The Government made a conscious decision in the aftermath of the GFC and took liberty with fiscal policy and used employment as the trigger to allow themselves to let debt escalate.
The Nation has not arrived at it’s current financial abyss without a collective brain’s trust failing.
Working in the background feeding the Budget forward estimates up the ladder to their political masters are the Treasury bureaucrats and their yuppy underlings – all with starts in their eyes and willing to do the bidding of any taskmaster.
The question has to be asked about in the way these subordinates go about their business and do their best for the Nation – which came first – ‘the chicken of the egg’.
Do the bureaucrats have a responsibility to the Nation that separates them from the political will of their masters – or do they protect their careers and appease the political masters at the expense of the Nation – The forward estimates have been way off target for years … who fudged the forward estimates based on a dodgy MRRT revenue expectation? Who relented under Gillards pressure to spend her way to her own agenda?
Politicians formulate policy and throw the ball to the Treasury to find ways to fund and cost the policies and deliver accurate forward estimates. It is only then that a Government should consider the policy and its impact on the economy. The question is not whether the Treasury fudges the forward estimates to give the Government the news it wants to hear – it’s about Treasury staff being incompetent to understand the modern variations of economic measurements and not understanding the MRRT policy impact, or the Carbon Tax forecast against a carbon price underpinned by the European carbon price.
Sadly – this Gillard led Government has had stars in it eyes from the get-go … Gillard was in a rush as all Labor Government’s tend to be. Gillard had the Rudd GFC response to build upon and she and Swan continued to use the GFC excuse to push new expenditure policies believing the Debt/GDP ratio comparisons allowed Australia to continue with the spending.
History has now shown us that that spending was not needed as China handed Australia an economic lifeline. If the truth be told – Australia’s GFC fallout was postponed and awaits us downstream. China will not be there to bail us out a second time as resources are now off the boil and aplenty, other Nations are coming on stream and are much more competitive than Australia – China will do what is best for China.
The $300 billion debt created by successive ALP Government’s since 2009 have fueled GDP growth and propped up the private sector. The single reason for Australia’s uncompetitiveness has been the continue lack of response for the RBA and Government to enact measures to weaken the high A$. So much so that the damage done to our export industries has been by and large overlooked.
The high A$ is the sole reason for our nightmare if anyone is looking for a pivot. Swan thinks it a good thing, but then he does not understand the $trillions of lost export revenue over the last 10 odd years.
This single offset to what should have been Australia’s most profitable mining boom was diminished because the rest of the world invested in Australia and took all those profits offshore. Only idiots could allow this to happen and Howard and Costello were equally ignorant of the undercurrent happening in global investment from the early 2000’s.
Treasury and RBA are the most to blame because they serve all Masters – they should have been advising and readjusting the forward estimates on growth and reduced export earnings all as a result of the hig A$. They were grossly incompetent and deserve every criticism they have coming their way.
Treasury created a complete misread on revenues and expenditures right across all the forward estimates. The Government also allowed itself to use it’s own policy expectations of forecast revenues from the ‘Carbon Tax’ and the ‘MRRT’ to hedge their bets on continued spending for their new policies.
In real terms – the Government spent before it could confirm the tax collect. This was a decision Gillard and Swan made as a collective to initiate policy’s that would paint them in a better light. Gillard gambled again and has been caught out – just as she has gambled on the AWU scandal never coming back to haunt her.
Since that abandonment in Dec ’12 – the excuse used has been reduced revenues. Any economist or financial commentator can used the budget numbers and extract the hard data and disprove this Government excuse. See the table and chart below to help … or click here to see Table and Chart in a new window now.
In recent weeks Swan tried to change the excuse – he changed the message and it became about the high A$ and its direct responsibility on the revenues. This was a more plausible argument and should have been where Swan and Bradbury and all the other Cabinet minions went with their message last December. But alas it did not gain traction and the original ‘revenue writedowns’ has again be installed as the excuse message.
Confirmation of this came overnight when the Government leaked there has been a $12 billion ‘black-hole’ caused by revenue writedowns. Hockey explained later that the $39 billion increased revenue over and above the 2011-12 number will now be a $27 billion increase – still an increase of 7.6% and well ahead of the average year on year increase in revenues since 1996-97.
