eventually be asked to pay, doctors don’t know what will happen to their incomes, electricity generators don’t know what will happen to the renewable energy target, big businesses don’t know whether they will be hit with the 1.5 per cent paid parental leave levy and what it will be used for.


Focussing on the budget, Alan Austin at Independent Australia finds a revenue megafail, all of the government’s own making.

Failures in revenue include:

    1. Closing off $7.6 billion in annual revenue from the carbon tax

    2. Closing off $3.4 billion revenue from the mining tax

    3. Closing off $3.6 billion from changes to tax and superannuation rules

    4. Failing to pursue $1.1 billion shifted by multinational companies to offshore tax havens

    5. Failing to pursue other tax avoidance schemes

    6. Failing to pursue tax evasion

    7. Failing to forecast resources revenue write-down

    8. Failing to anticipate falling revenue from corporate sector

This comes on top of the earlier post in which Austin found 40 expenditure items where money was wasted. Such as the Italian Carrara marble panelling Defence is putting in a Canberra building, to take one at random.

On the revenue megafail, Austin says, all were Coalition decisions, the deterioration has been dramatic, we got precisely the opposite of what was promised, it will take a treasurer and finance minister with a high level of competence, courage and authority to restore the situation, and finally, as the experiences of Spain, Ireland, Hong Kong, Venezuela and other countries show, damage done to an economy in a short time can take decades to repair.

On debt Austin says:

The Abbott Government inherited the best-performed economy in the world in 2013. Some say the best the world has seen since data collection began. Within nine months, however, ABC Fact Check confirmed deficits for the forward estimate period had doubled over Labor’s level. Now, after 17 months, net government debt has increased over Labor’s by 34.6%. It’s on track to have doubled by this time next year.

I think the initial question about liars and clunkheads answers itself.

Chris Bowen promises us a warts and all budget narrative. We’ll have to wait and see. Meanwhile Hockey is setting up to scare us to death with the intergenerational report.

See also

Hockey’s debt and deficit mess.

Abbott explodes his economic credibility

Saturday salon 17/1


An open thread where, at your leisure, you can discuss anything you like, well, within reason and the Comments Policy. Include here news and views, plus any notable personal experiences from the week and the weekend.

For climate topics please use the most recent Climate clippings.

The gentleman in the image is Voltaire, who for a time graced the court of Frederick II of Prussia, known as Frederick the Great. King Fred loved to talk about the universe and everything at the end of a day’s work. He also used the salons of Berlin to get feedback in the development of public policy.

Fred would only talk in French; he regarded German as barbaric. Here we’ll use English.

The thread will be a stoush-free zone. The Comments Policy says:

The aim [of this site] is to provide a venue for people to contribute and to engage in a civil and respectful manner.

Here are a few bits and pieces that came to my attention last week.

1. Australia’s internet speeds have slumped to 44th in the world

The State of the Internet Report from cloud service provider Akamai ranks Australia 44th for average connection speed.

One of the reasons why we’re falling down the list is that we’re moving towards utilising a copper based access network. Whereas previously, under the Labor government, we were moving towards an all fibre-based network, which is what most of our competitors are now doing. And we’re also seeing this drop because, as we keep changing direction with the NBN, we’re putting in large delays before the roll-out is actually occurring.

NetFlix which is meant to be coming online towards the end of March may not be able to be accessed everywhere and will be of poorer quality than in other countries. Many of our competitors are looking at gigabit broadband download speeds. Thanks to the Abbott government we’ll be in the Dark Ages.

2. Morgan poll

The Morgan poll ploughs on over the festive season. On LNP leadership:

Former Liberal Party Leader Malcolm Turnbull is preferred as Liberal Leader by 36% of electors (down 2% since September 30-October 2, 2014) but still well ahead of Deputy Leader Julie Bishop (26%, up 10%) and Prime Minister Tony Abbott (14%, down 5%). Bishop is now ahead of Abbott for the first time as preferred Liberal Leader. No other candidate has more than 4% support.

However, L-NP voters just narrowly prefer Prime Minister Tony Abbott (30%, down 11%) as Liberal Party Leader ahead of Deputy Leader Julie Bishop (28%, up 11%) and Malcolm Turnbull (26%, up 2%). Treasurer Joe Hockey has lost significant support and is now at only 4% (down 4%).

Hockey seems to have evaporated after announcing that poor people don’t drive cars. Meanwhile Bishop is surging.

