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The fiscal massacre that laid the Rudd agenda to rest
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Yesterday’s MYEFO wasn’t so much a revision as a fiscal massacre. It was only in May that the Government was planning on surpluses of $21.7b, $19.7b, $19b and $18.9b for this and the following three years. Those numbers are now $5.4b, $3.6b, $2.6b and $6.7b. These days $2.6b is the tiniest of parameter adjustments away from a deficit. Perhaps things will turn as quickly again. Some further rate cuts, a big Christmas for retailers, some unexpected labour market resilience, and the slough of despondence in which the economy appears mired could be left behind. Perhaps Treasury’s now well-established tradition of significantly underestimating revenue will also hold. At the moment, however, that doesn’t look likely, and in any event the Government can’t bank on it. The more likely outcome is a budget deficit. The new numbers obliterate — obliterate as in wipe out, destroy, exterminate, put to the sword — most of the Government’s reform agenda for this term. Anything that isn’t revenue-neutral is now highly problematic. Tax reform, via the Henry Review, might survive given its overall goal is a more efficient tax system rather than tax cuts (the Government “aspires” to further tax cuts but has made no commitments). However, implementation of the more politically difficult recommendations that emerge from the Review will be difficult without the traditional bribes for “losers”, or at least those who squeal the loudest. And the Treasurer confirmed yesterday that the Government remained committed to pensions reform, which will cost billions. Money has to be found somewhere for that. Perhaps we should pass the hat around. That’s the easy bit. The Government’s infrastructure investment ambitions will have to be put on hold. If we’re still nation-building, we’re talking Liechtenstein, not Australia. Turns out we missed the opportunity to invest the proceeds of the mining boom and we’ll have to wait until the Rise of China and India Part II reaches these shores several years hence. Funding for education and health will also be directly affected, and not merely through the Funds that were established to channel the budget surplus into those areas. While the Government is continuing to implement its laptops-for-every-student program, the related infrastructure costs are still a bone of contention between the Commonwealth and the States. Moreover, access to additional funding was the basis on which Julia Gillard was going to drive her campaign to force State education bureaucracies to develop and provide performance data for schools. In fact, bribing the States is the main weapon in Kevin Rudd’s “cooperative Federalism” armoury. Rudd has had enough trouble getting recalcitrants like John Brumby to cooperate even when he’s thrown money at him. Without money, the COAG reform agenda, not merely in health and education but more broadly, will rely on the goodwill and good sense of the states. Good will and good sense. State Governments. Yep, I know. Then there’s the effort to close the gap in indigenous health. Current indigenous health and welfare programs are embedded in the Forward Estimates of the FAHCSIA and Health portfolios, so they’re not at risk. But the bulk of the Closing The Gap funding is committed this year. Any additional measures to implement the bipartisan commitment to address the national shame of lower indigenous life expectancy will be expensive, and unfunded. If the budget does dip into deficit, the Opposition will exploit it for all it’s worth. Yesterday Julie Bishop called the forecasts “a dramatic turnaround in the figures that this Government inherited when it came to office in November. At that time all the economic indicators were heading in the right direction, now they are heading in the wrong direction.” But, a journalist asked, “the unemployment figures, and the basis of the economic outlook, would you concede though that it is hardly surprising given the current state of the global economy?” “The Government is very keen,” Bishop replied, “to blame the global financial crisis for everything, but in fact a number of the Government’s policies and the Government’s handling of the economy have made conditions worse in Australia.” So there you go. It’s all Wayne Swan and Kevin Rudd’s fault. Steve Fielding topped that, though. Yesterday he called for people to “…buy Australian with their December bonus from the Federal Government’s Economic Security Strategy and boost the local economy.” Yep, that’s what we need — more protectionism. That should make sure a recession turns into a depression. Or does Fielding think foreigners should go on buying Australian rather than their local goods too? |
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13 Comments
I can only infer from John James’ comment on Keynes that he (James) supports the disastrous belt tightening and obsession with balanced budgets that is now widely accepted by economists as the main reason for the intensity and length of the Great Depression. Had central banks and governments known then what they know now, they would have done the opposite, i.e. deliberately undertaken deficit spending to stimulate failing economic activity. Deficits could have been offset by surpluses during subsequent periods of strong growth.
The Opposition doesn’t seem to have anything new to suggest itself - rather, it just bitches about anything the Government does and adds a couple of extra noughts - hardly innovative, inspiring or effective financial management. You wonder why nobody asks Bishop what she’d do. Or rather, what Roger Kerr would do…
Two points: (1) between May and yesterday, the worst global financial crisis since the Great Depression occurred; everyone knows that, so why the shock/horror reaction to the projected decrease in the federal surplus? and (2) Macroeconomics 101 tells us that there is nothing wrong — in fact, there’s a lot right — about government deficits aimed at avoiding or mitigating effects of a recession; J.M. Keynes told us that 70 years ago.
So where did it go? Olympic gold medals, lifestyle choices, a ‘privatised’ health system that did nothing but enrich doctors without even a modicum of improvement in publice health, a regressive tax system that was used for parochial porkbarrelling, and a bunch of jobs for the boys.