This leak followed up by an official media address is a deliberate and well-tried strategy to soften the media and electorate. We can expect more of this in the lead up to the budget speech due in a fortnight [14th May]. The tactic is predictable – if its bad news – deliver it in small doses, if its is good news – do it with panache and flash …
MON 29 APRIL 2013
Prime Minister, Canberra
It’s a great sign of the growing recognition of Per Capita’s work that your Executive Director David has been in such good company at the international Policy Network’s Progressive Governance and Global Progress conference in Denmark.
Congratulations to you on the fine contribution Per Capita is making in the world of ideas.
With the Federal Budget just fifteen days away, I thank you for this opportunity to share with you the clearest possible picture of the purpose and context of our Budget deliberations. … bullshitttttt …
This year’s Budget will be about a national challenge – and a national plan.
A challenge for Australia: to respond to the huge reductions in revenue growth over the next four years.
A plan for Australia: to make necessary investments in the nation’s future, to ensure that none of our people is left behind.
Tuesday 14 May will be no old-fashioned pre-election Budget night.
What the Treasurer will deliver will not be a political pamphlet – he will outline an economic program.
The Budget will outline the fiscal path for the coming four years, one designed both to take account of the nation’s current circumstances and to shape the nation’s future. … we heard this three years ago predicting a surplus in 2012-13 …
Our key long term objective, the progressive purpose of this Government’s fiscal policy is enduring.
- to maximise jobs and economic growth;
- to ensure sustainable funding over the long-term for the investments that strengthen our economy and the services our whole community relies on; and
- to keep inflation in check and give the Reserve Bank maximum opportunity to keep interest rates low.
The Government’s medium-term fiscal strategy – to deliver fiscal surpluses on average over the economic cycle – is designed to give effect to this purpose in practice.
It commits us to support jobs and economic growth when private sector demand is weak.
This is what we did so successfully during the Global Financial Crisis and, as a result, we kept around 200 000 more Australians in work. … bullshitttttt …
It commits us to making Budget decisions so that in the good times and the hard times, through the inevitable variations in economic activity and Government revenue from year to year, we can afford the investments and services that make our nation stronger, smarter and fairer.
It also ensures that we don’t simply “chase revenue down” – we don’t cut to the bone and spurn wise investments, damaging jobs and growth now and in the future.
Instead our fiscal strategy responds to the economic cycle. … bullshitttttt …
In the language of economists, we allow the Budget’s automatic stabilisers to do their work as well as actively controlling spending to reach surplus at the right part of the economic cycle. … don’t use terms you don’t understand … it makes you look more stupid …
That means for the coming Budget, we must fund new initiatives by making savings.
This is a necessary discipline. … it would be a better discipline if you stopped spending …
This need for balance over the cycle has been summed up nicely by the Treasurer many times: if we are Keynesians on the way down, we have to be Keynesians on the way up – Keynesians right through the economic cycle.
The need to understand how the cycle is changing is summed up best in the remark so famously attributed to Keynes himself:
“When the facts change, I change my mind – what do you do, sir?” … a comment for all people who can’t keep a promise … and misused in this context …
In the face of the challenges we now face as a nation, this is what any smart leader, any forward-looking government, must be prepared to do. ... smart leader … you oversell yourself …
So today I want to set out the facts that underpin the decisions our nation faces as we approach this year’s Budget.
First, the good news, the shared achievement that we should never take for granted.
Unlike so many nations, Australia’s economy is stable and resilient. … bullshittttttt … three years after your 2010 forecast – your predictions for the future are as poor now as they were then …
Our economic fundamentals are sound. … bullshittttttt … the high A$ has killed our competitiveness and in the next two years the reality of our high labour costs will cost 10,000’s jobs.
