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Dec 21, 2012

Swan alters course, delivers early Christmas present for Joe

Wayne Swan's abandonment of the surplus commitment isn't the opening of the fiscal floodgates, but it's a great gift for Joe Hockey. Perhaps voters will be smarter than either major party on this vexed issue.

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Wayne Swan

Yes, Joe, there is a Santa Claus, his name is Wayne and he’s come five days early for you.

Ever since he became shadow Treasurer, Joe Hockey has been saying Labor would never deliver a surplus. Yesterday Wayne Swan came as close to vindicating him as we’re likely to see before the election campaign.

This is a humiliating backdown by Swan. Since the 2010 budget, Swan has been insisting Labor would be back in the black by 2012-13. He’s referred to the surplus around 200 times in 2011 and 2012 alone, the most recent occasion 11 days ago. Sometimes the surplus rhetoric got a little wild. “We’ve nailed our colours to the mast,” Swan said on stage earlier this year. In 2010, Swan insisted the surplus would be achieved “come hell or high water”.

Well, the good ship Budget has now headed for safe harbour just four months into the voyage, though, to be strictly accurate in labouring this metaphor, the problem isn’t so much high water as the doldrums: as finance data to October showed, revenue is falling below forecast levels. While the strong dollar persists, corporate tax revenue will underperform as trade-exposed sectors of the economy struggle. And the flat housing market, not to mention politicians and newspapers insisting that the economy is a disaster, will continue to crimp domestic confidence.

The commitment has an interesting history. The Rudd government first made it in 2010 when the economy looked to be recovering from the financial crisis more quickly than expected, and Labor was spooked by the opposition’s incessant harping on debt and deficits. 2012-13 was safely off in the future and beyond the election at that point anyway, and the first version of the mining tax was expected to reap huge returns. Then came the floods at the start of 2011, and the government’s flood levy, and a chorus of criticism that there was no need to rush back to surplus so quickly.

The government defied that, the economy picked up in the second half of 2011 and the early part of 2012, but the surplus was continually winnowed back as Treasury realised tax revenue wasn’t springing back anywhere near as fast as expected and Labor kept having to bring spending forward or push it back, or cut it altogether, to keep its prospects alive. The slowdown in the second half of this year, which followed a comparative slowdown in China, was the final straw: Labor isn’t going to cut any more.

Still, Swan has reversed course, and Hockey can pick and choose from an extensive list of Swan’s own statements to throw at the Treasurer. As he well should.

The announcement has been attended by quite a bit of stupidity. Tony Abbott suggested Australian families would somehow pay for the departure from the surplus commitment, as if a switch between a $1 billion surplus and a $5 billion deficit is going to have an impact on inflation or, for that matter, interest rates.

“Swan has spent three years preparing the big stick with which Joe Hockey is going to belt him all the way to the election.”

It also sits oddly with Hockey’s lament that the RBA was being asked to do too much work to “catch a falling economy”; indeed, if the Coalition does believe the economy is falling — as Hockey and Abbott’s refusal to commit to a surplus next year suggests — their rhetoric on the need for surplus is bizarre (then again, all they need do is point to Swan’s many statement about why it’s economically necessary to return to surplus).

The opposition also continues to claim the government is “spending like drunken sailors” when its spending-to-GDP ratio this year — 23.8% at MYEFO, currently on track to be a tad lower — is lower than the average spending-to-GDP ratio of the Howard government.

Then there was the opposite reaction, by Rob Oakeshott, the Greens, some press gallery journalists, and various barrow-pushers, that having walked away from the surplus commitment, the government could now unleash the floodgates on spending, restoring savings made during the course of the last two years. One notable exception was ACOSS, which said the government should look to fund NDIS, Gonski and increased health spending by “clear[ing] wasteful and poorly targeted expenditure from the budget, and to avoid introducing new programs that are not rigorously designed to meet the country’s essential economic and social needs”.

The spend-up-big types — who in effect are saying “we’re going to have lower income this year, so let’s spend more” — missed or ignored what Swan specifically said, which was that the government was not going to make any further cuts to make up for the failure of revenue to meet projections; the surplus commitment has been abandoned only as far as tax revenue falls short. Nor is there strong evidence of a need for any fiscal stimulus. Unemployment remains low and steady; commodity prices have picked up significantly in recent weeks, buoyed by China’s return to strong growth, and there’s still plenty of stimulus to come from the RBA’s interest rate cuts, so a stronger second half of the financial year is a distinct possibility (with attendant higher tax revenues).

In fact Swan has steered a sensible fiscal course so far, refusing until now to react to the constant claims that the economy is in trouble and being endangered by a rapid fiscal contraction. In the end, the bulletproof dollar has defeated him, but there’s no case for abandoning fiscal discipline.

Still, regardless of the merits of the decision, Swan has spent three years preparing the big stick with which Joe Hockey is going to belt him all the way to the election. Whether that has any political impact remains to be seen. At the end of October, Essential found more voters opposed returning to surplus on the back of further spending cuts than supported it. Maybe voters are more sensible and realistic on budget policy than either Labor or the Liberals.