3. MYEFO disappears

Speaking of Joe Hockey, the Mid-Year Economic and Fiscal Outlook, coinciding with the Sydney siege, has disappeared from view. John Quiggin has a neat summary of why it undercuts the LNP policy narrative:

Key elements of that narrative are:

* Debt and deficits are always bad, are now at catastrophic levels and are the product of Labor profligacy
* More labour market reform is needed to prevent a wages explosion resulting in higher unemployment
* The mining sector is the key to Australian prosperity and was unfairly burdened by the carbon and mineral resource rent taxes

Debt and deficits are growing as a result of weaker revenue, exactly as happened under Labor, and in any case do not constitute a serious problem.

As regards wages, not only does MYEFO note that wage growth (low and stable for many years) has been weaker than ever, this is noted as one of the main factors leading to the decline in revenue growth.

The mining industry was never a large employer and is now shedding jobs rapidly.

The good side of this is that the overvaluation of the $A driven by the mining boom is finally fading, with the result that the net impact of the end of the boom is forecast to be quite small. We have much more to fear from a renewed global financial crisis than from a decline in mineral prices.

4. The old guard still controls the grand slam court

Greg Jericho turns his analytical mind to tennis, well male tennis, suggesting that the old guard are still in control and don’t write Federer off – Jimmy Connors played until he was 39 and Andre Agassi until he was 36. Federer is only 33. He didn’t mention Ken “Muscles” Rosewall, who won his last tournament at the age of 43.

I’ve always thought that most grand slams are won by people in the age bracket 24-28. Jericho suggests 27 as the age beyond which winning becomes tough. Novak Djokovic and Andy Murray are 27, Nadal is 28. They are not true contemporaries of Federer.

I have no idea who is going to win, but I think it’s a bridge too far to expect Federer to win seven best-of-five matches in a row.

But Sarina Williams at age 33, you wouldn’t bet against her! Of course she only plays the best of three, but that’s another story!

I do think Djokovic, Nadal and Federer are a cut above the rest, with Andrew Murray also in the mix. They may stay in charge for another year or two.

Hockey: dark strategy or a muddle?

Some of each, I think.

In one sense the MYEFO (Mid-year Economic and Fiscal outlook) statement was not so bad. The bottom line is $10 billion worse and the budget will reach a surplus a year later, in 2019 instead of 2018. Ross Gittens gives Hockey a tick for not panicking.

Yet the MYEFO assumes that the Senate will co-operate in the new year and pass all those lovely cuts to higher education and welfare benefits along with other measures like the GP visits co-payment scheme.

Laura Tingle finds little to show that the Government has a clue on what to do about the collapse in revenue from the terms of trade and long-term fiscal consolidation. It’s blindingly obvious that we need to pay more tax, but the Government has taken the soft option of soaking the unseen poor by taking $3.7 billion from foreign aid.

Ben Eltham in an excellent budget review finds the Coalition’s economic policy “hopelessly confused”.

Last week Ian McAuley took a look at the Government’s economic strategies, which he finds based on three planks:

The first plank, revealed in the 2014 Budget, is an attempt to tilt income distribution towards the already well-off. The idea is that, given enough breaks, the rich will save and invest, providing employment for everyone else.

It’s a policy based on heroic assumptions about how the rich behave, most notably an assumption that rich people are rich because they are clever and industrious. Suffice to say that this was the disastrous approach known as “supply side economics” or “Reaganonomics” in America in the 1980s. If it stimulates any employment it is likely to be among workers in BMW car plants in Bavaria and real-estate agents in Sydney’s north shore.

The Australia Institute’s report The budget’s hidden gender agenda points out that this also favours men over women.

The second plank is about sustaining material living standards as long as possible on the back of the resource boom.

The benefits of the resources boom have been distributed in tax cuts and middle class welfare. Wayne Swan in his book The Good Fight points out that Peter Costello received a total of $334 billion in revenue upgrades and managed to spend $314 billion of it. A once in a century chance to upgrade our infrastructure was missed.

The Coalition’s third plank is pursuit of “small government”, even though Australia has one of the smallest public sectors of all developed countries, and we have pushed privatization to the extent that we are paying far more for poorer services than we would be had we retained public ownership of assets such as roads, airports and energy and water utilities.

Yet Eltham tells us:

With spending at 25.9 per cent of GDP, the Abbott government is indeed spending more than Julia Gillard’s government – more, in fact, than every year of the Rudd-Gillard era, except the stimulus year of 2009-10.

I’ve always thought there was an ideological dimension to Howard-Costello’s distribution of goodies. We are expected to take more responsibility for ourselves. But why does Labor follow suit? Purely for political reasons, I think. To avoid the ‘big spender’ tag and demonstrate economic management.

