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Budget tries to sell unattainable growth rates. Why?
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Assume a recovery. Assume fiscal sustainability. Assume that you can fool enough people to get yourself re-elected, probably at an early election! If these are the worst global economic circumstances in 75 years, how is it that our recession will be less severe than the recession of the early 90s? How is it possible to spend some $120b in new initiatives since the last election; to have to accept a collapse in Budget revenues of some $210b due to the global financial crisis; to spend more on short-term, one-off, cash handouts than on new infrastructure measures; and still be able to re-balance the Budget in just five years? Only if you assume it, by assuming unattainable growth rates! How is it that we can hope to recover so quickly when the other major developed countries certainly don’t believe that they will, and that at least one million Australians will find themselves unemployed? About the only certainty that I get from this Budget is that our economic circumstances will not unfold as forecast. The Budget deficit will blow out even more and growth will be much weaker. This should mark the end of any residual forecasting credibility of either the Treasury or the RBA. Where are all those tough decisions that are to ensure a re balancing of the Budget and the repayment of debt? How is it that “we all have to bear part of the tough adjustments in these tough economic times”, yet the “pain” seems confined to those who earn more than $150,000 per year, but even then more than offset by the tax cuts? However, if you are a single parent or unemployed, you will certainly be relatively worse off. Or, if you are about to retire, you may be forced to work longer, even longer than you had thought you would have to because the value of your super collapsed due to this global financial crisis. If this Budget is about jobs, and if we are to believe that there would have been 210,000 more unemployed if the Government hadn’t acted in this way, then how much is each job saved costing? At least $250,000 each job! The only way I can make any sense of all this is to believe that the Government simply wants to be seen to be doing something to deal with recession, but not really caring how things will unfold, pushing the necessary tough decisions out beyond the next election, as it did with the Emissions Trading System. Expect an early election, before the weaknesses of our economy and this Budget response become evident. |
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9 Comments
eeek. Shut up John yr freaking me out.
Shallow as it is, you lost me at the second exclamation mark.
Notwithstanding the shallow comments above, I believe that John’s comments require a more substantive analysis. It is quite well appreciated that the government’s assumptions on returning to surplus within five years are based on some pretty heroic estimates of growth. The unfortunate truth about an economic contraction is that the so-called poor are biggest consumers of resources and if economic output falls, ultimately consumption by the poor must also fall. Countercyclical expenditure may offset reductions in demand, but in effect these are being funded by borrowing from the future. There is no free lunch. Government deficits must be funded in cash flow terms by borrowing and these borrowings have to be repaid. Before repayment there is the inevitable interest charges which also have to be funded. One would hope that the capital expenditure decisions being undertaken by government have an economic benefit beyond immediate employment which seems to be the primary issue in terms of government being re-elected. Refunds of prior year tax payments do not appear to provide any sustainable benefit.
the thing about this government is that it is all about good politics, but bad policy.
-“hey let’s give out $900 stimulus packages to every single person that walks past! Free money for all!!!”
now that senitment is going to be great for you at the next election from the guy who’s just lost his job and has been told the bank are going to repossess his house. he thinks you are santa claus for giving him that money and you can probably count on his vote for the next 2 elections. problem is, he doesnt realise that by paying him $900, you havent employed him after his layoff and allowed him to earn significantly more than that in take home income.
Youve got his vote, but his quality of life is significantly worse off. Good politics, bad policy.
Say what you like about the Howard government. many people do. but at least they had the stomach to make the unpopular decisions. workchoices may have caused the death of the Liberals at the last election, but it showed their fortitude to make solely based economic decisions that the average man on the street doesnt understand, but are for the greater good. and the paid for it. but at least they were willing to put it forward.
Kevin “hey im just one of the blokes working Australia!” Rudd and Wayne “what is this economy everyone keeps talking about?” Swan have made few inroads with this budget. it is a decidedly average budget, with few shocks and a whole bunch of infrastructure spending that was scheduled to happen anyway. The progressive government has a chance here to do something that the Howard government never did and that is save the infrastructure of this country and really set the platform for the next 100 years. Instead, they have taken the easy, greedy way out which gives them the best chance of being elected next time around.
John is right, expect an early election.