Bernard Keane — Politics Editor

Bernard Keane

Politics Editor

Bernard Keane is Crikey’s political editor. Before that he was Crikey’s Canberra press gallery correspondent, covering politics, national security and economics.

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95 thoughts on “Swan alters course, delivers early Christmas present for Joe

  1. Hamis Hill

    Now, now David just be happy that you are finally on the path to enlightenment, where you will begin to excrete all that ignorance constipated within you.
    While you are in the UK you might track down “Political Thought from Plato to NATO” introduced by Brian Redhead, published by Ariel Books in 1984 to accompany the BBC Radio Series Plato to NATO.
    In the article by John Robertson titled: “Adam Smith: The Enlightenment and the philosophy of society” is quote: “Smith argued, the interest of the order of capitalists was increasingly opposed to that of society as a whole, since the rate of profit tended to decline as the wealth of society grew. Capitalists had therefore, wrote Smith, ‘an interest to deceive and even oppress the public’, and would use every means posssible to persuade government to interefere with the market in their favour.”
    That Leveson character seems to be onto something.
    Now do the maths on mortgages David,
    At the end of the say, twenty year repayment period motgagees can at least expect that the total repayments of capital including interest will at least match the market value of their house, otherwise why bother?
    If perchance banks cannot provide finance say several $million for that quaint suburban cottage twenty years from now or pro rata anytime in between, what of your “wealth” then?
    Welcome to the world of the morgage slave, David.
    Pop on over to Dublin and ask a few former motgage slaves where all their wealth has gone?
    On simple arithmetic,( the actual sum may be worse), that $60 BILLION annual mortgage interest, in twenty years time, will equal $1.2 TRILLION or $100,000 approximately, for every Aussie with a job, because this all has to be idly collected, (as a sort of poverty “Tax”) by the “Rich” from people who are actually employed, or it will not balance out, will it ?
    As for the Left, look to the composition of the fatal parliament called together by Louis the Sixteenth to solve just such a debt crisis as is being faced now, and David you will find your representatives seated to the left of the King. David, you are a lefty.
    And you are paying Abborrtt’s Great Big OLD Poverty Tax care of the Howard-Costello ten year private debt orgy.

  2. Hamis Hill

    David, the drivel you spout on matters economic points to you never having read the Wealth of Nations at all.
    Mere assertion does not make it so.
    So a fail on the deceive and oppress front.
    Or do you take Smiths lgically argued observation that “Capitalists have an interest to deceive and oppress the public” as some sort of “free-market” licence to do an Abborrtt?
    Getting back to some economic facts, by tying up $1.25 Trillion in non wealth producing housing your financiers have effectively denied this finance to the productive sectors such as primary industry and futher, burdened the productive sectors with competion for finance which has raised interest rates far in excess of those paid by their overseas competitors.
    The Carbon “Tax” pales in its effects compared to this tax of the “Idle Rich”, a term which Smith used pejoritively, not as a token of admiration as you appear to do, David.
    So when Australians could not find the Capital to purchase Cubbie Farms?, your Mcmansion, dip stick, debt junkies were not part and parcel of that equation?
    You must be writhing on the ground clutching your ribs with laughter, it is just so hilarious. Oh Ho Ho Ho!
    So when you are a mortgage debt junkie and find that capital gains no longer match and exceed those collective $ 60 Billion dollars in interest every year what do you do?
    Listen to every lie fed to you by the agents of finance who got you hooked in the first place?
    The Stockholm syndrome?
    Hopefully, business still retains its sanity and will boycott funding for the Coming Abbott Recession.
    Alternatively, that notorious foreign purchase of rural assetts will be matched by sales of Australian housing to the burgeoning middle classes of Asia.
    David, your fabulous financiers have got it covered, they don’t need you to pay off your debts, they have other, richer customers and can afford to bleed you dry, tack your carcass to the fence and wait for you to blow away in the wind.
    You haven’t read Adam Smith.

  3. Hamis Hill

    Yes, Adam Smith, whose arguments I repeat imperfectly,is according to some, anti-capitalist because he “sought to understand commercial society and better it”.
    A prospect quite boring for David who inhabits a Manichaean world of good versus evil with himself on the side of Abborrtt and company gripped in an existentialist death struggle with godless theives.
    Looking forward to your arguments that Smith was actually a Marxist; which conclusion follows directly from your comments.
    Concerning returning capital which is what Smith called wages, Henry Ford, manufacturer, when approaching your “financiers” for capital to build his first cars was told, “Rich people, Mr Ford, have cars, poor people have horses and buggies”.
    Henry Ford persisted, and eventually came up with the Five Dollar Day, which doubled his workers wages and allowed them to buy the vehicles they built.
    Over at Buick rich people continued to drive the cars that Buick workers could not afford to buy.
    Until those workers left and all went to work for Ford.
    In Australia, financiers felt it was alright to burden Australian workers with unaffordable mortgages, starting in the early seventies, with the result that they could not buy the products of their own labour, factories closed and wages returned to foreign factories, instead of circulating within Australia.
    This financial insanity culminating in the $1Trillion dollar Howard “Golden Era” mortgage debt orgy.
    Abborrtt’s promise to return the nation to that commercial madness will doom Australia to an enduring recession.
    But according to David those wishing to avoid this are anti-capitalist?
    You cannot better commercial society unless you understand it. Perhaps some here are too deep in the oblivion of debt addiction to have any grip on commercial reality at all, and cling to the lies of Abborrtt et al in some vain hope of redemption. Very sad.