Labor might do better to take a different and more honest approach. Australia could become a better, fairer and more decent place to live if we taxed and spent to, say, 30% of GDP. We’d still be near the bottom of the league tables.

I’ll leave you with this graph of the underlying cash balance as a percentage of GDP from MYEFO via the AFR:

Cash balance 2 001_cropped_600

You’ll notice that Swan had the balance down almost to minus one percent before Hockey came and created a mess. I agree with Chris Bowen, Hockey is simply not up to the job.

Menzies was not afraid of debt

Richard Denniss at The Conversation takes a look at Menzies’ approach to debt financing.

Robert Menzies left Australia in far worse financial shape than he found it, at least according to current treasurer Joe Hockey’s favourite debt and deficit benchmark. Having inherited budget surpluses from the Chifley Labor government, the Menzies Coalition government ran small budget surpluses from 1949-50 to 1957-58.

But then Menzies’ “irresponsible profligacy” began, running budget deficits for the last nine years of his reign.

Menzies was interested in nation building rather than obsessing about budget deficits.

So, what was Menzies up to? He clearly wasn’t obsessed with the budget deficits or worried about numbers of public servants that so concern Hockey. The economy grew quite steadily, often growing at more than 6% in real terms. Unemployment was mostly around 2% or less, and only 1.6% when he retired. Over his time in power, you couldn’t even argue that Menzies was trying to balance the budget over the business cycle.

Menzies was interested in nation-building. He not only wanted rapid population growth, but he wanted infrastructure growth and growth in the health and education services that make a society both cohesive and productive.

Like any successful corporate leader, he was willing to use long-run debt financing to fund long-run investments. Menzies knew that a lot of his budget spending was for capital projects that would deliver benefits for decades, so why should he have funded them entirely out of one year’s revenue?

Hockey, on the other hand, wants to fund a big increase in infrastructure spending with no increase in tax and no increase in debt. He wants to fund more capital spending by cutting spending on essential services and income support for poor people.

The simplistic notion that a deficit is evidence that a government is “living beyond its means” is complete economic nonsense. Leaving aside that historic and international evidence provides no support for the claim that budget deficits cause long-run economic problems, the argument is contradicted by the corporate decision making that politicians pretend to emulate.

Historically substantial levels of public debt have been normal:


Commonwealth net debt stood at 12.5% of GDP in June. The following graph shows net debt projected out to 2013-24:


Government ministers are fond of household and corporate analogies.

It is perfectly normal for a family to borrow money to buy a house, up to 27 to 30% of annual income. Corporates that do not have debt of 30 to 60% of net worth are said to have ‘lazy’ balance sheets. Unless they take on respectable levels of debt, growth prospects are usually minimal.

Parents of a school wanting to build a swimming pool or other optional facility typically need to borrow money otherwise they will never get the use of the facility while their kids are at school.

Where would Brisbane be without the Story Bridge? According to Wikipedia the successful tender was ₤1,150,000. From memory the debt was finally paid off in 1997, when the payments were actually negligible.

Hockey, Abbott, Cormann and company take us for fools, insult our intelligence and generally carry on in a reprehensible manner! They are not acting in the national interest.

See also Hockey’s debt and deficit mess.

The proposed GP co-payment is dead

Along with apologising comprehensively to the Chinese, yesterday Clive Palmer announced that the proposed GP co-payment was not going to happen. Not one cent, he said. Palmer was effectively saying that as a wealthy country we can afford the health system we’ve got.

Well, I think that there won’t be a $7 co-payment. It’s just media beat up, you know, it’s not going to happen. And, you’ve got to remember that in Australia we spend 8.9 per cent of our GDP on health. In the United States they spend 17.2 per cent of GDP on health, yet 60 million Americans have no coverage.

I’m not sure he’s right about 60 million Americans having no coverage. In my mind it was 40 odd million and that was before Obamacare. fROM MEMORY bout the same number who are ‘food insecure’, that is they aren’t sure whether they will eat tomorrow.

Minister Peter Dutton, however, was saying that we need the co-payment because the health system is unsustainable. In other words, in the government’s view, we need as a matter of social and economic policy the poor to go to the doctor less. However, GP services are recognised as being in the front line as preventative medicine. Ignoring the health welfare of the poor, health policy aficionados question whether the co-payment would not actually cost the system more in the long run.

We can’t assume that the Government actually knows what it wants to achieve with its policy. Laura Tingle finds the government’s position completely muddle-headed and inconsistent.

