The Government’s capacity for self harm rolled on today with what amounted to a public and unnecessary wrist slashing by Treasurer Wayne Swan. The episode underlined that, so far this year at least, the Government has had more to fear from itself than anything Tony Abbott has been able to throw at it.
This instance began early this morning when Mr Swan was interviewed on Radio Nation about Opposition-fuelled and unsupported speculation the Budget would contain income tax increases to pay for the Government’s promises. Would income taxes be going up? Mr Swan would say neither yes nor no.
“I don’t… go into that sort of rule-in, rule-out routine, and I’m not doing it today,” he said.
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If Tony Abbott wins on September 14 he will take over an economy performing in stellar fashion, boosted by demand from China and by revived domestic activity as interest rate cuts rev up investment.
One major bank is telling clients the “soft patch” of the past 12 months is behind us and there is sunshine ahead. But because that is a forecast - even though a high quality and heftily endorsed one - it is unlikely to be accepted by the electorate.
One reason is that Treasurer Wayne Swan has not been able to lift confidence in the economy’s future, has failed to win the trust of voters who still are so convinced of bleakness ahead they are saving at near record levels. The other reason is the bad name forecasts have been given by the Opposition attacks, on political grounds, on some clunkers by the Government.
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Super nest eggs have emerged as the first major policy battle ground of the election and neither side of politics is covering itself in glory. The Opposition, while promising no “unexpected and detrimental” changes to super, has confirmed plans to axe a tax concession on the super balances of 3.6 million low income earners.
Meanwhile, in its search for budget savings, Labor is running the ruler over the super balances of high income earners.
After hinting it may tax withdrawals from million dollar super accounts, the government last week backed down and guaranteed the tax free status of all super withdrawals after age 60. That’s only fair. It’s one thing to tax new contributions to super at a higher level, but quite another to retrospectively tax someone who has been saving for years.
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Assume for a moment that superannuation, compulsory private saving, is a good idea. How should it be taxed? If something is compulsory, it doesn’t need to be encouraged; yet almost all countries have concessional taxation arrangements for personal contributions to retirement nest eggs, whether they are mandatory or not.
In theory, saving – consumption in the future – should not be taxed more heavily than spending – or consumption today. Yet by taxing the income savings generate, income tax does precisely that.
The argument for concessional taxation of retirement saving is even stronger: the tax wedge between current and future consumption grows the longer the savings period (especially if inflation is high), and concessions might even prompt people to save more, which could defray the cost of any taxpayer-funded retirement pensions.
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The campaign to increase the base rate of Newstart Allowance has focused on the hand to mouth existence of those on the payment, who receive a minimum of $35 a day before other payments like Rent Assistance are added.
The welfare lobby want a $50 a week increase in the base rate of Newstart - an increase that will cost taxpayers anywhere between $8 billion and $15 billion over the forward estimates.
Even the Business Council of Australia (BCA) argues the payment ‘itself now presents a barrier to employment and risks entrenching poverty.’ While the payment certainly provides for a frugal existence, there has been little discussion about how a $50 a week increase in payments will help people move off welfare and into work.
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We were greeted with the news this week that Centrelink staff have been ordered to make phone calls to more than 80,000 single parents to apologise after advising them to destroy their pensioner concession cards.
This is the latest disaster in Labor’s approach to welfare reform. The government announced last year that it would be moving long term single parents from the parenting payment to the unemployment benefit when their youngest child turned 12.
A few weeks later, in an effort to balance the budget, Mr Swan cut the age to eight.
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Rarely have economic commentators been so united on an issue arguing that the Australian Government should not aim for a budget surplus this year. From John Quiggin to Warwick McKibbin, the OECD to the IMF, respected economists across the political spectrum have taken the view that the best economic approach is not to try and fill the 2012-13 government revenue shortfall by making further budget cuts.
From a macroeconomic standpoint, there’s barely any difference between a $1 billion surplus and a $1 billion deficit. Far more important is the fact that when the Global Financial Crisis hit, we increased spending: supporting jobs through household payments and infrastructure programs.
