Jul 24, 2014

Invented budget ‘crisis’ hides incoherence and inconsistency

The "budget crisis" created by the Senate is an invention: the government has walked away from billions in additional revenue itself.

Bernard Keane — Politics editor

Bernard Keane

Politics editor

While we've been focused on more important matters, what's left of the government's budget strategy has been receiving some belated support from the business community, with NAB and Woodside chairman Michael Chaney urging Labor to pass the government's budget. "We have to make sure that our ­opposition understands the needs for reform and is prepared to support the government in sensible reforms," the AFR reported Chaney as saying. Another mining industry luminary, Sam Walsh of Rio Tinto, demanded the mining tax be repealed -- something he might need to raise with mining magnate Clive Palmer, the dogged mining tax opponent who appears to have some influence in such things -- and flagged that investment decisions were dependent on the repeal of the tax, despite mining industry analysts who recently declared Australia's resources taxation system significantly improved. The usual business suspects, AIG's Innes Willox and the Business Council's Jennifer Westacott, demanded certainty from the Senate on the budget a couple of weeks ago. Meantime News Corporation, which desperately kept spruiking the budget in May and June even as the government's own efforts visibly flagged, has begun talking of a budget "crisis", with Paul Kelly, somehow transmitting from inside the black hole created by his own gravitas, claiming the "emerging crisis" would soon damage "Labor’s financial credibility". Celebrity economist Chris "Never Wrong For Long" Richardson has also been weighing in, predicting the mining boom would soon end the consequences of the crisis could last a decade, based on a $300 billion figure carefully plucked from his arsenal of spreadsheets. Problem is, the government itself appears in near-disarray about where to go from here. Treasurer Joe Hockey hasn't helped matters, with his biographer revealing he thought the budget was too wimpy, and, perhaps with his brain still in vacation mode, last week threatening to replace cuts stymied in the Senate with some others of his own devising. Labor was happy to run with Hockey warning of other cuts for much of last week. It resembled nothing so much as a determined effort by Hockey to work out whether there was some further way he could bugger up an already disastrous budget.
"At the same time the government was lamenting how the Senate was seeking to shoot multibillion-dollar holes in the budget, it was celebrating the repeal of the carbon price, which would have delivered several billion dollars a year in revenue ..."
If only the Coalition brains trust had had a couple of months to craft an alternative strategy in case they were unable to secure passage of many of their key budget measures. Oh, wait. The result is now almost public infighting inside the government, with Dennis Shanahan delivering a stern rebuke to Hockey on the front page of the party organ today. But the Treasurer is quite correct on the budget -- it's an awful lot of political pain for very little fiscal gain, the sort of equation you'd have thought the Coalition would be the last bunch of politicians to devise. For all the damage the government has accrued over the budget, it doesn't even promise a return to surplus, although the hope was always that an improving economy would deliver windfall revenue increases. Then again, that criticism assumes the budget was put together by the Coalition and not, as some speculate, cobbled together from a bunch of bottom-drawer Treasury savings measures offered by Treasury secretary Martin Parkinson at the last minute, due to the government's chaotic budget process. But the earnest warnings from business and the claims of impending crisis should be taken with several truckloads of salt. Few commentators noted the peculiarity that, at the same time the government was lamenting how the Senate was irresponsibly seeking to shoot multibillion-dollar holes in the budget last week, it was celebrating the repeal of the carbon price, which would have delivered several billion dollars a year in revenue to tax coffers even after the switch to the European floating price next year. Indeed, since the budget we've had the peculiar situation in which the government has been pushing hard to remove one carbon price while complaining that the Senate was opposing the imposition of another carbon price in the form of higher fuel excise indexation (on the flipside, Labor and the Greens are equally hypocritical in opposing the indexation). It's also hard to take the "crisis" claim seriously when the government walked away from $2.4 billion in revenue over four years from curbing one of the more absurd superannuation tax concessions last November -- the same time it formalised its abandonment of Labor's crackdown on the fringe benefits tax novated lease rort, worth several hundred million a year in revenue. And don't forget the lazy quarter-billion the government allocated to school chaplains -- presumably one of the "sensible reforms" Michael Chaney had in mind -- or the government's proposed tax cut for small and medium businesses. Or, for that matter, the projected blow-out in tax revenue lost to super tax concessions of $20 billion over the next four years. There's thus no budget crisis: if there's a crisis, it's of budget priorities, with the Senate reluctant to embrace the government's mostly incoherent and inequitable switch of revenue raising and spending cuts away from companies and high-income earners toward low- and middle-income earners (who are, Kelly declared, presumably from a position of expertise, in "denial"). The urgings of the business community are thus more likely to illustrate how partisanship and blind ideology lead the Willoxes, Chaneys and Westacotts of the world than prompt any serious self-reflection by Labor. Business leaders were nowhere to be seen when Labor's cuts to family tax benefits were being lashed by the Coalition as "class warfare"; they were even silent when the Coalition combined with the Greens to prevent Labor from cutting the corporate tax rate, although they spoke up to bag Labor when Wayne Swan gave up on the cut in the face of Senate intransigence. Business might be better off urging the government to consider an alternative budget strategy to desperately praying Clive Palmer performs another of his backflips and lets a few budget measures through.

