Monday 31 December 2012

Cut and Paste today


SNEERING at carbon tax soundbites? Malcolm Turnbull, December 27:
BROADCASTERS or politicians or writers who think that they are respecting Struggle Street, the battlers, by dumbing things down into one-line soundbites are not respecting them, they are treating them with contempt. It's our job above all in politics to tackle the big issues and to explain them.
Soundbite success. Sid Maher, The Australian, December 17:
THE carbon tax is becoming increasingly unpopular with voters and the number of people who strongly disapprove of the policy continues to rise, leaked polling shows . . . The number of people who disapprove of the carbon tax rose to 58 per cent in mid-November compared with . . . 43 per cent in September 2010 . . .
How's Malcolm doing on NBN sans soundbites? Delimiter, October 2:
JUST over two thirds of Australians now think the development of Labor's National Broadband Network is a good idea . . .
Dennis Shanahan and Sid Maher, The Australian, February 18:
KEVIN Rudd marches towards Labor leadership challenge.
Peter Hartcher, Sydney Morning Herald, February 18, predicts:
KEVIN Rudd is not campaigning for the leadership.
News.com.au, February 24:
RUDD confirms leadership challenge.
Peter Hartcher, Sydney Morning Herald, February 18, predicts:
KEVIN Rudd will become the (Labor) leader . . .
Ben Packham and James Massola, The Australian, February 27:
Julia Gillard defeats Kevin Rudd 71 votes to 31 in Labor caucus vote.
Bob Ellis on his blog, February 18:
A NARROW LNP victory, I predict, by two or four seats, Campbell Newman not gaining his.
Linda Simalis, The Sunday Telegraph, March 25:
LABOR has been decimated in Queensland, with Anna Bligh yesterday leading the party to the most devastating of state election defeats.
Michelle Grattan on Radio National, July 30, predicts:
I THINK, overall, the poll is better for Labor because they are more or less going in the right direction. . . . Across the board, it is a reasonable set of figures for the government.
Peter van Onselen in The Australian, December 15:
THE promises of a poll-driven recovery following the February leadership showdown, or after the introduction of the carbon tax, or following the announcements of various reforms to disability services and education were summarily snuffed out by Newspoll this week . . . But to end the year where it started is a serious psychological blow for the PM, even if the poll is rogue, and a sign that she may be about to enjoy -- or is that endure? -- her last summer in the top job.
Margaret Simons on Crikey, January 24, predicts:
THE editor of The Daily Telegraph, the controversial Paul Whittaker, is in the firing line at News Limited as new CEO Kim Williams introduces a top-to-toe renovation . . . Whittaker's tenuous position is the talk of the newsroom. We put in calls to him this morning but didn't hear back.
Simons, January 25:
NEWS Limited is awash with rumours at the moment . . . This one (about Paul Whittaker's "tenuous position") I judged to be sufficiently confirmed to warrant inclusion in my story. It seems I was wrong in that judgment.
Wayne Swan on February 7:
WE'VE got our colours nailed to the mast. That's what we're doing. We're producing a surplus in 2012-13. We're determined to do that and that's what we're going to do.
Swan, December 20:
IT'S unlikely that there will be a surplus in 2012-13.