We have contained inflation, low interest rates, low public debt. … bullshittttttt … the rest of the world have has 0% interest rates and inflation has not impacted – why do we have a 3% higher interest rate differential with the rest of the world … interest rates could be 2% lower and there would be no impact in inflation … the RBA are stuck in a late 80’s early 90’s inflation mentality – the world has moved on … the RBA have not …
We are one of only eight nations in the world to have a triple-A rating with a stable outlook from all three major ratings agencies – something Australia has never previously achieved. … not because we are getting better, but because the others are failing the benchmark tests and we are headed that way as well …
Our economy is now more than thirteen per cent larger than it was in December 2007. …. when a Governemnt spends $300 billion growth in the economy can not truly be measured … this number is misleading on a grand scale … and cannot be used to accredit the Government with economic growth …
We have bounced back from the Global Financial Crisis better than any major advanced economy. … no-no-no … China saved us …we did nothing but ship the resources whilst others purchased A$’s and transferred wealth offshore …
If we had made the wrong decisions during the Global Financial Crisis our nation could easily be struggling with recession today. … you made several … currency, trade, interest rate policy, inflation targeting, bank guarantees, industry subsidies targeted wrongly and so on …
Instead, Australia is now the twelfth-largest economy in the world – when Labor came to Government we were fifteenth. … this is a cheap grab and total crap … attrition does us nobody any good in the end …
Unlike the rest of the world, we have very modest debt – because we have borrowed in the right way and at the right time, to support growth during the global financial crisis. … subjective … and what happens when our GFC does hit …
Our level of debt is the same as a person earning $100,000 a year with a $10,000 mortgage.
Millions of Australians with mortgages and personal loans would love to be in a position where their only debt was equal to ten per cent of their income.
Similarly, countries around the world would love to be in Australia’s debt position and have an unemployment rate as low as ours. … amounts to spitting in the eye of those less fortunate than ourselves … when our once only resources are done and gone … what will save us then …
Indeed, the fundamental proof of our resilience is our ability to create and support jobs.
Since 2007, we have created almost 900 000 jobs in this country, in a period when twenty eight million new people joined the jobless queues world-wide. … now this is provable … 500,000 of that 900,000 figure are part-time jobs … see here ..
Our national prospects in the Asian Century are bright.
As the centre of global economic gravity shifts east, it shifts towards Australia.
Our diplomatic and trade successes in China last month, our improved relationship with India, our strengthening economic ties with Indonesia and our flourishing alliance with the United States – these are all proof that our plan to be one of the winners in the Asian Century is bearing fruit.
However – and this is key – while Australia is stable, resilient and close to centres of growth, the wider world economy is quite a different story.
There is serious, persistent weakness in global growth – and continued volatility in the global economy.
To take one example, a resource-rich nation like Canada has only grown by five per cent in total over the last five years.
The advanced economies grew at only 1.2 per cent last year and global growth reached only around 3 per cent.
This global weakness creates important economic pressures in Australia.
The contrast between our stability and resilience and the volatility and fragility of so much of the rest of the world is a reason for the continuing strength of the Australian dollar –consider this.
Today over 30 central banks around the world hold Australian currency in their reserves. … this is nothing to brag about as the returns on those investments harm us and benefits them …
The increasing importance of our currency for central bank reserves worldwide is recognised by the International Monetary Fund. … this is ego stuff and underpins just how much Swan and his goons don’t understand …
Later this year, the IMF will begin quarterly reporting on central bank holdings of seven currencies and the Australian dollar will be one of them.
This shows we are a great investment, but that comes at a price.
The dollar’s strength puts pressures on our economy, particularly our trade-exposed industries. … what a trade-off … prosperity for Australians in lieu of a stake at the world table where MP’s and diplomat’s can party all night on the taxpayers dime …
It would be irresponsible simply to wait in hope for these pressures to ease.
So the Government has a plan to create and support jobs, based on our five pillars of productivity, designed to seize the opportunities that proximity to Asia creates.
This back drop to our Budget decision making – Australia’s resilience, global weakness, a persistently high dollar – have been known for some time.
What is new is how strong the revenue pressures on the nation’s Budget are.
We must plan for these strengthening pressures – and that is a key part of preparing our Budget for this year.
The persistent high dollar, as well as squeezing exporting jobs, also squeezes the profits of exporting firms: with lower profits for these companies comes lower company tax going to Government.
We can’t assume this will change soon.
