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Economy

Dec 15, 2014

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A year after the government promised that the days of overestimating revenue were at an end, Treasurer Joe Hockey has unveiled another write-down for revenue this year and in following years. That’s on top of the write-down back in May. Since the Pre-Election Economic and Fiscal Outlook in August 2013 — the one genuinely independent guide to the nation’s budget, prepared without government interference by Treasury and Finance — the 2014-15 budget deficit has blown out by nearly $16 billion, despite the government’s constant rhetoric about its bringing the budget back under control, and despite all the political pain that the government has endured. And the deficits for the years beyond have gone up by nearly $50 billion, we have learned in this year’s Mid-Year Economic and Financial Outlook.

For the man who promised, as late as January 2013, to deliver a surplus in his first year and every year after that, it’s an inglorious failure. This is how Hockey’s fiscal problem has unfolded since his first MYEFO in December 2013 (forecasts surpluses appear as negatives).

As the graph illustrates, yesterday’s MYEFO has wiped out all of the gains Hockey made toward a return to surplus in the May budget compared to last year’s MYEFO — and then some. All that pain has been, in fiscal terms, for nothing, with a return to surplus now pushed out to 2019-20 — the fiscal equivalent of the never-never.

On the positive side, Treasury is bravely sticking to its GDP forecasts from May of 2.5% growth this year, then 3%, 3.5% and 3.5% across the subsequent years. Unemployment, however, is expected to worsen: the budget forecast unemployment to peak at 6.25% this year and stay there into 2016, before falling to 6% in 2016-17 and 5.75% in 2017-18; now it is expected to remain at 6.5% until 2016-17.

Inflation is expected to remain subdued, with a slight revision upward this year to 2.5%, but nothing that will concern the Reserve Bank; Treasury has also revised its wage price index forecast down to 2.5% this year from 3%, placing further pressure on the budget. Nominal GDP, too, has been revised downward, which will also put revenue under pressure.

Despite the revenue write-downs, Hockey is still expecting $379 billion in revenue, $19 billion more than in 2013-14 — compared to Wayne Swan’s situation in 2008 and 2009, when revenue actually fell in nominal terms. The Commonwealth will take 23.6% of GDP in revenue, a full 0.8 points higher than last year and the highest level since Peter Costello’s last budget, while spending will now increase from 25.7% of GDP to 25.9% of GDP.

Hockey has to take some of the blame himself for his own revenue situation. It has been his poor handling to 2014-15 budget that has contributed to a collapse in consumer and business confidence, making the transition from fading mining investment to more traditional housing and consumer-based economic drivers much more difficult than it should have been. And despite the government’s rhetoric about getting the budget under control, it handed out big tax cuts to carbon emitters, mining companies, tax rorters and wealthy superannuants.

But the collapse in the terms of trade — expected in May to be -6.75%, but instead forecast to be -13.5% — is something entirely beyond the government’s control. The only control the government has is over how it reacts, and in this case it has reacted appropriately, by declining to slash spending to match falling revenue. As a result, it is providing more stimulus to the economy than it had planned, and given the circumstances, that’s exactly the right call. Indeed, if economic weakness persists, the 2015-16 budget may include some further stimulus, not in the automatic stabiliser sense, but reflecting a conscious decision to undertake further, stimulatory spending.

Hockey is thus in exactly the same position as Wayne Swan was: battling external forces (Swan had the high dollar, Hockey has low commodity prices) that keep sucking up his revenue, he’s declined to try to offset those losses for the sake of economic growth, and he finds his previous rhetoric about surpluses now very inconvenient.

Media

May 19, 2014

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Right-wing Hack guest offends. Last Friday’s debate on Triple J’s Hack has raised more than a few hackles on the Left, with a right-wing ideologue attacking young people, the homeless and Newstart recipients. Carla Efstratiou, introduced as a small business owner and MBA student, was invited on Hack last Friday to discuss last week’s budget. She was joined by A Rational Fear’s Dan Ilic, there to offer the presumably “Left” side of the argument (he spent the segment satirising Efstratiou’s views by repeating them with outrageous examples — e.g. “the best thing about having a surplus is that every house will have a money pit we can go swimming in”). A selection of things Efstratiou said on the show:

  • “[Young people today] are so keen to go out to concerts, to festivals, they think they’re entitled to yearly European holidays. I know so many people on Newstart who are saving money and going overseas and blowing it.”
  • “There’s no reason to be homeless in this country. Most people who are homeless have mental illnesses. You can go to heaps of shelters if you’re actually homeless. There are heaps of things …”
  • “We need to make cuts somewhere … If we keep putting it on rich people, we’re gonna bleed them dry. They’re the people who spend money in this country — they keep it afloat.”
  • On why we shouldn’t spend money on the environment: “I don’t think it’s a priority.”
  • Efstratiou twice began a sentence with “the problem with young people today …”.