(for what it is worth John, I have always appreciated your point of view, I think youre brilliant. unfortunately, you were too intelligent and honest to be a politician.)
I don’t agree with John Hewson. Most of the post is a shrill Liberal gloom-and-doom-Labor-be-really-afraid rant. I would have expected something a little more reasoned from him.
But an early election? Why would they bother? Having already dug half a hole, it’s seems a done deal that Turnbull and the Rich Lawyers Party are going to (foolishly) continue with their piously non-political interpretation of the word ‘opposition’, no doubt scratching their collective heads as the PPM & 2PP poll gap widens with each new Government bill maliciously blocked on spurious grounds.
By the time the election rolls around Labor will likely be stepping over little more than the sticky entrails to take the plate for a second term.
So no John, you are wrong on this call and shouldn’t have hung your hat on it.
Oh and one more thing John. You might want to consider that the only ones trying to “fool enough people” at the moment are the Opposition. In contrast it is the Government who are being open with the people. Refreshing, isn’t it?
The hubris your Party displays in presuming that the majority of voters are somehow dumb, easily fooled, gullible… it’s hard to comprehend why you believe that. But if you do, then really, you should get out more.
To ever win the Liberals will need to be everything the Government are, plus one.
The Opposition needs to go away and reinvent themselves - as a Party that can offer something new and superior to the current Government. Shine, not grumble.
Simply opposing everything a wildly popular government is a course to political irrelevance. Mr Turnbull is already widely known as Dr No, as you might already know.
It would seem to me that the Liberal Party has yet to accept their defeat in 2007. Jolly good, chin up, there’s a good chap.
Pedro-
dont confuse yourself into thinking the government is being open with the people. being open with the people would have involved Wayne Swan saying:
“this is a budget where we try not to rock the boat and make any difficult decisions that could cost us votes later on”.
Open and honest would have been Kevin Rudd saying:
“we have decided to just give away money. it will hardly help the economy at all given the marginal propensity to save of the people we are paying our money to, but it will most likely buy their vote at the next election.”
Lets look at the broken election promise list so far…
Broadband. “we will spend $5bil upgrading broadband.” The latest figure they have come out with is $43 billion. and it hasnt started being built yet… That is an unkept promise.
Environment. “we will implement an emissions trading scheme by 2010”. This was never going to be kept. it couldnt possibly be because anyone who knew anything about what it entailed new that the start up costs would be way to much and we were starting from scratch. This was an extremely misleading promise.
Superannuation. “There will be no change to the superannuation laws one jot, one tiddle,” he said before the election. Have a look at the latest concessional contributions from the budget. you will find again a broken promise. and at a time when superannuation has taken the biggest hit.
Economy. “I am an economic conservative”. Sorry, but even the economic conservatives that ride the line most closely to the left would oppose just giving away money rather than putting that money into meaningful nation building projects. This was the biggest lie of all and demonstrates how far K Rudd will go to buy votes.
My point is, that near the end of the Howard era, Howard may have deserved to go. He wanted his electorate to vote him in so he could complete half his term and that in itself is reason not to vote for him. and Turnbull isnt doing a great job in opposition, if he was, he would have come out with an alternative nation building plan of his own when the government was just looking to give away money to everyone, rather than just saying No as you point out. But dont for one second be so confused as to think the government is being open and honest with you. If they were, they would tell you that it will take them a massive amount of time to pay back their budget deficit, rather than quantifying it as 6 years. they would have told you there is no way the environmental platform that they got elected on could ever be implemented in the time they suggested. they would tell you that “conservative” economists would never condone the sort of giving away money that they performed.
I think its hilarious that you accuse the Liberals of thinking the electorate is dumb, when it appears to me that the Labor party has performed the exact same trick on you and you think that they are “open” and honest because of it.
John Hewson
It’s fascinating to me that you are still out there as a financial/monetary expert. Can I take this opportunity to ask where things are going with Elderslie Finance? Is there any chance that loans may be recovered in the interest of the investors currently expecting only 10cents in the dollar? You were Chairman until shortly before the demise weren’t you?
Thanks in advance, John Smith.
A PS from John Smith.
I can’t agree with DAMNUMALONE’s comment on your brilliance etc. He obviously wasn’t an investor in one of your companies.