The high dollar is also placing competitive pressures on firms here, who face new pressures from cheaper imports – holding down prices across the board, with the high dollar making it hard for these firms to pass on price increases, holding down profits – and in turn holding down company tax. … hells bells … someone gave her a quick class in reality … but does she understand all that it means …
Consumers do benefit, but many businesses are doing it tough.
All this means the data on our economy now reveals a significant new fact.
This is the striking and continuing divergence between what economists refer to as real GDP growth and nominal GDP growth.
My best shorthand description of those terms is this.
Real GDP growth is growth in the volume of the economy.
The actual activity in the economy, how many jobs there are, the quantity of infrastructure we build, the amount of goods and services we export – how many tonnes of coal, how many international students pay for a course here, how many houses are built.
Nominal GDP growth counts this growth in volume and it also counts growth of the prices of all these things.
Today, real GDP is growing solidly – we’re creating more jobs, exporting more goods and services and buying and selling more from each other, just as we planned. … all underpinned by the creation of new debt to fund new policies introduce over the last few years …
However prices are growing at a slower rate than is usual for this stage of the economic cycle, a slower rate than was forecast – and so nominal GDP growth for this current year is significantly slower than was forecast and we expect nominal GDP growth for future years to be revised down.
The current data shows nominal GDP growth after the first half of the 2012-13 year was an annual rate of two per cent.
At Budget last year, we had forecast nominal GDP to grow at five per cent.
While the prices of our exports continue to be lower than their recent peaks because of weak global demand and increasing global supply, the prices of imports are now lower than forecast because of the strength of our dollar.
The prices of goods produced at home are also lower than forecast because competition from imports is so fierce.
This is now putting so much downward pressure on prices that growth in nominal GDP is actually lower than growth in real GDP.
What’s more, this has now been true for nearly an entire financial year – since the beginning of the June quarter last year.
This has never happened for such a long period in the whole half a century and more of the National Accounts.
Not during the global financial crisis, not during the 1991 or 1982 recessions.
Not even during the Menzies “credit squeeze” of 1961, which was effectively a deliberate policy attempt to slow price growth, do we find a similar effect.
Now, that’s a long explanation of a pretty technical fact. … so – all this confirms is that the modelling the RBA and Treasury have been usuing is out of date and not upgraded with new thinking …
But for the Budget bottom line, it’s a very meaningful fact – because, naturally enough, companies don’t pay tax on volume, they pay tax on value, which is driven by price.
The Pharaoh might have kept one fifth part of the grain from the field but the Tax Commissioner collects in dollars and cents. … fanciful commentary – not serious enough …
So even if the economy is growing as much as expected, when prices are growing much less than expected, tax grows much less too.
The “bottom line for the Budget bottom line” is this: the amount of tax revenue the Government has collected so far this financial year is already $7.5 billion less than was forecast last October. … that just proves the point – the forecasts were wrong …
Treasury now estimates that this reduction will increase to around $12 billion by the end of the financial year. … can you believe this number … it changes every month … the real numbers released on the monthly Dept Finance and Deregulation point to a deficit between $15-$20 billion … the $12 billion is not trustworthy …
This unusually low revenue, which wasn’t forecast even a few months ago, creates a significant fiscal gap over the Budget period.
Put simply, spending is controlled but the amount of tax money coming to the government is growing much slower than expected.
Inevitably, confronted with the facts, the economic simpletons and sloganeers will squirm and throw in arguments to distract. … no-no-no … economic simpletons … that is the pot calling the kettle black …
First, you will be told that revenue for the next financial year is still expected to be more than this financial year. That’s true – at the same time our population will be larger, more people will be on the age pension, health costs will continue to rise. … the forecasters predicted revenue growth from the MRRT and Carbon tax and it did not eventuate – that was the first of many errors that concertina themselves into this train-wreck …
Indeed the growth in health and in the age pension will be far higher than the growth in tax money. … that’s because you handed out carbon tax refunds and pension increased based of bad forecasts …
So revenue growth will be less than natural growth in key areas of expenditure and is spectacularly lower than reasonably predicted. … blah-blah-blah … waffle at best …
It is the failure of growth in tax money to match reasonable predictions that creates the Budget challenge. … unreasonable more likely …
Second, you will be told it isn’t about less tax money in but about spending. … you know its coming and using the double negative argument to try to lessen the impact is about as foolhardy as you can get ….