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19 thoughts on “Invented budget ‘crisis’ hides incoherence and inconsistency

  1. Steve777

    The Coalition hid its true market reform agenda before the election and comprehensively botched it afterwards. They seem to be attempting to implement items from their backers’ wishlists rather than execute any coherent strategy to set Australia up for the future or indeed to accomplish anything.

    The budget reforms have no merit and no mandate. They should be shredded. The Government needs to go back to the drawing board on this one.

  2. Joe Magill

    If what has transpired over the past 6 weeks has been the government’s best selling efforts, we’d best be concerned about their ability to deliver any reform at all. But what really grates is the actions of the business lobbies. Westacott on the one hand argues to repeal the carbon tax and on the other calls for a market based mechanism to deal with global warming with certainty. Chaney has a long history of spruiking first his own interests and secondly those of the Libs, not the government, just the party. The lack of coherent, sensible argument from the busness lobby places them firmly in the “irrelevant commentators” basket along with Richardson, Kelly, Sloan, Ergas and the like. You just have to switch off whenever they open their mouth because you just know their argument is based on their perceived short term self interest.

  3. The Pav

    The real crisis is an incompetent and dishonest government

  4. klewso

    “Woodside” again – after the editorial reference to bugging?

  5. leon knight

    Crisis – what crisis?
    Shades of Alfred E Neumann “What, me worry?
    We could all cry laughing if it was not so serious – neither Hockey nor Abbott have the nuts/nouse to fix Howard’s long-term cock-ups.

  6. klewso

    How did Kelly get into that black hole – did he catch his escalator of decline?
    What’s left to damage of Labor’s financial credibility after years of the likes of Kelly’s/Murdoch’s one-eyed mauling?

  7. Dogs breakfast

    Labor has supported every sensible reform that the coalition has put forward so far.

    That is, none! None at all, they have all been senseless, narrative free, grab-bag of stupidities. The only narrative that has made any sense is ‘rob form the poor and give to the rich’.

    The business lobby is working against their own interests by being so hopelessly and blindly partisan.d

    How can you tell when a business person has completely ceased all synaptic action? They call for certainty, that business needs certainty, can only function with certainty.

    Apparently the fact that the very essence of business is riding the wave of uncertainty, and preferably exploiting the opportunities of change, and has done for millennia counts for nothing.

    Business leaders, there is no such thing as certainty, never was, never will be.

    Change is the only constant, get over it.

  8. Nevil Kingston-Brown

    The Budget is Parkinson’s l’esprit de l’escalier? Makes as much sense as any other theory I’ve heard.

  9. zut alors

    Dog’s breakfast, bravo, well said. Capitalists’ beloved sharemarket would never function if there was certainty: it’s based on risk, the unknown & educated guessing.

  10. Jaybuoy

    Chaney chairs two companies that in the parlance of not your average are leaners… this country needs to slip the tax noose around both these companies and their ilk..lets not worry about slicing services we need to broaden the economys revenue base..

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