Letters today The Oz inc Last Post


Drunken sailors beat governments in rationality

IN a sober and considered article, Judith Sloan ("Empty pockets, empty promises", 29-30/12) examined the fiscal malfeasance and incompetence of the Rudd/Gillard governments.
Sadly, the writer undermined her own logic with the metaphor "the government kept on spending like drunken sailors".
Irrespective of sobriety, sailors spend only their own hard-earned money. And they don't waste money on irrational "thought balloons", but invest in realistic projects like tattoos, female companionship and alcohol, thereby providing income to a service industry. Finally, when drunk, sailors are incapable of spending more. It's hard to achieve the thoughtfulness of a drunken sailor.
Stuart McCulloch, Wendouree, Vic
JUDITH Sloan is indeed the mistress of pragmatism. Not for her a policy whose objectives are sloppy or sentimental nor a policy that may create a more civil society or provide benefits for the undeserving poor. For Sloan, a policy must meet its objectives, have measurable outcomes and be economically rational. A policy may be content neutral and its goals value-free, and yet still be eligible to meet Sloan's exemplary criteria.
Marilyn Willis, Kallista, Vic
WAYNE Swan will go down in history as one of our worst Treasurers. Everyone is to blame for the lack of a budget surplus but him. Swan mistakenly believed that if you talk about a surplus ad nauseum it would magically appear. But not so. In spite of commonwealth revenues increasing every year he's been in charge of the budget, the Treasurer hasn't managed to balance the books.
Ann Crawford, Tynong, Vic
THE reason we have nothing to show from the mining boom is not that the government has wasted the proceeds, but that there were no proceeds. The billions of dollars of mineral wealth were distributed, like the dirt itself. Why should it be that the shareholders of a mining company are the sole beneficiaries of the common wealth belonging to the country? Just because they dig it up? Anyone could do that.
Lance Scott, Sheldon, Qld
JUDITH Sloan's criticism of family tax benefits is misplaced. Family tax benefits are not "middle class welfare". They simply implement the principle of horizontal tax equity, which states that people of similar means should pay similar amounts in tax. A person with children on the same nominal income as a person without does not have the same means to pay because the children impose additional costs. The tax system is right to recognise this difference by having people with children pay less net tax.
Chris Curtis, Hurstbridge, Vic
WHILE agreeing with most of the content in your editorial ("Squandering the benefits of the resources boom", 28/12), I feel you were a bit severe in your criticism of John Howard and Peter Costello. They paid out Labor's $90 billion debt, started the Future Fund, and had cash of $20b in the bank. We all shared in the benefits of the mining boom in the form of tax cuts, which in turn stimulated the economy. This left us in an almost ideal position to deal with the global financial crisis.
Rob Hurdwell, Port Macquarie, NSW
PETER van Onselen is spot-on in his article on Wayne Swan's backflips and treachery to Kevin Rudd ("Swan's got gold-medal form for policy backflips", 29-30/12). Rudd managed the GFC and maintained policy cohesion. Neither Swan nor Julia Gillard showed ethical integrity in their backflips on the carbon tax or the cast-iron surplus.
Despite his flaws, Rudd would have given little consideration to policies such as Nicola Roxon's limitation of civil rights.
David Gould, Moonah, Tas



Last Post, December 31

The Australian (blog)-9 hours ago
Last Post, December 31 ... It is great to see The Australian promoting home-grown talent and columnists such as Ross Fitzgerald ("Austen ...

Slip some extra Tea Party Derangement Syndrome on the barbie
legal Insurrection (blog)-8 hours ago

Last Post, December 31

"Tea Party killed surplus: Swan" (29-30/12). Really, Treasurer? I suppose the dog ate your homework.
Annette James, Glasshouse Mountains, Qld
True to form, Wayne Swan has blamed someone other than himself and his incompetent government for derailing the much-promised 2013 budget surplus. At least it wasn't Tony Abbott's fault this time.
Paul Keefe, Wyreema, Qld
I'm surprised Wayne Swan hasn't included Elvis in his list of conspirators.
Paul M Bickford, Wilston, Qld
It wasn't the Tea Party that ruined the surplus: it was the fiscal stimulus party, from which we are now suffering the inevitable hangover.
Justin Baulch, Graceville, Qld
Will Wayne Swan give an ironclad guarantee the budget will stay in deficit while he remains Treasurer?
Ian Cooke, Alstonville, NSW
Wayne Swan has surely jumped the shark with his absurd attempt to blame the Tea Party.
Burt Bosma, Surrey Hills, Vic
Tony Greig will be remembered for being on the receiving end of Jeff Thomson's unplayable sandshoe crusher during the 1974 Ashes series.
David Crommelin, Strathfield, NSW
Tony Greig has been in my life as a cricketer and commentator for so long that he feels like a friend even though I never met him.
Richard Smith, Spring Hill, Qld
It is great to see The Australian promoting home-grown talent and columnists such as Ross Fitzgerald ("Austen Tayshus sends a postcard from the edge", 29-30/12).
PA Smith, Mount Archer, Qld
It's time to rethink the rules of cricket. In this modern era when players earn their living at the game, it is unfair to ask a team to compete with a depleted side. Amend the no-substitute rule to allow a full replacement in the event of a genuine injury.
Ryan Rob, Atherton, Qld
"2013 belongs to the party with the vision to lead us" (29-30/12). I'm afraid the year will be an orphan, living on the streets.
Michael Cunningham, West End, Qld
Mitchell Johnson must be rested to avoid injury -- to Sri Lankan batsmen.
Trevor Farrant, Hackney, SA
How I wish I lived in the same country as Craig Emerson ("The Cassandras of retail need to see the big picture", 29-30/12).
Liam Hayes, Somers, Vic