However, as informed commentators like Tim Colebatch pointed out last week, excluding east Asia, total government spending in Australia is already the second lowest in the developed world. … is that just Federal, or does it include State and Local …
Of the advanced Western economies, only Switzerland spends a smaller share of its economy on government than does Australia.
The total size of government here is less than the US, less than the UK.
Not as measured in revenue either, measured in spending. … is that per capita or gross numbers …
And let me reiterate, for the future we will continue to match new spending in the Budget with savings.
Given all this, tax money down, spending controlled, the question for Budget planners is difficult to answer, but simple to state: how, and how fast, to fill that significant fiscal gap?
Some of the above factors will return to trend – overall, revenue is being revised downward over the coming four years, not permanently.
However in part, this is a return to normality – returning to long-term averages.
Australia will not go back to the extraordinary revenue peaks of “mining boom mark I” from 2002-03 to 2007-08. … I give up … just accept there is little that you can believe in anything Gillard has said here …
While we should expect revenue to improve as we move to the production and export phase of the current mining boom, it’s clear that the extraordinary revenue peaks of the mid-2000s won’t be repeated.
The overall story: by 2005-06 the share of the economy taken in tax reached a peak of 24.2 per cent – compared to 22.4 in 1996 and 22.2 as we reported in our last update in October.
The huge profits of that time meant that company tax revenue reached an astonishing 5.3 per cent of GDP in 2006-07 compared to a share of 4.5 per cent of GDP last financial year – a fall of around $10 billion in company tax a year.
Capital gains tax was 1.5 per cent of GDP in 2006-07 – last financial year it was 0.4 per cent.
We collect less than one-third of the amount compared to seven years ago and in dollar terms the drop in tax collection is around $15 billion a year.
Quite apart from any other factor, remaining competitive in the contemporary global economy doesn’t allow us simply to turn back time on tax collection by dialling up tax revenue to these levels.
If I can summarise a complex picture in a few brush strokes, it’s these:
The prices for what Australian companies sell overseas are lower, imports are cheaper, local competition is fierce.
Those things add up to business making less profit than planned.
That puts pressures on our stable and resilient economy and it is one reason businesses and workers still need to work so hard to get ahead.
When businesses make less profit than planned, it also means Government gets less money in tax than expected.
That’s the big challenge for the nation in this Budget – and it defines the decisions the Government’s confronting as we put the Budget together.
Once again, to break this complex picture down in to a personal story.
Imagine a wage earner, John, employed in the same job throughout the last 20 years.
For a period in 2003 to 2007 every year his employer gave him a sizeable bonus.
He was grateful but in his bones knew it wouldn’t last.
The bonuses did stop and John was told that his income would rise by around five per cent each year over the years to come.
That’s the basis for his financial plans.
Now, very late, John has been told he won’t get those promised increases for the next few years – but his income will get back up after that to where he was promised it would be.
What is John’s rational reaction?
To respond to this temporary loss of income by selling his home and car, dropping his private health insurance, replacing every second evening meal with two-minute noodles.
Of course not.
A rational response would be to make some responsible savings, to engage in some moderate borrowing, to get through to the time of higher income with his family and lifestyle intact and then to use the higher income to pay off the extra borrowing undertaken in the lean years.
Running a nation is always more complex than running a family budget and analogies only work so far.
But I trust the nature of the challenge we confront is now clearer, understood within the framework of the purpose of our fiscal policy and the detail of our medium-term fiscal strategy – and I trust that all would acknowledge the Government has some serious decisions to make and announce in the coming two weeks.
As we make those decisions let me be crystal clear about what we will and won’t do.
We won’t, during this time of reduced revenue, fail the future by not making the wise investments that will make us a stronger and smarter nation.
Better school funding and school improvement will not be jeopardised.
Our nation cannot afford to leave children behind or to leave our nation’s future economy limping behind the pack, unable to attract the high wage, high skill jobs of the future.
To return to John, you would not expect him to stop funding his son’s top quality schooling or his daughter’s university studies.
He would know that to do so would be to condemn his family to a poorer future.
And we won’t fail to make the wise investments that make us a fairer nation.