In the past five years, we’ve found savings that total $138 billion. We boosted government spending when private demand fell, and cut spending as private demand recovered. Cutting spending isn’t easy. When we means-tested family tax benefits and the Private Health Insurance rebate, the Coalition said we were playing ‘the politics of envy’. When we phased out the outdated Dependent Spouse Tax Rebate (a measure that discourages secondary earners to work), we were accused of attacking the family. When we reduced the Baby Bonus for second and subsequent children, Joe Hockey drew comparisons with China’s One Child policy.
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Now that the US appears to have avoided its fiscal cliff (albeit briefly), I’m sure we all await an update from the Treasurer on the status of his “failure is not an option” budget surplus-now-deficit.
Despite emphatically claiming for the last 2 years that his government “has delivered a surplus in 2012-13”, Mr Swan snuck in a quiet “surplus now unlikely” statement just before Christmas. I guess we now know that failure is indeed an option for Labor.
But while many of us were visiting family, working our way through the leftover Christmas ham, and taking a well-earned rest, our fearless Treasurer was working doubly hard - to apportion blame.
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Wayne Swan had been hoping desperately to break a 23-year hoodoo. A Labor government had not delivered a surplus since Paul Keating was Treasurer in 1989. But, in the shadow of Christmas, he’s had to give up the dream, break an election promise and admit he’s now likely to chalk up his fifth deficit, with the red ink totalling more than $170 billion.
It was Labor that made getting the books back into the black a test of its economic credibility. It was a “guarantee”, said Julia Gillard. It would be delivered “come hell or high water”, said Swan.
“You can’t run this country if you can’t manage its Budget,” the Prime Minister said in April last year. They are the political quotes that will now haunt the ALP and be used by the Opposition to attack the competency and truthfulness of the Prime Minister.
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Julia Gillard and Wayne Swan are clinging to their rhetoric about announcing a budget surplus in May next year like it’s a political life-raft. But like many of the boats that keep on coming, this raft is taking on water at a rapid rate.
For days now some Labor MPs have been publicly questioning the increasingly desperate insistence by the Treasurer and the Prime Minister that they will get the budget into the black for 2013/14. Last Thursday night government whip Joel Fitzgibbon said on Sky news: “I’d give it up.”
“We’ve got monetary and fiscal budget policy running in different directions ... The public will understand things are still bad in the international market place.” This on the day it was reported Treasury had advised the government to abandon its commitment.
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About a month ago a minister was renewing with vigour the Government’s determination to deliver a 2012-13 Budget surplus. “If necessary,” said the minister with sweeping arms taking in the walls of Parliament House, “we’ll get Lend Lease in to give us a quote on this place.”
It was a joke of course, but a joke which underlined the Government’s fierce resolve not to lose the political debate over which side of the ledger the Budget accounting ends up.
This raises the question of whether the political point scoring by both sides is good for the national welfare. It is appropriate to point out during the general interest in Mayan final days that it would not mean the end of the world were the Budget outcome for this current year to slip slightly into the red.
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Wayne Swan is looking more Stepford wife than Bob the Builder. His mid-year budget update yesterday was largely an exercise in housekeeping – a massive spring clean to balance the budget books – rather than a major structural renovation to fix the fiscal house.
It detailed a whopping 76 policy decisions taken since the budget to either increase revenue or cut spending to keep the budget in surplus – just – this financial year. While economic growth is at its historic average and joblessness still relatively low, it is prudent for the government to return to surplus.
The turn around in the budget from a big deficit to a slim surplus is already taking heat out of the economy and paving the way for the Reserve Bank to keep interest rates lower than otherwise.
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There might be a substantial number of people a bit gobsmacked that a Budget which started only last July 1 is after just four months some $16 billion out of whack. So out of kilter, in fact, that the Government today has had to effectively recast all its expectations and introduce some big-hit measures to get back on course.
Consumers who already are close to deciding that the next few years might best be endured down in the onion cellar with a supply of can food and batteries might now feel their instincts are right.
But this is what happens to a 21st century economy exposed to global markets which dip and dive frequently and have almost instantaneous effects on domestic economies. And the response to these fluctuations is important.
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Warren Buffett once said that only when the tide goes out do you discover who’s been swimming naked. The tide is certainly going out on the Gillard government, but that doesn’t stop them from trying every trick in the book to delay everything from being revealed.