Needless to say, Triple J’s progressive audience did not endorse Efstratiou’s views. A firestorm erupted on social media, with plenty of guests expressing disappointment with Hack‘s choice of guest (it’s worth noting host Tom Tilley didn’t let many of Efstratiou’s assertions stand). It appears Efstratiou’s personal details were posted, leading Hack to tell its commenters to calm down. “We love it when you’ve got strong opinions, but name calling, bullying and compromising someone’s safety by publishing personal details is just not on.” While googling Efstratiou, Crikey came upon this article she wrote in 2012 for Fairfax’s The Vine.

“Being a conservative young woman in our society is hard. It’s lonely, tedious and largely unaccepted by the latte-sipping, inner-city elite — the very people who champion diversity and acceptance in our society …”

That’s likely to be how Efstratiou writes off the criticism. Meanwhile, some of the social media commenters accused her of having no idea how poor people live or the choices they have to make, sometimes in quite personal tones. And so the wheel keeps turning. It’s all marvellous entertaiment, but do you feel more enlightened? — Myriam Robin

To the barricades. Meanwhile, on the class warfare front, The Daily Telegraph had fun with this weekend’s anti-budget protests …

Daily Telegraph

But after being roundly criticised (along with News Corp) for not giving the March in March coverage due prominence, Fairfax gave Sunday’s protests plenty of coverage. The Age sent a photographer and journalist out on Sunday afternoon, leading to page 4 coverage of the Melbourne rally. The Sydney Morning Herald‘s online coverage both canvassed the views of those attending, as well as the speeches given. The ABC also covered the issue, both on television and online. It’s a damn sight more favourable than the coverage the March in March got.

Of course, no two protests (or events) are entirely the same. Yesterday’s rallies were about a political issue (the budget) journalists were already covering, so perhaps it was easier to find news value in the public demonstrations. Backed up by a series of polls that show the prime minister in dire straits, thousands taking to the streets fits this morning’s narrative. Still, Fairfax’s Jacqueline Maley addressed a lot of the criticisms of the coverage in March, saying that while there were good reason the marches weren’t covered, in hindsight, they should have received greater prominence in the Fairfax papers. Maybe attitudes have been reconsidered. — Myriam Robin

Google’s circling Twitch. Google’s YouTube has reached a deal to buy video game streaming company Twitch for more than US$1 billion ($1.06 billion), according to a report in Variety. Variety reports the deal, an all-cash offer, will be announced imminently. If completed, the acquisition would be the most significant in the history of YouTube, which Google acquired in 2006 for $1.65 billion.

Crikey‘s sister publication SmartCompany contacted YouTube which declined to comment. “We don’t comment on rumours or speculation,” the spokesperson said. Twitch did not respond prior to publication.

Twitch’s website describes it as “the world’s leading video platform and community for gamers with more than 45 million visitors per month”. The site aims to connect gamers around the world by allowing them to broadcast, watch, and chat from everywhere they play. It hit a million monthly broadcasters in February this year after it was launched in June 2011 by Justin Kan and Emmett Shear, co-founders of Justin.tv, one of the first websites to host live-streaming user-generated video.

Twitch has raised about $35 million in funding since its launch, with investors including Bessemer Venture Partners, Alsop Louie Partners, WestSummit Capital, Take-Two Interactive Software, Thrive Capital and Draper Associate. Most recently, Twitch announced a $20 million investment in September last year. — Cara Waters (more at SmartCompany)

Front page of the day. Apart from the aforementioned Daily Tele, polls dominated the nation’s front pages this morning, with both Nielsen and Newspoll showing huge falls for the Prime Minister …

Australia

May 14, 2014

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The closure of the Australia Network will lead the ABC to review its entire international operations. The network’s foreign correspondents fear this will lead to the closure of some of its foreign bureaux, resulting in a loss of nuanced understanding of global events as well as greater dangers for staff who fly in and out of conflict zones.