No matter how much it may now criticise the AMA proposal, no matter how large a hole the proposal leaves in the budget, the government is yet to find its own way through the debate, or even clarify what the actual aim of its policy really is.

Apparently the AMA proposal, the one Tony Abbott personally asked them to put together, eliminated 97% of the projected budget savings. But Tingle says that it dealt with the equity problem and addressed

the very issue the government said it wanted to deal with when it first raised the idea of a Medicare co-payment before the budget.

That is, that those who can afford to make a contribution to the cost of going to the doctor should do so.

It should be remembered, I think, that savings from the GP co-payment initiative would not be used to pay off the deficit. Rather a research fund was going to be established which was going to save the nation, having lost the car industry, and find a cure for cancer. Or something.

Yet minister Pyne can threaten to take the savings out of general university research funding if his proposals re universities are not passed.

This is a government that far from tackling problems in an orderly way as they claim is resorting to ad hoc threats and bullying rather than deliberative policy processes. Part of the problem is accommodating Abbott’s signature policy initiative, the paid parental leave scheme. As Tingle says in this article:

Wherever Hockey, or other ministers go trying to sell the budget, for example, they have to try to explain how its paid parental leave scheme fits with spending cuts that hurt low-income earners hardest.

Keeping the score on PUP

In an earlier thread, I linked to Lenore Taylor’s article, which holds that the pattern with Palmer is to cause maximum drama then support government. Robert Merkel also linked to Taylor as well as to Ben Eltham who sees Palmer as following self interest.

For both of these to be true, the government must always act in Palmer’s interest, which seems unlikely.

According to Laura Tingle the Taylor view has become orthodoxy in the major parties:

Having sussed out the Palmer United Party, both sides of politics made pragmatic assessments that, for now at least, the PUP should be regarded as a noisy nuisance but one which would support the Coalition in most things.

She says this does not accord with the experience of the past two weeks:

Yes, the PUP ultimately supported the government’s carbon tax repeal bill with amendments. But it opposes the Coalition’s Climate Change Authority Abolition Bill, the Clean Energy Finance Corporation (Abolition) Bill and the bill to repeal the Australian Renewable Energy Agency.

It is also opposing moves to stop tax cuts associated with the carbon package, as well as opposing the abolition of the renewable energy target.

While it is supporting the repeal of the mining tax, it is opposing the repeal of the schoolkids bonus, an income support bonus and the low income superannuation contribution, which are all in the same bill.

It eventually supported changes to the Future of Financial Advice laws, but opposes a $435 million cut to higher education through an efficiency dividend, as well as the reintroduction of fuel excise indexation. It also supported Labor amendments to the asset recycling fund.

The net result is a cost to the budget of just over $13 billion before we even get to the contentious budget cuts.

To the casual observer Palmer’s back flip on the Future of Financial Advice (FoFA) looked capricious. In fact considerable work was put in by Cormann and Malcolm Turnbull who brokered the discussions at Cormann’s request.

Mr Turnbull’s involvement in the Future of Financial Advice (FoFA) matter was at the request of Senator Cormann, who did not know Mr Palmer very well. So he rang Mr Turnbull on Friday night last week asking him for help to convince Mr Palmer to talk and to set up a meeting.

Mr Turnbull spoke to Mr Palmer ­several times over the weekend and presented him with a briefing paper on the Coalition’s changes to the FoFA laws which Senator Cormann had his department prepare.

I understand Cormann and Palmer met five times in a short space of time. Presumably both gave some ground.

I think it’s too early to call a pattern in PUP voting. As to ideology, I think PUP would see itself as seeking a fair go for ordinary people. Beyond that we also have to wait and see.

Tingle’s article was mainly about pre-election positioning and selling the budget. Labor has definitely revealed its hand as supporting emissions trading. Shorten made clear that he meant an ETS rather than a tax.

Abbott is going to keep banging on about it’s really a tax and continue the scare campaign.

Labor may propose a much more modest scheme, more in line with business thinking. Business, Tingle says, is troubled by the current vacuum in real climate policy. They know the vacuum must be filled, but by what?

As to the budget, Tingle says it will need a fundamental rethink if voters are to change their opinion. Short of resolving the conflicting messages involved in, for example, plugging pensioner austerity while promoting a generous paid parental scheme, it’s hard to see what they might do.

But unless they do engage in a fundamental rethink we can expect more mayhem from PUP.

Senate wrangling as the budget gets mangled

Palmer spoiling Abbott’s party

That was the headline of the sensible Dennis Atkins’ opinion piece in the Courier Mail on Saturday.