At a time when budget honesty is desperately needed there is strong speculation Labor is going to rush out its Mid Year Economic and Fiscal Outlook (MYEFO) weeks earlier than normal perhaps even as soon as Monday.
If Labor is to release the budget update next week it will be for the most cynical of reasons. It will allow them to avoid factoring in additional economic data due in late October which is tipped to show declining revenues. Of the past 14 MYEFOs only two have been released in October and that was in advance of November elections.
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Here’s one number you won’t hear Wayne Swan spruiking: $173,315,000,000. That’s the amount of red ink officially booked by the federal Treasurer for his first four Budgets.
Since inheriting a surplus of almost $20 billion from Peter Costello, Swan has handed down four of the biggest Budget deficits on record - $27 billion, $54.8 billion, $47.7 billion and this week the final accounts were released for last financial year showing another deficit of $43.7 billion.
Yet the government members were congratulating themselves when Swan and Finance Minister Penny Wong announced that the latest figure wasn’t quite as bad as the $44.4 billion predicted just five months ago. Never mind that Swan had originally said it would be only a $22 billion deficit - you have to search through the ghosts of Budgets past to find that long abandoned number.
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When Alexander Downer was elected leader of the Liberal Party the then Prime Minister Paul Keating immediately threw the switch to class war and went straight for his opponent’s Oxford-collared jugular.
Labelling Downer “the idiot son of the Adelaide aristocracy”, Keating said Downer had been born “not with a silver spoon but an entire cutlery service in his mouth”. These savage lines were the kind of stuff which would leave Keating tragics misty-eyed. It is debatable however whether Keating’s class-based assault on Downer as a pampered upper class twit would have resonated with the voters, or simply turned them off.
In the end it wasn’t Keating but Downer himself who destroyed his own leadership. Downer is a smart bloke and despite a wobbly start would go on to become a highly regarded foreign minister. As an alternative prime minister he was hopeless, not by dint of his birth or wealth but because he lacked gravitas and consistency. Making fun of his own policies – “the things that batter” – or fibbing about how he had forgotten the Coalition’s native title policy because he was emotional after seeing a corroboree were just two moments which suggested he was devoid of discipline and not up to the job.
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If nothing else, the upcoming budget week shows us the priorities of the government. We all know by now that this government is increasingly laying its political fortunes at the feet of a budget surplus and hoping that this will continue to drive down interest rates. It is one way that are attempting to deal with the feeling that the cost of living is continuing to rise.
There are rarely any major surprises on budget night: sure, the occasional announcement captures us off guard but after weeks of leaks and warnings about ‘tough decisions’, we all know what to expect. Then the sales job begins and we continue on our merry way.
The problem is, however, that a treasurer will never look us in the eye and tell us unpleasant truths. Sure, we are told that it is time we tighten out belts, but never will one admit to the limitations of both their projections or the very flawed models they are working with.
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This time a month ago the debate around the Gillard Government’s mining tax was still largely centred on the economic wisdom of using the tax system to target the one industry sector which was keeping the Australian economy humming along.
Most Australians are smart enough to know that the chief reason we have weathered the global economic storm is because every time you lift up a rock in Western Australia someone in China wants to give you half a million dollars. Despite the role of mining in our own little economic miracle the Gillard Government had set out to demonise the mining sector, or more accurately the biggest players in the mining sector, as being driven by a lust for profit off the back of natural riches belonging to all Australians.
There is a logical flaw at the centre of this argument, namely that while all these natural riches might belong to all Australians, most Australians have neither the resources nor the know-how to get them out of the ground. The companies that take the economic risks, tackle massively complex and dangerous issues of occupational safety, employ thousands of people in the process and return millions of dollars to shareholders – I’d say they have every right to be a bit peeved that they are suddenly being treated as self-interested villains.
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The Reserve Bank has decided the economy is ticking along for the moment, and airline passengers lists confirm that many Australians have had a bit of cash to spare. On the day the central bank left official interest rates untouched, the Bureau of Statistics revealed millions of Australians have been in a position to take advantage of the dollar’s golden powers abroad.
Last year, short-term departures by Australians reached a new record of 7.8 million overseas visits, up from 7.1 million in 2010. Back in 2001 there were just 3.4 million visits.