ERGAS: Greenback flood worse than fiscal cliff

Greenback flood worse than fiscal cliff




Lobbecke


Illustration: Eric Lobbecke Source: The Australian

WITH the US facing both the prospect of the "fiscal cliff" and a looming showdown over the allowed debt ceiling, it is difficult to fault consumers and investors for being spooked. These are times to be prudent. And that makes it all the worse that the Gillard government has abandoned even the pretence of having a credible fiscal strategy.
The US's fiscal problems are hardly new. From 1975, successive administrations have run budget deficits, with attempts at imposing fiscal discipline unsuccessful until 1993. That year marked a sharp reversal in the trend, but it was not sustained, with a return to ever greater deficits in the 2000s. With budget shortfalls aggravating an already large gap between what Americans earned and spent, the result has been high trade deficits and rising net indebtedness by the US to the rest of world.
For any other country, ever mounting external debt would be unsustainable. At some point, concerns about solvency would force a steep increase in interest rates, reining in domestic demand and raising the costs of continued fiscal profligacy.
But the US dollar is the international currency. And with more than 70 per cent of international debt issues being denominated in US dollars, and the US dollar on one side or the other of 85 to 90 per cent of interbank foreign exchange transactions worldwide, the US government could, in extremis, simply print the means of payment to repay its foreign debts. Alone among nations, the US therefore enjoys a virtually unlimited line of credit on the world as a whole.
That allows it to operate largely free of international constraints. And paradoxically, the rise of China has accentuated that freedom. This is because the US dollar is even more pre-eminent in East Asian trade than it is elsewhere. Moreover, with relatively immature, tightly regulated financial systems, the East Asian economies, including China, manage their large pools of excess savings mainly through government channels, and notably by investing in US dollar assets, especially American public debt.
Persistent US deficits have therefore been financed by rapidly growing East Asian holdings of US Treasury bonds. But it is not only US budgetary recklessness that that freedom from constraint has allowed. It has also permitted American policymakers to conduct monetary policy with little regard for international consequences.
After all, public debt equal to more than 70 per cent of GDP and rising should make selling government bonds to foreigners at real interest rates close to or below zero a struggle. But the US can, and it is exploiting that ability to flood the world with dollars. The Bernanke-Greenspan shock of 2003-08, when American monetary expansion sparked a 90 per cent rise in commodity prices, shows the harm that causes. But the impacts are not limited to inflationary pressures in commodity and asset markets.
With US real interest rates at historical lows, flows of hot money seeking positive returns have revitalised the carry trade (in which funds borrowed at very low rates are reinvested in countries that still have positive interest rates), destabilising monetary policy in the inflow countries and forcing artificial appreciations in their currencies. As well as distorting world trade, the fear of being exposed to such uncontrolled revaluations makes the emerging economies, particularly China, even more reluctant to liberalise their financial systems, entrenching inefficiencies in those economies.
None of the proposed strategies for avoiding the fiscal cliff address these issues. Despite convincing signs of an economic recovery, President Obama's package leaves US government debt continuing to rise, albeit at a marginally slower pace. And far from tackling growing healthcare costs and the insolvency crisis threatening the American social security system, Obama has expanded entitlements, while shifting spending towards the Democrats' black and Hispanic constituencies.
But that hardly makes going over the fiscal cliff a good idea. Even putting aside the immediate impact on the US economy of increasing the tax take by $350 billion in 2013 alone, large rises in marginal income tax rates, in taxes on dividends (which would jump from 15 per cent to 39.6 per cent for most dividend recipients) and in capital gains tax would discourage savings, exacerbating America's savings shortfall and reducing its productivity.
Moreover, the across-the-board spending cuts the cliff would trigger are poorly targeted. Like the tax increases, they would soon prove politically unsustainable and be unwound, as happened with the cuts mandated by the Gramm-Rudman-Hollings Act of 1985 and the 1990 Budget Enforcement Act.
What is required is a credible commitment to reform of taxes and of public spending. But of that there is no sign on either side of US politics. Rather, even if a fix is found that averts the fiscal cliff, everything points to yet another round of posturing over the federal debt limit.
Introduced in 1917 as a way of facilitating war finance by giving the president greater control over the administration's borrowing (which until then required specific congressional agreement for even short-term operations) and further streamlined in 1939, that limit should simply reflect the federal budget, which congress approves. In practice, proposed debt ceiling increases serve as opportunities for grandstanding. Those reached a peak in 1977, when congressional failure to ratify the increase in time led to the US being briefly in technical default. To avoid repeating that, as of 1980 the Gephardt rule (named after the then Democratic majority leader) linked an increase in the debt limit to congressional approval of the budget resolution. Republicans waived that rule in 1995, and the Democrats (including then-senator Obama) used that waiver to obstruct every debt increase sought by George W. Bush. Playing tit for tat, the Republicans repealed the Gephardt rule in 2011, setting the stage for the confrontation that lies ahead.
But that confrontation is symbolic politics at its worst. Rather than solve problems, it engages a take-no-prisoners political dynamic that cloaks them in illusory righteousness. And it leaves the world economy exposed to the risks of American economic irresponsibility, aggravating the dangers of the eurozone crisis.
Faced with those uncertainties, Australian budget policy should underpin confidence by operating on a predictable basis, while providing the fiscal margin to counter adverse shocks. Instead, contrary to Labor's own much vaunted fiscal rules, Wayne Swan will deliver yet another deficit.
That makes us unnecessarily vulnerable to the fallout from possible political breakdown in the US and in Europe. With 2013 just around the corner, Australians are right to feel uneasy.

