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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.


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Another mining industry luminary, Sam Walsh of Rio Tinto, demanded the mining tax be repealed — something he might need to raise with mining magnate Clive Palmer, the dogged mining tax opponent who appears to have some influence in such things — and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..

  11. Bill Hilliger

    There is no budget crisis otherwise the mining and carbon taxes would not have been repealed. There is however a very disturbing crisis in intelligence within the coalition government. As for the likes of Paul Kelly and Chris (never wrong for long) Christianson given their past record, its a wonder people still employ, let alone believe them.

  12. Bill Hilliger

    Question to anyone who knows: for past budgets how long did it take for them to be passed amended or otherwise in the senate?

  13. tonyfunnywalker

    The repeal of the carbon tax was more akin to a “garage sale” of budget reform auctioned off to meet the foolish obsession of “axe the tax’.
    The repeal will do little to stimulate the economy while at the same providing its own defaltor as subsidies to the power generators dries up ( AGL have already written down 2014 profits). The Senate debate was shameful and akin to a circus just to allow the PM gloating rights.
    The BCA response was laughable as is the reaction to the repeal of the mining tax.
    This session of Parliament should if reason prevailed by the last for the Abbott Government – directionless, divided , devisive, and delusional.

  14. Graeski

    I agree with the sentiments expressed above but the question is – what do we do about it? Polls still show that, despite all the evidence to the contrary, average punters still perceive the LNP as superior financial managers and I doubt you could shift that perception even if you planted a 5 megaton bomb between their ears.

    In the meantime, the Right still owns 95% of the media and this situation will only get worse if Gina gets her way with Fairfax. I am sure I have noticed a definite shift to pro-LNP articles and posts on the ABC site the last few weeks. This shift seems to correspond with the disastrous reception Hockey’s budget received. In all seriousness: they will be coming after Crikey and The Conversation next. It is the fascist way to stifle all debate. I think Conversation is especially vulnerable. It is, after all, funded by public universities.

    At the moment, the polls are showing Labor with a definite lead, but so what? The next election is still a long way off and well before then the Right-wing propaganda machine will crank up again with the same strategies that got this banal, morally-bankrupt mob elected in the first place.

    It’s going to be a long and hard road back to a fair and decent Australia and right now, I just don’t see how we’re going to do it.

  15. fractious

    Chris Richardson, an “arsenal of spreadsheets” – delicious turn of phrase Bernard.

    Curiously, El Gruniada ran an article yesterday, in which Warwick Smith demonstrated that no economist they’d surveyed agreed with the three principal Abbott govt budget claims, to wit:
    -there is a budget ’emergency’;
    -there is a debt ‘crisis’; and
    -the carbon “tax” was rooning theconomy

    For mine, the money quote was Warwick Smith saying:
    “Let’s be clear about this. We know they’re not being honest about their real motives for policy. They know we know, too. They don’t care.”


  16. klewso

    I like fairy floss as much as the next bloke – but I don’t like the this Dodgy Brother’s spun crap.

  17. MJPC

    Memo to Sam Walsh (Rio Tinto) “Don’t worry Sam, your mate Clive is only grandstanding and the mining tax will get the shove when they return from hols. In the race of life, self interest always comes first”.
    For the rest of us, once the budget is out of the way, then it will be on to IR…if you thought the budget was bad….
    In the interim, it is great entertainment.
    BK; can we have an article on how much the mining tax is raking in now that the depreciation phase has passed.
    The only crises in Australia is the lack of good governance.

  18. bushby jane

    Can’t see how the economy will improve if nothing is done to recover some manufacturing in this country. The Rossi boot deal was a classic ‘help’ to this cause, wasn’t it? Plebs need manufacturing to contribute to the bottom line and not be ‘leaners’ after all.

  19. The Pav

    People , People PUHLEESE

    There is a Budget Crisis. It is as real as the Weapons of Mass Distruction that Howard and Bush had us destroy



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