Some 57 per cent of those who left the country for a short time last year did so for a vacation and a further 22 per cent said it was to catch up with relatives. That amounts to a lot of people with the dough to put to travel, a relative luxury.
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In 2008, one of the biggest financial disasters in history took place. When investment bank Lehman Brothers collapsed, the global financial crisis announced its unwanted presence to the world. Four years later, the European debt crisis has again left the global financial system teetering on the edge of the abyss.
Make no mistake. This is the Cuban Missile Crisis of economics. Christine Lagarde, managing director of the IMF, has warned of a 1930s style Great Depression. Former prime minister Paul Keating has called it the “worst crisis of his lifetime.” Legendary speculator George Soros, in a chilling interview with Newsweek, had this to say:
“We are facing now a general retrenchment in the developed world, which threatens to put us in a decade of more stagnation, or worse. The best-case scenario is a deflationary environment. The worst-case scenario is a collapse of the financial system.”
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It was billed as a tough budget but the document Wayne Swan brought down tonight will win no awards for bravery and lead to no riots on the streets.
There are $22 billion of savings in the budget - Swan’s fourth as Treasurer and Julia Gillard’s first as Prime Minister – and they include the $1.7 billion flood and cyclone levy which clobbers higher income earners over the next two years.
But there are no measures among this scary-sounding $22 billion figure which will lead to any social dislocation or public unrest. As a result, when Australia returns to surplus next year, it does so to the very modest tune of just $3.5 billion.
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New Treasury secretary Martin Parkinson got married last Saturday and had a splendid ceremony and celebration in the tourist-depleted north Queensland resort of Port Douglas.
He will now spend time which might have been allocated to a honeymoon doing all-nighters in the Treasury Building as the May 10 Budget is locked into place.
Crazy honeymoon. And it will be a crazy Budget in crazy economic times.
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This government must have the courage and discipline to cut spending, reduce borrowing and to repay debt.
The mid year economic update (MYEFO) expected this week needs to take the form of a mini-budget. Wayne Swan needs to accept that government spending has and is contributing to the upward pressure on interest rates. We have now seen seven rises under his watch.
The Treasurer was at direct odds with leading economists such as Saul Eslake, Chris Richardson and RBA board member Warwick McKibbin, when he said: “Anybody who’s claiming the stimulus is somehow related to rate rises is simply talking rubbish.”
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I think I’m with the miners – just why did the Prime Minister and Treasurer let the banks and finance groups off the hook when it came to tax reform and revenues for the common good?
As one mining industry guy said this week, there’s a whole part of the banking and finance sector involved in ‘moving money around and not creating anything of value’, and which does not pull its weight in revenue generation for the common good.
I’m surprised that a Government, that’s more than willing to run on the theme of ‘nasty foreign extraction companies taking our wealth offshore’, couldn’t have come up with an anti-banks campaign.
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Ahhh, now we get it. Lindsay Tanner is smarter than that “freak show” Barnaby Joyce.
In case we didn’t get the message in parliament last week (we can be a bit slow sometimes) Mr Tanner spelled it out again on Meet the Press on the weekend. Not only is Senator Joyce “off the planet”, his team mate Joe Hockey is a “lightweight”.
Yesterday in parliament he repeated the lesson again for those who’d wagged the last one or drifted off while doodling on our pencil cases. Mr Hockey is “out to lunch”, and again he filled us in on Barnaby. According to Mr Tanner, Senator Joyce is evidence of “a very big question mark over the leader of the opposition’s judgment for appointing him in the first place.”
For someone who’s so much smarter than his counterpart, Mr Tanner seems to have skipped the chapter in Politics for Dummies called “Australians don’t like smug politicians who reckon they’re smarter than everyone else.”
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Well what can I say about the first parliamentary week as shadow finance minister?
Tony wanted a speech and I delivered it at the Press Club. It would not have mattered if the speech had categorically disproved the theory of relativity, the issue would be the slip and when the question came where I had to, on my feet and in my head, quickly add up Labor party expenditure via MYEFO for the next four years, I said billion when I should have said trillion.
In that split second my head said trillion my heart said you have got to be joking that is enormous. My head was right but the result is for all to see on YouTube.
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