F*ck Howard and his cronies. F*c th epublic for believin gthe lies, and hoping that if we crossed our fingers nothing bad would happen. Well, it’s happening - and the worst hat will happen is that the books will be readjusted to reflect the true status of the f*cked up Howard years.
donald horne, all is forgiven
Bernard you still don’t get it do you? the COAG agenda was the States/VIC creature not the Commonwealth’s!
Wayne Swan’s gazing into the blankness, when asked the inflation rate, was hardly inspiring. I mean, I appreciate that you cannot have all the data necessarily at your finger tips, but these diificult times are as much about that magical word “confidence” as anything else and Swan flicking nervously through the notes in front of himself and then asking for the next question simply reinforces what many have commented on previously.And the inflation figure is basic, really! Watch the government go into overdrive attempting to run ” block” for an embattled treasurer.
Some of the postings above are typical Left spin. Yes, the jobless rate was better than expected, but the employment figures often lag considerably. My profession has me talking to alot of people and people are losing their jobs. A young architect patient of mine has been retrenched after 11 years with his firm and a senior Toyota manager told me he will probably be retrenched in the next month.
And I just love seeing Keynes being quoted so often. It’s like those late night horror movies, ‘Return of the Zombies.’ Just ask the government of Iceland or the USA about the ‘benefits’ of large deficits.
Er, excuse me but after 11 years was it in Liberal Government and allegedly huge surplusses, privatising of stellar public infrustructure and adding the GST to the rake in of monies. Where on earth has it all gone?? Kevin Rudd and Wayne Swan could not have spent the lot in a few months a couple of years perhaps but not months.
So I ask the question, where has the dosh gone??
Or was it ever there, typical smoke and mirrors accounting that has us gullible punters in a mess that we didn’t make.
Well, according to Federal labor’s own Health policy released August last year, there is an estimated $20 Billion lost in fiscal transfers between the States and National government, through shared portfolios. Lets get rid of the federal system (aka the states) so the taxation revenue can be dispersed through one less level of government, and presto we get our $20 Billion surplus back, which can then be spent or invested.
The reaction of anybody in the coalition is to be expected. In their previous period as government they simply spent all the winnings and now they just blame a 12 months in office government for the problems. Mr James is obviously a medico, generally the greediest profession after lawyers and financial people.
What the opposition should be doing is helping not hindering in this emergency which will probably be with us fgor some time. Their smirk and mirors Treasurer did not see the problem coming although the signs were obvious. In the last nearly seventy years I have never seen such a long expansion and it was obvious that the wide boys would rip into it as they allways have done. Subprime loans, no doc loans, finance companies paying above the normal interest and lending out to shaky mates at exornbinate rates, it was obvious that it would all go pear shape but the now opposition did nothing to stop it whilst in power and now want to blame their replacements. God help us if they become the replacement government because they are doing what they allways do, blaming somebody else. I do not blame Swan for not having figures to hand to answer some hacks question, he has enough on his mind on the important things like going to the G20 today.
Bernard, you forgot to mention the ETS. Is it because implemnetation of an ETS would markedly reduce Australia’s standard of living? Just what we need in a recession! Please don’t insult the voters by referring to Treasury’s modelling on the ETS, given Treasury’sr poor economic forecasting record.
Julie Bishop couldn’t be bothered to write an essay for a book about the future of the liberal party but thinks she should be treated with credibility by the brainless and breathless media hacks, mostly Murdoch’s brainless mob.
Her credibility was shredded after the first lapse into plagiarism, it is utterly gone after the second foray surely.
She is an idiot. And with jobless figures maintaining jobs actually increasing and the only people going broke being the gaming casino mortgage trusts and ABC “learning” then what are people actually whining about?
Fielding obviously does not do the shopping. There is hardly anything to buy that is made in Australia.
the last government let most our business re clothes , basic house hold goods go off shore and all so the call centres, It reminds me of Barnaby Joyce’s dig at the pensioners re Chinese goods. As for bishop saying we should keep the surplus the brightest in the country are arguing against this.Surely keeping the country working is the most important thing we can do.And bishop doesn’t know there is a fiscal problem globally of course the budget problems are caused by this Madam Shadow Treasurer. Nothing drastic has happened in Australia yet so what an earth are people moaning about and if it does to a small degree guess what there are lessons to be learned by a society that has become a” we must have it and now society” some lessons are being learned. I do not think any unemployed people down the track would thank the government for keeping the budget in surplus Ms. Bishop.
Well thank heavens that, after a generational boom comprising probably the last increase in economic activity the human race can get away with before the consequences become terminal, we can say that we built some damn fine kitchens, spas and deck conversions. Some would call this a misallocation of resources, indeed some would call it an epic catastophy akin to a cave man missing the annual migration of the carribou because he was too busy bidding up the price of rock art. But no, it was the miracle of the markets and their infinate allocative wisdom. Anyone would have been dazzled, there were no detractors other than socialists and greens, and green socialists (watermelons). Don’t worry, there is always another bubble. I think the next one will be in drinkable water, edible grain or non-radioactive cities. Invest early, avoid the rush.