  4. Hamis Hill

    Good economic times? David, did you have a hand in Abborrtt’s negativity?
    It will have cost Murdoch a cool $1 BILLION if he remains as opposition leader just to sabotage the economy and the projected surplus for political purposes.
    The “Idle Rich”, by definition do not work, but instead live on the interest on their money.
    Wealth is the product of labour and capital, not labour and money.
    Wealth is divided into profit on capital and wages for labour.
    The profit goes to purchasing more capital; iron ore, coal etc, any thing into which labour can be put to create wealth: motor vehicles, medecines, clothing food.
    And the profit goes to paying the interest on borrowed money.
    German industry,it should be noted, is not borrowing very much money and therefore not paying the idle rich very much money.
    When labour is rewarded with enough wages to save money and not have to borrow money the “Idle Rich” cannot demand much interest for their loans and must instead invest in wealth producing enterprises.
    It is clear that industry have much different concerns than finance.
    Industry recognises that wages create a market for their goods.
    Finance recognises that high wages threaten the interest on loans. Work choices anyone?
    Abborrtt is conflicted because as a Staunch religionist he must heed the Mosaic injunction against usury which recognises the civilisation destroying effects of the “Idle Rich” achieving their objectives of a slave society.
    “the labourer is worthy of his hire(salt)” is the other basis of the Catholic Bishops’ committment to social justice.
    So let’s stop pretending that nothing is known about the “Idle Rich” and their political servants and their antagonism to “Labour”, it is actually Biblical.

  5. Hamis Hill

    It is now accepted that the Australian East Coast States are in recession.
    The down turn in economic growth is caused by the scorched earth, austerity measures put in place by conservative governments.
    You cannot castigate Swan as being foolish to promise a surplus without also recognising that that federal surplus has been sabotaged by conservative state governments.
    Those who are blind to the politics will also be blind to the Inevitable Abbott Recession, which can be abborrtted by a business boycott of funding for the Liberal’s election war chests.
    The underlying problem is the unsustainable $1TRILlION howard era mortgage debt and the Annual $60 BILLION mortgage interest bill which is nolonger, in the post GFC world, can no longer be ameliorated by Howard era, debt-fuelled capital gain.
    the conservative aim is to absolutely cut government spending and in turn direct money to an upturn in housing capital gain. A recipe for recession.
    As Adam Smith argued, “Capitalists have an interest to deceive and oppress the public, using all means at their disposal to have governments interfere in their favour”
    The bankrupting debt assailing Australia is not government debt but private mortgage debt.
    As the PM said the surplus would be delivered as long as growth continued, it didn’t.
    Blame Howard, Costello, Newman, O’Farrell and Baillieu, deceivers, oppressors and democracy destroying economic vandals, one and all.
    Business, their erstwhile supporters, are finally waking up to the fact that the welfare of a working population is more important to themselves and the nation than the deadly, economy destroying greed of “The Idle Rich”.

  6. Hunt Ian

    GeeWizz is all full of it – as a person who has never thought it especially necessary to get the budget back to surplus this year, nor even that it has to be in balance over the cycle, I am not dismayed by Swan’s refusal to shove the economy into recession.

    Unfortunately, we cannot say that “austerity” Abbott and Joe will refuse to push the economy into recession. In fact, it is guaranteed that they will, while trying to cook up a monstrous shortfall in the books with a repeat of the Costello audit of Queensland and blame Labor for the recession they will say we will to have because Labor “spent like drunken sailors”. They will no doubt be assisted by MSM, especially the “small government” push that Murdoch employs. Unfortunately again, many Australians seem a bit as thick as Abbott and Joe think them to be. So sending the economy into recession (Tony has been learning all about it in the UK) and dismantling the welfare state will be order of the day, along with attempts to resurrect the worst elements of Work Choices around individual agreements and withdrawal of rights of access, with the help of Consevative state governments.

    Joe has already signalled how to dismantle the welfare state. There must be incentives for families to spend themslves on tyheir health care and these incentives should be universal. Everyone, rich and poor, should have an incentive to take out private health insurance for health care,. In the case of the poor, the incentives will include cutting all levels of publicly funded care to a bare minimum and waiting in very long queues for elective procedures. In education, everyone, whether rich or poor, should have an incentive to contribute to their own children’s education, provided by bigger grants to schools that don’t get state funding and cutting back on extra federal funding for public schools so that poorer parents have an incentive to contribute more through school fees. The higher the school fees, the less will federal funding of public schools be cut back.
    We unfortunately can expect that deception and all the Goebbels techniques that some parts of MSM already seem to have adopted from Fox News, even if not so thoroughly, will play a big part in this. GeeWizz, can we suggest that you have a little celebration over Xmas? it will be on the house.

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