Switzer: Swan's grand GOP slam deserves a hit


Swan's grand GOP slam deserves a hit

SEASONED political observers should be shocked by nothing. But sometimes one witnesses hypocrisy of such dramatic proportions that it is impossible for even cynics to remain unfazed.
I refer to Wayne Swan's attacks on US congressional Republicans on the eve of the legislative negotiations to avert the so-called fiscal cliff.
Last week, the federal Treasurer took repeatedly to Twitter to slam US small-government politicians, otherwise known as the Tea Party, for holding the global economy to ransom.
This follows his criticism in September when he warned that the biggest threat to the global economy were "cranks and crazies" in the Republican Party.
Their sin, it appears, is to obstruct President Barack Obama's march towards European-style statism, welfarism and insanely high debt.
Those US politicians, in Swan's telling, who support policies that reduce the size of the state and oppose indecently high spending, are recklessly holding the world's post-global financial crisis economic recovery hostage.
Never mind that about 20 house Democrats have supported Republican bills to renew across-the-board tax cuts this year. Never mind that at the time of writing the Democrat Senate has failed to pass a budget during the past three years.
Swan's foray into US domestic politics not only marks a desperate attempt to blame US politicians for his own failure to deliver a budget surplus in Australia. It also displays the rank hypocrisy of the Labor Party and much of the media.
Go back six years. John Howard was asked about a policy proposal of a US Democratic presidential candidate to withdraw US troops from Iraq. The then-prime minister's answer was consistent with his past positions: that any premature withdrawal could destabilise the region and threaten Australia's security by emboldening terrorist groups linked to al-Qa'ida.
The response was overwhelmingly hostile.
"Short-sighted", "irresponsible", "inflammatory", "ill-considered" these were just some of the barbs that Swan's colleagues hurled at Howard. How dare an Australian political leader weigh into divisive US affairs, Labor frontbenchers chanted.
The media echoed the opposition's charge. There was "no justification for trespassing into American domestic politics", thundered the Australian Financial Review. Howard looked like a "player in US domestic politics" and "a partisan politician meddling in another country's election", complained The Sydney Morning Herald.
Bear all this in mind as you witness Swan's meddling in Washington's political process. Except this time, the Deputy Prime Minister's attacks on the Tea Party, merely a segment of a party that lost the recent presidential election as well as seats in the congressional elections, have met hardly any criticism in Australia.
Whatever the merits of Swan's position, it is a rule of diplomacy that political leaders should refrain from commenting on the internal affairs of another nation, not least our most important security ally. And if they do so, they should maintain a civil tone in their comments.
If it was ill-advised of Howard, in an off-the-cuff moment during a television interview in early 2007, to say that al-Qa'ida would pray every day for an Obama victory, then it is impolitic for Swan, in well-prepared speeches and tweets, to slur Republican politicians with whom he disagrees. What's sauce for the goose is sauce for the gander.
Tom Switzer is research associate at the US Studies Centre at the University of Sydney and editor of Spectator Australia.