Abbott now has to wait until next week and cede the centre stage in the House of Representatives to Clive Palmer, the pest who has become a nemesis while also being the guy the PM cannot ignore.

Tony Wright in the SMH describes Palmer as the emperor in the check shirt holding court upon a leather chaise longue at the entrance to the Senate chamber. There “the formerly mighty paid obeisance, begging his mercy”:

Here came Eric Abetz, leader of the government in the Senate; Mitch Fifield, manager of government business in the Senate; Simon Birmingham, parliamentary secretary to the Minister for Environment; all of them very nearly falling to their knees. A swirl of harried government advisers circled and whispered, knowing there was no escape for their masters.

Clive Palmer had no pity to dispense.

His eyes were dead to the presence of the supplicants, his ears closed to their pleading.

Repeal the carbon tax today? No chance.

He drew around him his little band of senators, instructing them on their duty.

And so on.

There is plenty at stake. Atkins article identifies the following:

  • Stopping Newstart for the young for 6 months – $2.1b
  • Changes to family tax benefit B – $1.9b
  • Axing seniors supplement $1.2b
  • Co-payment for pharmaceuticals – $1.2b
  • Higher education cuts – $5b
  • CPI petrol excise rise $4.1b
  • Medicare co-payments $3.6b
  • Freezing family tax benefit indexation – $2.6b
  • Axing family tax supplements $1.2b
  • Other measures – at least $2b.

Right there is $25 billion I assume over forward estimates. Surely Hockey will need a mini-budget to effect repairs, but I hate to think what he might cut in the process assuming he won’t increase taxes.

It’s important to remember, however, that Palmer only becomes potent when Labor and the Greens line up in opposition to the Abbottistas.

And then Palmer only controls three votes whereas Abbott needs six of the eight cross-benchers to line up.

Ricky Muir is stressing his autonomy. Again from the SMH:

Ricky Muir is moving out of the shadow of Clive Palmer, describing his agreement with the Palmer United Party as nothing more than a “loose alliance” and warning the government not to assume he will vote with PUP.

Senator Muir stressed his agreement with the bloc boiled down to being “together but autonomous”.

“The memorandum of understanding [signed with PUP] did say, and I stand by it, we will work together where practical. But we’re going to need to do our own research on every different topic and then work together where practical.”

Topics that interest Muir are:

The so-called ”rev-head senator” outlined personal passions that include organic food, which he grows and eats from his garden in rural Victoria, preventive healthcare, which he is interested in championing at a political level, and renewable energy, following his surprise intervention last week to protect the Australian Renewable Energy Agency from the government’s budget knife.

Giles Parkinson says Muir decided to make his mark in rescuing ARENA after the famous ‘brain freeze’ interview with Mike Willisee.

We’ll have to see whether that means the Government will stop playing hardball. The Guardian reported earlier that industry minister, Ian MacFarlane, had been refusing to renew the contracts of ARENA board members meaning that within a few weeks the secretary of the industry department would be the only remaining board member of the authority. Parkinson emphasises that no investment will flow until confidence is restored.

In this as with the senate generally the Government is struggling to appear in control. Abbott assured the faithful in Brisbane that all was “normal” which Shorten thought delusional. Greg Hunt huffed and puffed and said:

he was “sending a very, very, very clear message” to any crossbenchers who voted against repeal that they would have to “explain themselves” to the Australian people, saying he was “firming up [his] approach from diplomacy to send a very clear message”.

He only said that because he thinks he has PUP, Muir, David Leyonhjelm and Bob Day on board. There’s just one small problem. Clive has been relaxing in New Zealand:

The PUP leader, Clive Palmer, told Guardian Australia that he was on holidays and “oblivious” to any deal, the PUP senators are not scheduled to meet to consider any changes until Monday morning, and four other Senate crossbenchers refuse to guarantee their vote until they see the final form of the agreement.

Still the Government says they are going to call Palmer’s bluff and bring on the vote. I thought that was where they went wrong last week. That included them accepting Palmer’s amendment with all of 15 minutes consideration. Then it all fell apart again. Xenephon:

“I think if the government was asked to put red underpants on their heads in the Senate chamber, I reckon they probably would have done it.”

Still it might all go smoothly and the Government will succeed in stripping another $9 billion off the bottom line!

Last week Tony Wright says:

It was as if Labor’s 36 faceless men of 1963 had been revisited in reverse.