Last night’s federal budget revealed that, from July 1, the ABC will be funded on $29 million a year less than current levels. Of this, $8.8 million will come from a 1% reduction in total funding, which also applies to SBS’ budget, totalling up to some $43.5 million from the two broadcasters over four years. The rest will come from the Australia Network, which the government is axing. Foreign Minister Julie Bishop last night said the network, awarded to the ABC for 10 years last year in controversial circumstances, had “failed to deliver a cost-effective vehicle” for soft diplomacy into the region.

ABC staff this morning are considering what this means for them. Few are optimistic. “There’s real concern among foreign correspondents that the ABC will use the loss of the Australia Network contract as cover to drastically cut its foreign bureaux,” a senior journalist told Crikey this morning.

Asked about the staff concerns, ABC managing director Mark Scott acknowledged some foreign-based journalists, though no bureaux in their entirety, were funded through the Australia Network contract. He told Crikey this morning the ABC’s entire delivery of international news had to be reconsidered as a result of the Australia Network’s axing.

“We will fight hard to provide as detailed and comprehensive foreign coverage as we can. But now, there’s less money available for that,” he said. “We need to look at how we deliver foreign services. But we also understand foreign bureaux are key to the ABC’s offering, particularly if you look at the decimation of commercial bureaux in television and print.”

The ABC’s charter requires it to be an international broadcaster. “As of yesterday, we had $35 million dedicated to that, and were doing it across radio, television and mobile. As of this morning we have $15 million to do that,” Scott said.

With $20 million less in international coverage, it’s almost certain that some of the journalists employed by the Australia Network will lose their jobs. But the significant cross-subsidies that exist between the network and the ABC’s broader operation makes it hard to quantify how many at this stage. It’s also why staff are so concerned about the broader impact on the ABC’s foreign coverage. “It impacts lots of people indirectly, not just in the [Asia-Pacific] region but around the world,” one said.

Communications Minister Malcolm Turnbull last night said he was confident the 1% reduction in total funding for ABC and SBS could be met from back-room efficiencies, with little noticeable reduction in services and programs for the ABC audience. But Scott says it’s not up to the government to decide where funding cuts will come from. “Under the independence of the ABC, it’s a matter for the ABC board,” he said. “And it’s quite hard to find savings that won’t have any impact on services.”

The 1% reduction in funding has been described as a “down payment” on future cuts. Scott says he doesn’t know what shape these future cuts might take, and fears the ABC will not be able to fund new services like iView or News 24 in the future if any savings in one part of its operation have to be handed back to the government.

“The ABC without iView or News 24 is a weaker organisation,” he said. “As the government contemplates that for the future, they should reflect on the evidence that finds the ABC is the most trusted and respected broadcaster in the country … There’s no clamouring from the vast majority of the public to cut funding to the ABC.”

As well as the feared cuts to its foreign coverage, several other areas of the ABC are likely to be targeted for savings. Already facing the axe is the ABC’s online disability website Ramp Up, which will not have its funding renewed at the end of this financial year. Like the Australia Network, Ramp Up was funded discretely, and the budget revealed funding for the website would cease.

Scott describes editor Stella Young, who established the site over the past three years, as “a rare talent” in Australia. “We’re keen to find a way we can continue to service audiences interested in those issues,” he said.

Economy

Apr 1, 2014

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We’ve now entered the traditional pre-budget softening-up period in which treasurers engage in expectations management ahead of the fiscal set-piece of the year in May. But even given that, Joe Hockey is treating us as complete idiots.

The line Hockey has been pushing for some days now, and which he gave a big push to yesterday in a flurry of media appearances, is that not merely did Labor hide the level of deficits in the current budget cycle, but that it left a series of hidden spending commitments in the unpublished years beyond forward estimates. Hockey has been circulating a document to journalists portrayed in the media as a “Treasury analysis” that shows how “the Coalition inherited an unsustainable budget position” and Labor “hid [expenditure] from the public”. Hockey would like us to see him as a budgetary innocent who has found himself in the middle of a fiscal minefield planted by Labor.

Well here’s the document, and it isn’t a “Treasury analysis” — it’s prepared by Hockey’s media adviser, former Australian Financial Review journalist Gemma Daley. And if Hockey seriously expects us to believe his latest argument, he must have nothing but contempt for us. This is Hockey yesterday:

“We didn’t anticipate that everything else would be of equal or larger scale as a tsunami coming across the water. The fact is Labor’s left us with a massive forecast increase in foreign aid, a massive increase in defence – for example in one year, there’s meant to be a real increase in defence spending of 13 per cent, a 66 per cent increase in foreign aid.”