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    SEASONED political observers should be shocked by nothing. But sometimes one witnesses hypocrisy of such dramatic proportions that it is...
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Sloan classic: Gold-medal clunkers on the road to nowhere


Gold-medal clunkers on the road to nowhere


Supertrawler
Canberra's supertrawler ban was a sop to the Greens. Picture: AFP/Greenpeace Source: AFP
DURING an election campaign, I like to run a book on the worst policy proposals put forward by any of the parties. Ironically, I started this competition during the 2004 federal election campaign.
I say ironic because the gold medal winner then, by a country mile, was the Medicare Gold proposal put forward by none other than Julia Gillard, then opposition health spokeswoman.
Back then, the number of players in my competition was small. But with the advent of blogging I have been able to expand the number of punters.
It was a tight-run race last election campaign, with strong betting for the Citizens Assembly, East Timor offshore processing, Cash for Clunkers and Tony Abbott's souped-up paid-parental leave scheme. But why leave it to election campaigns, I thought. Why not award a gold medal to the worst policy of the year?
In setting up this competition, there are a number of criteria to bear in mind. Are the objectives of the policy likely to be met by the intervention? Do the objectives make any sense in the first place? Do the benefits outweigh the costs? What is the magnitude of the losses to economic efficiency?
By confining the contest to this year, there are some truly appalling policies that cannot be considered. The renewable energy target (originally instituted by the Howard government) is right up there in terms of costliness and inefficiency.
And, while the carbon tax and all its wasteful paraphernalia, most particularly the Clean Energy Finance Corporation, would normally be a frontrunner, the legislation was passed last year, not this year. More generally, the regulation of electricity markets should get a guernsey, but the mismanagement of this space has been going on for years.
And then there's the National Broadband Network. Placing a single bet on one technology costing untold billions and creating a new government monopoly, the NBN would have to be the clear winner if judged over a number of years.Adding the fact that the roll-out is way behind schedule and the take-up rates are pitiful means its long-term winning position is virtually unassailable.
One exclusion for this year's prize that does particularly disappoint me is the policy with the silly sounding name, Stronger Shipping for a Stronger Economy. Sadly, this shameful and expensive sop to the Maritime Union of Australia and Shipping Australia - which will doubtless be completely ineffective - became operational last year.
Not that I need worry too much, because there are plenty of lousy policies this year vying for the top prize. Here are my finalists:
Australian Education Bill 2012
Supertrawler ban
Illegal Logging Act
Schoolkids Bonus
Anti-Dumping Commission
Road Safety Remuneration Tribunal
Lest I be accused of picking on the government, although governments do implement policies rather than oppositions, I would point out that a number of these policies have been either waved through the parliament by theCoalition or are stolen from the Coalition playlist. The most notable example of the latter is the Anti-Dumping Commission.
I was very tempted simply to award the gold to the Australian Education Bill 2012 without considering other entrants. This must be one of the few times there are more words in a second reading speech than in a bill itself. But here's the real kicker: it is a law without legal effect. Section 10 states: The "act does not create legally enforceable obligations." It is a complete con and an offence to parliamentary processes.
Of course, there is the guff attached to the bill, including one of the aims that "Australia will be placed in the top-five countries in reading, science and mathematics, quality and equity in recognised international testing by 2025".