DisabilityCare must not be jeopardised.
A fragmented, unfair, inefficient system hurting 400 000 Australians with disability and their families and carers – and putting at risk anyone who could acquire a disability – cannot be left in place.
Once again, we wouldn’t expect John to deal with his temporary loss of income by failing to properly support the care of his wife, who has a profound disability.
What is more, these necessary investments are affordable if we make smart decisions.
So the way we proceed with these investments is to fund new structural spending with new structural savings.
But, because we now are confronted with new facts and far more significant reductions in tax money than was expected, we are going through the process now of making decisions to spend less in some areas than we had hoped, to raise more in revenue in some areas than we had planned.
Guiding us as we make these decisions is the key principle of burden-sharing.
Because I lead a Labor Government, I lead a Government which understands that the whole of society benefits from the services Government provides.
In turn we believe that the whole of society should carry a fair share of the burden of funding Government, that the whole of society shares the burden of these saving decisions.
The more who share the work, the lighter the load for all.
Business, families, institutions.
Everyone benefits – so everyone contributes.
In the national interest, for the common good.
Now, there are no easy choices.
Of course as a Labor Prime Minister, I find these decisions both urgent and grave.
This revenue discussion is not historical, it’s very contemporary.
There is new news here compared to six months ago – and new news here compared even to three months ago.
Therefore, I have expressly determined we need to have every reasonable option on the table to meet the needs of the times, even options previously taken off the table.
The nation and the Government must have maximum flexibility to deal with these complex – and rapidly changing – events.
That is my approach.
In the Budget, the Government will do the right thing by the nation, the right thing for the long-term.
We will save responsibly, even when that means spending less on things which are important and valuable.
We will invest wisely for the future.
No one will be singled out, the burden of our decisions will be shared across the whole Australian community.
We will not cut to the bone.
That is the Government’s approach – and it is a bright dividing line in Australian politics today.
I began by saying that this Budget will be about a challenge and about a plan.
It will also be about a choice.
Our opponents and their friends crudely flaunt the bitter language of the cut throat and the brandished axe.
We govern for all Australians, we govern to strengthen the economy and to spread the benefits to all.
Those values illuminate modern Labor every day we govern.
I thank you for the opportunity to discuss them with you today.
It was lengthy and I apologise about that – but you had to get the bullshit context in the message and I did not want to allow for ambiguity. If one was to go trough paragraph by paragraph, point by freakin point, lie by lie – we’d be here for a long time as critiqued above.
However – Opposition Treasury spokesperson Joe Hockey came out and gave one of his best response comments ever – watch video of his response here … [A full transcript of speech is not yet available.]
One cannot count the lies masked throughout Gillard’s lengthy address – the biggest lie was again the reason for the revenue shortfalls.
If a Government uses forward estimates based upon unproven new taxes – [i.e. the MRRT and Carbon Tax] – and uses that forecast to spend in the current and next years budget, the Government deserves to be punished for the fallout. More importantly – the people need to know the truth.
Gillard has not had reduced budget revenues – she has over the last three years had revenue increases year on year amounting to:
This is against an average of 6.98% growth in revenues year on year since 1996-97.
Any attempt to tell it different is criminal in its intent. Company Directors would face court and jail terms if that tried to hoodwink shareholders with a lie and misrepresentations like this.
This outrage once again shows how Members of Parliament are at the bottom end of regulatory policing – it shows just how little private sector experience they have and how that inexperience gets the Nation to the position we are now in.
Gillard used a illusionary man named ‘John’ to help paint her analogy to explain the Government’s predicament – it was all spin and polish based on a cover-up to blame the economy and GFC for the reduced revenues. Her speech writer is a novice and also does not understand what it is they do not understand.
In an exhaustive extraction of RBA Budget data the following Table with Chart provides hard data of revenue and expenditure growth (%), and in $dollar terms since 1996-97. [Click on Image to enlarge in a new window.]
In coming days economists will all have their say – and they have their political sway that will dictate what they write – what is published here is done so without such malice but an exposed truth. Gillard is a criminal and that is my gripe – how she became the Prime Minister is what I want someone to explain given her history … Australia needs to know that truth as well …