And while all around wore serious suits and smart little business frocks, the big man lounged in chinos and a checked shirt unbuttoned halfway to his belly. An emperor in clothes of his own choosing.

Here’s Palmer at a press conference looking relaxed:


We wait to see whether the soapie continues!

Se also Disorder in the house.

Hockey’s debt and deficit mess

In their usual sloganeering fashion Abbott, Hockey, Cormann and others constantly refer to the ‘budget debt and deficit mess’ (or disaster) they inherited from Labor. In the post Resolving the budget ‘crisis’ I attempted to show that Labor left the budget in reasonably good shape. In so far as there is a mess or a crisis now, the author is Hockey and company.

From comments I may have not made the case plain. In what I hope is my last post on the budget of 2014, I lay out the case again, with additional information.

In the 2013 budget Wayne Swan went beyond the usual four-year projections to lay out expected receipts and payments over 10 years. He did this to reflect how the numbers would work out, given that the major payments for Gonski and NDIS did not cut in until after the four-year budget cycle. Swan left the budget in good fiscal shape.

When Bowen and Rudd took over from Swan/Gillard they had to rejig the budget to accommodate the early change from a fixed carbon price to carbon trading, plus some new policies. Labor’s legacy is reflected in the Pre-Election Fiscal Outlook (PEFO) prepared independently by Treasury and Finance and published under the charter of budget honesty in August 2013 before the last election is shown:


This graph has the budget back in surplus in 2015-16, an ongoing surplus of about 1% of GDP (about $16 billion) and a restoration of budget receipts to about 25% of GDP. The forecast assumed no tax cuts to offset bracket creep. In effect the government would take back some of the eight tax cuts delivered by Costello and the one delivered by Rudd.

Six years of Labor had seen debt increase through the unaffordable tax cuts and Keynesian stimulation to counter the GFC. Nevertheless debt was modest by international standards.

Here’s Labor’s debt in context:


Hockey has done three main things.

First, he has added $68 billion in debt over the four-year budget cycle.

Second, he has delayed major cuts until the fourth year, as Ross Gittins has pointed out. (Ironically he has done this to stimulate the economy in transition from reliance on the resources boom. In fact consumer confidence tanked from the pre-budget talk of austerity and remains at levels of the 1991 recession.) Hence the budget does not reach surplus until 2016-17, one year later than Labor.

Third, Hockey has restrained receipts to 23.9% of GDP, according to Gittins, one election promise he has kept. Hockey has put the budget into a straight jacket entirely of his own making. This decision is based on his austerity/small government ideology.

The transition from Swan to Bowen to Hockey is reflected in this graph a form of which was published in the AFR at the time of the Mid-Year Forecast and Economic Outlook (MYEFO) last December.


Swan’s embarrassment and a fair bit of the negative view of Labor’s reputation as an economic manager is reflected in the difference between MYEFO for 2012 and the 2013 budget. Swan/Gillard had bravely forecast a budget surplus for 2012-13, but had to give up and defer for two years because of failing revenue. Treasury and Finance seemed to be completely blindsided by what was going on but the repeated failure of revenue to meet forecasts made the government look incompetent.

I understand revenue picked up a bit in the weeks before PEFO 2013, mainly due to better receipts from the mining and carbon taxes. I believe it was stable between PEFO 2013, Labor’s legacy, and MYEFO 2013, Hockey’s mess.

You will recall that the from ABC Factcheck confirmed Bowen’s contention that Hockey added $68 billion of debt to the forward estimates:


In the overall narrative the focus should be on what Hockey has done in increasing the deficit and in establishing a 23.9% of GDP limit on receipts. Instead we have sloganeering and a welter of numbers in an attempt to sheet home the entire blame to Labor. The LNP keeps saying that they gave us the budget the country needed and that there was no choice. There was choice in the overall budget framework as well as the allocations within it, which privileges the rich and the corporates and punished everyone else. Infrastructure and defence have also received increases, beyond normal inflation, though the former is limited to roads, neglecting public transport.


One sloganeering tactic is to state (true) that we are paying $1 billion in interest every month, and then rattle off what could be achieved with $12 billion extra in the budget. This entirely overlooks the need for debt to counter the GFC and the state we would have been in had we followed LNP policies.

Another is to say that if nothing were done then in 10 years the debt would be $667 billion pa. No economic commentator has had a good look at this claim, but it’s based on the Hockey mess, not Labor’s as such.

Based on that $667 number, they now have dazzled everyone with a ‘blizzard’, to borrow Bernard Keane’s description, of numbers derived from it. The interest bill becomes $2.8 billion per month, or $25,000 for each man, woman and child in the country, $100,000 for a family of four. Each Australian’s share of the interest would be $9,400 over the next 10 years, and so on and on.