Let's face it - there is no chance of this being achieved. The recent results show Australia's international education standing has actually deteriorated, notwithstanding the close to 40 per cent increase in per capita spending on schools in the past decade.
I am very tempted to award the gold medal for worst policy to the super trawler fiasco, simply on the important grounds of failure to comply with due process.
Here was a venture into which the owners had invested millions and spent years securing all the relevant approvals.
The science was also on their side - one large trawler would inflict less environmental damage than a number of smaller ones.
All this counted for nought when the government faced some voter resistance and strong opposition from their partners in government, the Greens. Notwithstanding a disagreement between two ministers, the pin was pulled and the taxpayer can look forward to forking out substantial compensation - and rightly so - to the owners of the venture.
There is no doubt the Illegal Logging Act could easily be awarded the medal. Just what the Coalition thought it was doing when it voted to allow the bill through parliament is completely beyond me. The law reverses the onus of proof so all importers and users of timber have to be able to prove that timber being sold or used has been legally harvested. Of course, the real aim of the Greens is to kill off all harvesting of hardwood timber, an aim that might be achieved.
And what was the government thinking when it introduced the Schoolkids Bonus? After all, the savings from ditching the under-utilised education tax refund could have come in handy to secure the predicted wafer-thin budget surplus.
But, having given in on the solid idea of reducing the company tax rate, the government opted to spend the "proceeds" by handing over regular and completely unjustified cash handouts to parents with school children. All up, just a bit of brazen vote-buying, which hopefully - from the government's point of view - will do the trick in western Sydney
It is early days for the Anti-Dumping Commission, but here is another example of a sop to the union movement and certain companies. Don't you just love the idea of anti-dumping? The Prime Minister defined the practice of dumping as unfair because "imported goods are sold in Australia at prices below their normal value, injuring local businesses and their workers". Define normal, Ms Gillard.
And how does the Anti-Dumping Commission sit with the advice given by Austrade to Australian exporters to price at marginal cost in order to get into overseas markets?
There is an assumption here we are all dying to pay more for the goods we purchase. Let's be honest about this - the Anti-Dumping Commission is just another industry protection racket.
But, as they say in the classics, there can be only one winner. The gold medal for worst government policy for 2012 goes to the Road Safety Remuneration Tribunal.
Notwithstanding the fact that truck road safety has been actually improving, the Transport Minister, Anthony Albanese, has been on a promise to the Transport Workers Union to introduce this costly and ineffective intervention for some time.
Not that the big transport companies will be complaining.
Roping in owner-drivers and extending responsibility to all parties in the chain suits their cartel-like ambitions very well.
From July, a new section of Fair Work Australia has been "tasked" (I am really on to this government lingo) with setting the pay and conditions in the road transport industry. It covers all manner of issues. Recently, there has been a call for suppliers to pay for any waiting times that drivers must endure.
But here's the real kicker. When the regulation impact statement was prepared to consider the establishment of the Road Safety Remuneration Tribunal, the cost-benefit analysis clearly demonstrated that the costs would exceed the benefits.
In fact, the net present value of the policy was estimated to exceed negative $200 million, principally because the costs "will be passed on in the supply chain and ultimately paid for by consumers".
Yes, I hear the squeals of complaint about policies I have missed, but the judge's decision is final.
Judith Sloan occasionally blogs at catallaxyfiles.com

