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A year ago next week, Australia’s new Treasurer Joe Hockey headed off to his first meeting of the International Monetary Fund and World Bank in Washington. When he returned, he declared that the sky was about to fall, and threw the Reserve Bank $8.8 billion to lift its capital buffers. “We need all the ammunition in the guns for what is before us,” Hockey said.

What exactly was “before us” back then was never explained. But a year on, Hockey is getting his payoff: yesterday the Reserve Bank revealed in its 2013-14 annual report that it was giving him a cool dividend of $1.24 billion. The first instalment, over $600 million, has already been paid back to the government in August.

When Wayne Swan took a dividend of just $500 million from the RBA in 2012-13, he was accused of “raiding” the bank, by Hockey among others. It was subsequently revealed that Treasury, after consultations with the RBA, didn’t believe there was any imperative to increase the Reserve Bank’s capital buffers. But if $500 million is a raid, over $1.2 billion looks more like open plunder. How dearly Swan would have liked being able to get another $700 million that year. So as some of us predicted back in 2013 Hockey, having blown out the 2013-14 deficit with his $9 billion gift to the RBA and blamed it on Labor, has got his first repayment to bolster the 2014-15 budget bottom line.

Curiously there is no mention of the dividend in RBA governor Glenn Stevens’ foreword to the report, despite discussing how the $8.8 billion had replenished the bank’s capital reserves; you have to go down to page 77 to get an explanation of the dividend. It’s particularly curious given that the dividend — whether one is to be paid or not, and how large it will be — is regularly mentioned in the forewords of previous annual reports. The omission doesn’t help the impression that the whole business of the $8.8 billion has undermined the perception of RBA independence.

However, the dividend is good news for Hockey, who needs all the help he can get at the moment in a fiscal policy beset from four angles: a continuing problem with softer tax revenue, an inability to get savings measures through the Senate, a government bent on giving national security institutions hundreds of millions more in unnecessary funding and joining whatever wars are on offer, and an economy that is travelling, at best, at trend speed. This December’s Mid Year Economic and Fiscal Outlook will thus continue the trend of the Swan years of being a de facto mini-budget, with a raft of new savings measures designed to offset lower revenue and new expenditures, albeit in a fashion limited by the continuing lack of vigour in the economy and, probably, by the Senate, where Clive Palmer — who doesn’t share Hockey’s downbeat view of our fiscal circumstances — holds sway.

We’d suggest to Joe that revisiting some of those measures he abandoned when he was first in government — Labor’s proposal to tax superannuant incomes over $100,000 pa, getting rid of the fringe benefits tax novated lease rort, for example — might both be useful for his bottom line, and stand a solid chance of passing the Senate. It won’t be particularly dignified, but it wouldn’t be the first time he was embarrassed by our new fiscal world of constantly underwhelming tax revenue. After all, Hockey insisted that the days of revenue write-downs undermining budget forecasts had come to an end last December with his “line in the sand”, only for another line in the sand needing to be drawn again in September.

And Hockey would do well to heed the comments overnight by IMF head, Christine Lagarde. “Overall, the global economy is weaker than we had envisaged even six months ago,” Lagarde told an audience at Georgetown University. “Only a modest pickup is foreseen for 2015, as the outlook for potential growth has been pared down … The global economy is at an inflection point: it can muddle along with subpar growth — a ‘new mediocre’ — or it can aim for a better path where bold policies would accelerate growth, increase employment, and achieve a ‘new momentum’.”

The risk for Hockey is that that ends up describing Australia as well — sub-par growth that holds him back from consolidating the budget, condemning him to the same fiscal hamster wheel that Swan found himself on, chasing more and more savings just to stand still.

Peter Fray

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