At another media conference, he said:

“If no action was taken on the budget, what the fifth-year deficit would look like, contrary to what both Labor promised was a surplus, if no action was taken, based on the approximately 6% increase in expenditure between the fourth year and the fifth year, which Labor locked in on NDIS, on Gonski, on overseas aid, on hospitals, on defence …”

Well, um, tsunamis are actually tiny when they’re on the ocean — but never mind that, let’s look at the detail. Labor in fact revealed the funding for the National Disability Insurance Scheme — or DisabilityCare as it had been renamed — in the budget last May, with new spending broken down out to 2019:

In addition to the numbers in the budget papers, there was a specific “glossy” with funding graphs for DisabilityCare and one for education funding as well, which was still being finalised in deals with the states. The increase in foreign aid was also in both the budget papers and a ministerial statement by Bob Carr — not that the government got any credit for it, because it was actually a reduction, with the government’s Millennium Development Goal commitment to lifting foreign aid to 0.5% of gross national income put back another year to 2017. The government spelt out its planned increase in foreign aid up to and including 2017-18.

In fact in question time last week, Labor invited the Prime Minister to spell out the government’s MDG policy, which he duly did: aid is to reach 0.5% of GNI when the budget returns to surplus. Which raises the question of why, in Hockey’s Mid-Year Economic and Fiscal Outlook in December, Hockey left Labor’s MDG aid funding increase intact, in defiance of the government’s own policy. The answer, of course, was that it would inflate the budget deficit for 2017 and beyond.

As for defence, the Gillard government gave the portfolio a “guidance” that it would receive around $220 billion in the six years from 2017-18, which Hockey’s document proposes to mean funding would leap 13% in 2017, when in fact the “guidance” reflects a growth rate in defence spending from 2017 lower than the average between now and 2017 of nearly 7%. And remember that Labor was repeatedly criticised for decreasing defence spending — every armchair general and arms industry lobbyist in the joint was whinging about how we weren’t spending enough taxpayer money on buying gear from the US military-industrial complex. “Military spending slumps to 1930s level,” The Australian‘s Paul Kelly shrieked. The 1930s theme — hint, appeasement!­ — was picked up by the Coalition, including Tony Abbott and Barnaby Joyce. Abbott “aspired”, he said, to lift defence spending to 3% of GDP.

So, Labor were both neo-Chamberlain surrender monkeys for not spending enough on defence when in government and now, magically, reckless spendthrifts who committed too much to defence at the same time.

Hockey’s fiscal innocent act is a little hard to believe given we were told what an exhaustive, indeed exhausting, shadow ERC process Hockey was leading within the opposition at the time to establish its fiscal credibility.

And above all, there’s this point: if Hockey seriously believes his own claims about the budget beyond forward estimates, why did he remove Labor savings measures that offset future spending? Why did he remove the 15% tax on superannuation income over $100,000 a year, costing the budget billions beyond forward estimates, for the benefit of high income earners? Why did he restore the Fringe Benefits Tax rort on novated leases — remember Joe being photographed in front of a sports car? And why have Hockey and his leader pushed for the abolition of the mining tax, which even in its crippled form, according to Hockey’s own MYEFO, is worth more than $3 billion over forward estimates? Eventually it will be the only way of recovering some of the profits offshore owners of LNG and iron ore projects will make and ship overseas (over 60% of these projects are foreign owned or controlled).

Then there’s the silly decision to hand $8.8 billion of borrowed money to the Reserve Bank in one hit, when it doesn’t need the capital. And the sale of Medibank Private — a $4-5 billion contribution to the budget — will be spent on roads because Abbott wants to be an “infrastructure prime minister”, when it could cut the budget deficit or the debt. That could be $13-14 billion off the deficit and debt right there — or an interest saving of more than half-a-billion dollars a year.

Hockey is talking about sharing the budget burden around, but that’s only after the government plans to increase its own spending for political purposes and sought to hand billions of dollars in tax revenue back to foreign mining companies, large carbon emitters and the well-off in the community — revenue that would have offset exactly the spending on education, disability and foreign aid that Hockey is now claiming to have only just discovered.

Economy

Feb 28, 2014

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Yesterday’s shocking private investment data from the Australian Bureau of Statistics will significantly complicate Joe Hockey’s revamp of the budget. Rather than a slash-and-burn attack on spending, the Treasurer and his advisers now have to grapple with an emerging investment drought, as well as the actual drought in eastern Australia.