Sloan: Empty pockets, empty promises



Empty pockets, empty promises

Iron Ore Mining
We have lived through a period of historically high terms of trade yet we have seen four years of negative cash balances amounting to an accumulated $172 billion in budget deficits. Picture: AP/BHP Billiton Source: AP
WAYNE Swan tells us he is inspired by the songs of The Boss, Bruce Springsteen. But I have a suggestion to make. Has he considered one of the songs from the Bacharach/David team - Promises, Promises?
Promises, promises/I'm all through with promises, promises now/I don't know how I got the nerve to walk out/If I shout, remember I feel free/Now I can look at myself and be proud/I'm laughing out loud.
I think these lyrics sum up the likely reaction of the public to the multitude of promises all the political parties are likely to make in the forthcoming election campaign, which in all probability will commence some time after July.
After all, we have just lived through a period of historically high terms of trade that have lasted much longer than in the past.
There has been the mother of all booms in mining investment and economic growth has been strong, with unemployment staying at about the 5 per cent mark.
And what is there to show for all this in terms of the budget position of the federal government?
We have had four years of very large negative cash balances - the dreaded D-word, deficits - amounting to $172 billion, or more than 12 per cent of GDP. And now we are told that there is likely to be another deficit in 2012-13 - of the order of $5bn, but probably higher.
The point will be made (again) that the onset of the global financial crisis required a significant loosening of budgetary policy.
But the real issue is why the government kept on spending like drunken sailors well after it was clear that the Australian economy would escape the full impact of what was, in effect, a North Atlantic economic calamity.
So, yes, a budget deficit in 2008-09, and possibly a small one in 2009-10.
Instead, we have had years of overspending, a range of wasteful programs and a budget in very poor shape to accommodate the social and economic aspirations of both major political parties.
We were well into the silly season when the Treasurer executed his triple-back somersault with pike to announce that it is now unlikely that there will be a budget surplus for 2012-13.
Sympathetic commentators, aware of the political damage to the government caused by the dumping of this unalterable pledge, immediately and enthusiastically picked up the lame economic rationale that this is not a good time to have a budget surplus. The economy is slowing. And who really cares about a small deficit?
The principal problem with this analysis is that it is completely at odds with the government's own line, which held pride of place on the government's budget website until it was mysteriously scrubbed on the day of Swan's concession.
"The budget is returning to surplus as promised, with surpluses growing over the forward estimates. A surplus is appropriate given our strong economic fundamentals and economy returning to trend growth."
So one minute it was appropriate to have a budget surplus and the next minute it was not. In fact, the government was quite right to have this medium-term fiscal target. It is the failure to deliver that is damning.
To suggest that it is now OK to have a budget deficit, as long as it is in the context of a medium-term strategy for the budget to return to surplus, overlooks the fact that this is what we thought we had. In other words, the fiscal credibility of this government is completely shot.
Melbourne Business School economist Sam Wylie has neatly summed up the fork in the road we have reached. According to him, there are "full-Keynesians" and "half-Keynesians", with the present government now seemingly in the latter camp.
Full-Keynesians prescribe increased government spending during severe downturns in the economy. Full-Keynesians then insist that governments pay down the debt accrued during recessions by running surpluses when normal growth, or faster-than-normal growth, returns. The budget must balance "over the cycle".
Half-Keynesians want big deficits during recessions and small deficits the rest of the time. For half-Keynesians fiscal policy is all about stimulating the economy - balancing the budget over the cycle is good in theory but not a first-order concern. Debt can be paid down later. High levels of government debt are not really a problem.
The importance of Wylie's analysis is that the half-Keynesian policy approach is one of the chief reasons that so many European countries now find themselves in such dire fiscal and economic straits. It just never seemed like a good time to rein in government spending and to run budget surpluses. It is a disease that Australia needs to avoid, although there are worrying symptoms.
Swan's explanation for the likely budget deficit this year is the "dramatically lower tax receipts". This account is not credible. The four months of tax receipts are dramatically lower only relative to the completely fanciful forecasts contained in the budget and repeated in Mid-Year Economic and Fiscal Outlook.
The idea that tax receipts would increase by 9.4 per cent over the course of this year was a fairytale, with government receipts, as a proportion of GDP, predicted to rise from 22.5 per cent in 2011-12 to 24 per cent in 2012-13. There is not one instance since the beginning of the 1970s when the share of government receipts increased to this extent, or more, from one year to the next.
While it is easy to focus on the shambolic management of public finances by the Labor government, the broader context of this mismanagement needs to be taken into account. Many of the poor expenditure decisions of this government have been either extensions or continuations of programs instituted in the latter years of John Howard's government.