Keane says it’s a Howard trick, although Howard had the gumption to stick to one number. Does anyone remember the ‘Beazley black hole’, the gigantic deficit left to the Howard government in 1996? This graph shows the budget balance history going back to when Howard was treasurer:

Budget balances_cropped_600

The graph is interactive. I’ve taken a screen shot with the blue marker bar over the socalled “Beazley black hole” It wasn’t a black hole and it wasn’t even Beazley’s as he was finance minister; Ralph Willis was treasurer. The deficit in that year was a benign 1.1% of GDP.

[This graph has replaced the less good one I had in the original post.]

The Tories have form, they specialise in lies. I’m inclined to think this present lot are liars, clunkheads or both, Laura Tingle’s assessment in 2010, and unfit for government.

Update: ABC FactCheck have done a thorough analysis of Hockey’s claim that

“At the moment we’re paying a billion dollars a month – one billion dollars every month in interest, in interest on the debt that Labor has left.”

Labor only incurred 75% of the current debt and there is a difference between gross debt and net debt. The verdict:

Using either gross debt or net debt, Mr Hockey’s claim that at the moment Australia is paying a billion dollars every month in interest on the debt that Labor left is exaggerated.

A nice way of saying he’s lying.

Previous posts on Budget 2014:

On a mission to upset everyone

Budget explainer

A crisis in trust

Shredding the fig leaf

Poll anger or a shift in the tectonic plates?

To GST or not to GST

Cap super, says Richard Denniss

Resolving the budget ‘crisis’

See also especially Hockey’s morality play.

Resolving the budget ‘crisis’

We definitely have a looming political budget crisis. Whether there is a fiscal/economic crisis is a separate question. First the politics.

Mark has an excellent post wherein he poses three alternative scenarios. I have only two, because I don’t see Abbott, Hockey et al being able to negotiate the maze that faces them in the senate. Nor do I see the Liberals changing leaders. There simply isn’t anyone. Hockey has broken his brand. Turnbull isn’t interested and not enough will have him. They couldn’t choose Morrison, could they, although his stocks are said to be riding high, having stopped the boats.

1. Abbott fails to negotiate important elements of the budget, such as eliminating the carbon ‘tax’, the proposed changes to Newstart and Youth Allowance, the changes to the age pension etc. As promised, Abbott would call a double dissolution election, after some bipartisan changes to senate voting practices. But note well, Antony Green for complex reasons says:

In my opinion there is not going to be a double dissolution in the near future, and even in the more distant future, I cannot see any possibility of a double dissolution before late 2015 or the first months of 2016.

2. Antony Green thinks that Abbott will only call a double dissolution if he thinks he can win. In this scenario Abbott fails to negotiate the senate, and the polls stay unfavourable. Abbott wimps out and limps on to a regular election in the second half of 2016.

I would discount the second option. Someone pointed out recently that when challenged, Abbott becomes more determined; if you like, more pugilistic. Moreover it would be manifestly foolish to struggle on with a government that lacks authority in the parliament and can’t effectively govern without Clive Palmer, who would maximise his leverage.

Of course, the polls might change. Apparently the feedback from the electorate to the party room was horrendous. For example the Oz gives us a taste:

JOE Hockey’s friends say he has been taken aback by the poor response to his budget from Coalition MPs. Well, Treasurer, you’d be horrified to know what some of them really think.

“There’s been no narrative. It’s been all over the shop. One minute we say there’s an emergency, the next there’s $8 billion for the Reserve Bank, $12bn for fighter jets, and we’re still splashing out on the paid parental leave scheme,” says one.

Now the government is considering a budget ad campaign. Except that there won’t be any radio, TV or newspaper ads. The campaign will fill our letter boxes with letters and pamphlets. Apparently the recalcitrant and benighted voters need to understand that this was the budget that the country needed. Needed, that is, to fix the “Labor debt and deficit mess”. You’ll hear that phrase a million times before the next election.

Which brings us back to whether there is a crisis in the fiscal/economic sense.

Jacob Greber and Phil Coorey had an article on the front page of the AFR Budget crisis is real, says PBO:

Parliament’s independent budget adviser has rejected Labor and Greens’ claims the Abbott government has ­concocted a budget crisis, saying ­without action Australia’s debt will grow at one of the fastest rates in the developed world.