Private capital expenditure fell 5.2% in the December quarter, the ABS reported, while the first estimate of 2014-15 capital expenditure expectations also fell by more than expected, to $124 billion.That was down 17.4% on the first estimate for the current financial year and well under market estimates of $139 million. That is the story that should have been on the front page of all the papers, especially the national dailies, because it is a far bigger story than Qantas (which is also cutting its capex by $1 billion over the next two years).

If we were a bit tabloid, we’d raise the prospect of a “capital strike”. But judging by the better-than-expected December half-year and annual corporate results and higher dividend payments, corporate Australia has decided to reward shareholders rather than invest the money to expand their businesses. It’s not so much a capital strike as a change in priorities.

That’s not necessarily all bad news for Hockey — the higher dividends will help the budget’s tax revenues. But it’s bad news for the economy, because policymakers for the last two years have been waiting to see what will replace the mining investment boom (which was never going to last) as a driver of growth. The Reserve Bank of Australia has dropped interest rates to very low levels (helped by former treasurer Wayne Swan’s success in keeping inflation down) in the hope of stimulating residential construction, with some of that flowing into new building but much of it into the great old Aussie game of rising home prices. That’s why Wednesday’s construction figures were bad news: in the December quarter, total construction work fell 1%, seasonably adjusted, with residential construction down 1.7%.

In its first Statement of Monetary Policy this year, the RBA acknowledged that the answer to the question of what will replace mining investment remained unresolved — though it could see some positive signs:

“Non-mining business investment remains subdued. While this is consistent with measures of business conditions and confidence having been below average over the past year, in the past few months these measures have improved noticeably. Some measures of business conditions have increased to be a little above average. However, at this point, surveys of investment intentions for non-mining investment remain subdued and liaison suggests that firms want to see a substantive improvement in demand conditions before committing to hiring new workers or increasing investment significantly.”

That’s now been confirmed — and probably more than the RBA would be comfortable with, even if capital expenditure forecasts can be quite volatile.

The capex figures led the ANZ to forecast an overall fall of 11% for 2014-15, much larger than the 0.5% fall forecast in the 2013-14 budget and 2% fall in the mid-year economic review in December. NAB senior economist Spiros Papadopoulos said the figures for the December quarter and the first estimate for the new financial meant investment growth was going to be negative for this financial year, and likely for the 2014-15 financial year as well.

They also raise the prospect of smaller-than-forecast December quarter growth when the GDP numbers are released next Wednesday. We know retail sales and exporters will have been the main drivers of economic growth in the fourth quarter. But there’s a chance that growth could dip close to zero because of the vagaries of some of the figures to come, such as government spending.

It wasn’t supposed to happen like this. The Coalition assumed that its election would release the animal spirits of consumers and business, which would welcome the removal of Labor. “I think companies will unleash their balance sheets, and I think consumers will as well if there is a change of government,” Hockey said before the election. But a weak employment market and a poor investment outlook — which Hockey can’t blame on Labor — means that the May budget will have to walk a fine line between long-term budget sustainability and avoiding exacerbating economic weakness by cutting spending too much — particularly when, as the RBA points out, we’re already facing “the weakest period of growth in public demand for at least 50 years” at the Commonwealth and state level.

Moreover, Hockey has made life more difficult for himself. His $8.8 billion gift to the Reserve Bank (the appropriation for it was introduced a fortnight ago and was debated this week) increases the budget deficit but will have no visible impact on public spending. That’s an ironic contrast with the Coalition’s criticism of Labor’s stimulus spending: the then-opposition and its media supporters would complain about “waste” in stimulus programs without acknowledging that it still meant money was flowing into the economy, preferring to let voters think that, somehow, wasted spending was being lost from the economy. But Hockey’s handout to Reserve Bank is exactly that — a massive hole in the budget that simply shuffles between Treasury and the RBA without creating any jobs or growth.

And Hockey’s decision to knock back the $2.2 billion mop-up bid for GrainCorp from US group ADM also robbed the budget of valuable capital gains tax revenue.

So Hockey has to find a way to redirect spending into, or borrow money for, infrastructure projects in the next 18 months to offset a negative investment environment while also putting in place some long-term curbs in spending. It’s possible — spending cuts that kick in across forward estimates rather than immediately, or even ones that ramp up beyond forward estimates, which Hockey’s new 10-year projections can illustrate, can put the budget on the path back to surplus without further undermining the economy. But after this week’s figures, Hockey’s fiscal task has been much more difficult given the private sector currently appears to be happier to reward shareholders than to invest in jobs and growth.