With the benefit of hindsight, the Howard government was spending the receipts of the early stages of the mining boom, where companies were achieving windfall revenues without additional investment, as if the boom would not last. Electorally attractive handouts took a variety of forms, including ramping up family tax benefits, the childcare rebate and the baby bonus.
Rather than simply return the additional government revenue in the form of across-the-board tax cuts or create a robust sovereign wealth fund, monies were directed to favoured groups, most particularly families with dependent children. To be sure, Howard's treasurer, Peter Costello, attempted to hold the line to some degree by setting up the Future Fund and a number of smaller funds, although these latter have since been raided.
When Kevin Rudd's Labor government was elected and the GFC provided a convenient rationale for a huge expansion in government spending, it was "game on".
Government payments rose from 23.1 per cent of GDP to 25.2 per cent in just one year. Rudd and his ministers chose to use a number of Howard programs to rush the cash out the door - increasing the generosity of family tax benefits and the childcare rebate were examples. It was a case of economic imperative colliding with political inclination.
The real problem is that many of these entitlement programs instituted by the Howard government are low-quality and provide very poor social returns for the tax revenue that must (ultimately) be collected to pay for them.
The government will argue that it has instituted a number of responsible budgetary measures that have limited expenditure on a number of programs, by imposing means-testing and freezing the indexation of a range of benefits. Examples include the means-testing of the private health insurance rebate and limiting the baby bonus.
But do these measures really add up to a hill of beans, even though they will be praised by elements of the commentariat as examples of cutting back on middle-class welfare?
There are two important points to make. The first is that these programs were never set up as middle-class welfare, but as means of doling out government largesse to families with children. Rather than run them through the tax system and avoid the churn, the regular payments are there to remind voters of the generosity of the government in power.
The second related point is that the creation of a complex and confusing array of means-testing arrangements means families now face very high effective marginal tax rates (higher income taxes and the withdrawal of benefits) at certain income points. This creates significant adverse incentives for work effort, particularly for the secondary wage earner in the family. It is interesting to observe that the rate of female labour-force participation has completely stalled since the Labor government was first elected to office.
The real way forward - and one that would create some real space within the budget - is to ditch a number of these low-quality entitlement programs. Examples include the baby bonus, Family Tax Benefit Part B and the Schoolkids Bonus (a woeful new program dreamt up by the Gillard government).
So what does the future of the budget look like? Even on the government's now junked MYEFO figures, over the next four financial years accumulated cash balances were expected to amount to less than 1 per cent of GDP.
There is no intention that the government debt accumulated over the past several years will be repaid within this time frame.
Additionally, the forward estimates do not include the full costs of implementing the National Disability Insurance Scheme or the bill for the Gonksi reforms. It is all very well for Julia Gillard to say that "people ask where the money will come from and it's a reasonable question. My reply is that 'Australia is a prosperous country, as well as fair country. So with some sensible budget decisions, we'll deliver this important change (the NDIS)'."
But why should the public think the government is capable of making sensible budget decisions? It has failed to meet its pledge to return the budget to surplus this financial year. And there is no way that a nip here and a tuck there will make room financially for the NDIS. The real questions that need to be asked are:
- What large-scale spending commitments will be ditched?
- What new tax initiatives will be introduced that raise significant revenue?
Without answers to these questions, the likely response of the public will be to sing along to Promises, Promises.
They really don't mean a thing unless there is a credible means to fund new initiatives and to outline how state governments, which are also finding their fiscal positions strained, will be expected to contribute.
Canberra will be bringing down a budget in May with new forward estimates. And this will be supplemented by the release of the PEFO - the Pre-Election Fiscal Outlook - when the election is called.
By this stage, we should have a clearer view of the real budget position as opposed to the smoke-and-mirrors version the government has tried to run with.
The Coalition leadership team seems to be aware of the constraints on new spending and is legitimately wary of committing to expensive new programs without knowing where the funds will come from. But come an election campaign, all political parties have a habit of promising what cannot be delivered.
But making unachievable promises to the community, particularly when the promises involve extra services and choice for a very disadvantaged segment of the population, is surely an act of dishonesty.
Let's hope our politicians lift their game and come clean on what governments should and should not do and what governments can and cannot do.