In remarks that effectively endorse government warnings that if left unchecked, gross debt would balloon to $667 billion, Parliamentary Budget Officer Phil Bowen said it was time to begin the return to surplus to protect the economy against future crises.

“It is time to start coming out [of debt and deficit], otherwise the longer you leave it the more exposed you become and the harder it is to wind it back,” he told The Australian Financial Review.

This is sad, really sad. On page 47, buried in the middle of a tiny opinion piece by Andrew Leigh we had the truth. Labor in the Pre-election Fiscal and Economic outline had the budget coming back to surplus in 2016-17 in an orderly way. Hockey plans to do it by 2017-18, with the most horrendous cuts.

The document Leigh refers to was prepared by Finance and Treasury and released in August 2013 as part of the charter of budget honesty. Remember this table from ABC Factcheck?


Mainstrean journalists are too thick or too lazy to look at the facts. Instead they accept the LNP narrative.

With friends like that who knows what the polls will do?

Sensible people realise that there is no crisis, though we do need to bring the budget back to surplus within a reasonable time. After the confusion and sense of affairs out of control under Swan/Gillard, few seem to understand that finally, under Rudd/Bowen order had been restored. According to the independent umpire. Hockey has added the chaos and crisis in so far as it exists.

I’m inclined to think that Hockey/Abbott et al have fractured the basic contract with the people, that the people will not want to go back to the world of the pre-Whitlam era, which is where Trevor Cook compellingly thinks the reactionary tea party is aspiring to take us:

When they attack the so-called age of entitlement, they are really attacking the pillars of modern, Whitlamite Australia where concerns about access were more important than reducing the tax rate for business and rich individuals.

And the biggest stalking horse of all is Abbott’s efforts to get rid of Labor’s commitment to a national system of government and revert to a pre-federation style competition between increasingly impoverished states.

The intended victims of this charade are the poor and the middle class.

Abbott knows the states will be forced to cut spending – he wants them to do it.

Australia is at a turning point. And Abbott is no moderate, no centrist, not even a genuine conservative.

Perhaps the tea party utopia is best captured in this image from an anti-liberal site via Mark’s Facebook:

save the rich_10300316_320260274792507_5516613108870449871_n_500

Cap super, says Richard Denniss

Treasury secretary Martin Parkinson says the superannuation system is being used as a wealth creation vehicle for the rich.

Paul Drum from Certified Practising Accountants Australia says there is nothing wrong with wealth creation as such. If you want to provide income for the future you need to create a pile of wealth. (By my calculations, for example, if you don’t buy a house and need to pay $400 per week in rent, then you’ll need capital of at least $416,000 with growth capacity at least equivalent to the CPI. Of course if you buy an equivalent dwelling it will cost you more than $416,000 in most places around the country.)

Drum says we need to look at equity aspects, but doesn’t elaborate.

Richard Denniss of the Australia Institute says we’ve created an intergenerational wealth transfer system rather than a retirement incomes system:

So if we want to create a system that helps the majority of Australians have slightly higher incomes when they retire, that’s fine, we can talk about that.

But the idea that superannuation is used as a tax minimisation vehicle of very high income earners to pay far less tax than we’ve deemed fair, and then in turn to pass tens of millions of dollars onto their children, this isn’t the retirement income scheme, this is a intergenerational wealth transfer scheme.

The Treasurer himself said that in 2050 the proportion of people getting a pension or part pension will be about the same as now – roughly 80%. As a retirement incomes system super is a failure.

Tax concessions for super are about to pass total expenditure on pensions and in a few years will exceed the GST. Something needs to be done.

Part of the problem here is that superannuation assets are not included in the will and are not sold up when a superannuant dies. The benefits simply flow on to the next of kin. Directly held shares, on the other hand, must be sold, triggering capital gains tax.

When one spouse dies the benefits go to the other. Also, if I’m right the other spouse could cash out the super, tax free.

Family trusts provide similar intergenerational tax free wealth transfer.

Richard Denniss says cap super, to limit the call on the public coffers.

That is one change among others that is certainly needed, but what should the limit be?

When super was an issue with the Gillard government in 2013, we were told that a pile of $1 million would provide a ‘comfortable’ retirement income of $50,000 for a couple who owned a house.

In calculating income from super the rule of thumb is that you can draw an income of 5% of capital, so $2 million could produce an income of $100,000 per annum. That’s about 50% above average household income. More than enough, I should think!

Do it, please, Labor, when you get the chance and ignore the cries of class warfare. The LNP are more likely to be concerned about those who ‘waste’ their super on trips away, then rely fully on the pension.