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EYE-BALL’s Guru on – Wayne Swan’s “Treasury Mistakes” – A Follow-Up –

May 10, 2013
Latest GURU Posts:

– 29th Apr – Wayne Swan’s “Treasury Mistakes” – Heads must roll – Swan and Bradbury must accept responsibility’ –

– 23rd Apr – Wayne Swan’s – “Investment pipeline” – disappearing before his eyes – where does he go for his next ‘bunny excuse’ –

– 21st Apr – Wayne Swan’s legitimacy – He Says … ‘high A$ causes $7.5b hole since Oct ’12’ – He’s a unique type of idiot  –

– 14th Apr – The Debt Clock ticks … Tic Toc … – Gillard just spent another $3,000 – counting the real cost of this ALP Disaster –

– 5th Apr – Superannuation 2013-14 –  the Government’s new Slush Fund – Proposed Changes show SWAN and SHORTEN’s stupidity –

– 4th Apr – Australia’s Parliamentary Remunerations –
– Part III – Superannuation – The Future Fund –

– 3rd Apr – Government not happy about its tax collect – Claims Tax Minimisation deserves ‘Naming and Shaming’ –

– 31st Mar – The Cyprus Bail-out

– 31st Mar – Australia’s Debt – and the idiots Managing the Treasury –

– 20th Feb – Australia’s Parliamentary Remunerations – Part II – Entitlements and Allowances –

– 13th Feb – Australia’s Public Sector Remunerations Part I – Parliamentarians “Base-Salary” and “Additional” entitlements –

– 31st Jan – The Devil is in the Detail, there is none – Gillard chooses shock, awe & Spin over Policy –

– 23rd Jan – The Turmoil is Already here – We just have to accept what is coming –

– 22nd Jan – The Turmoil is beginning – Japan’s Economic Stimulus to tip the scales –

To see more GURU posts: – click here …

– Wayne Swan’s “Treasury Mistakes” –
– A Follow-Up –
| Author: EYE-BALL Guru | 10th May 2013 |
Link to Previous Post in Series:

The media cycle has become polarised around the ‘BUDGET’ black-hole … and the Government’s inability to sell the message that it is not to blame.

Common … nominal GDP verses real GDP … we’ll get to that a bit later …

Then there was the ‘Citizen John’ example Gillard used in her own budget write-down explanation whilst trying to sell another Government mis-direction.

When stupidity and ignorance combined it makes for a special kind of dumb.  Gillard, Swan and all the other Team Gillard neanderthals have constantly shown their preponderance to change their stories to suit the moment.

Australian’s are not buying the excuses for the revenue shortfalls – and they have every right to think that way.  Everybody is looking at this from the wrong angle – the Government has been selling the message that it is revenue writedowns as the reason for the widening deficit.  Every economist out there has happily jumped on board and supported the claims with facts against forecasts and actuals.

If they were good at their job rather than follow the scent laid down by the Government, if they had a ‘light-bulb’ moment and look at the flip side, a place the Government does not want anyone poking around – you will see where the carnage really is.

The Table and Chart presented in the previous post, and again displayed hereto – shows the expenditure growth from 2007-8 and paints a clear picture of how the Rudd and then Gillard Government went on their spending sprees.

[Click on Image below to enlarge Table and Chart in a new window.  The 2013 figures are from latest estimates.]

It’s quite simple really – Rudd came to power in late 2007 – and the 2007-08 budget set under Costello was on target for a monster surplus.   That surplus ended up being $28 billion – by far the largest surplus of any Government in Australia’s history.

From that $28 billion surplus in ’07 – ’08, to a $32 billion deficit in ’08 – ’09 is some sort of crazy madhouse spending spree.  This was still Rudd and we know about GFC educed:

  1. the ‘School Building program’,
  2. the ‘Pink Bats’,
  3. the $1000 cash handout just before Xmas 2009 to all pension recipients, and then there was the,
  4. the second $1000 cash handout to families a few months later.

To get your head around a $60 billion single year increased spend:

  • the total Defence budget has averaged $15 billion per year since 1996 –
  • the total Education yearly spend average over that same 17 years is $17.5 Billion,
  • Health has averaged $36 billion, and
  • Welfare averaged $84 billion since 1996 and the 2009 spend was $124 billion – an increase of $27 billion over the 2008 number.

This was in the middle of a GFC panic and it was global – some four years later the Central Banks spend has proved crippling to all across the Nth hemisphere – Australia claims to have escaped the worst and that optimism is about to crumble.

Rudd’s GFC panic has amounted to short-term gain for a long term pain.  Whatever Rudd’s agenda was to reign in the budget spend was superceded when he was booted in a night of back room deals and Union movement and all to a plan.

Gillard’s appointment gave he and her backers the socialist platform and the stage from where they could execute their agenda.  The spending would not stop and the evidence is there.

To placate alarmist economists the 2012-13 budget was promised to be in surplus and still the new policies and their expenditure rolled out.  Nobody minded because Gillard sounded sincere about the surplus budget in 12-13 … and it was so up until Dec ’12 when the Government came clean and announced it was abandoning its surplus target.   That surplus has now been revise several times i.e.

  1. Nov ’12 from 1.5 billion surplus to $.5 billion surplus,
  2. Dec ’12 from a small surplus to a small deficit,
  3. Feb ’13 due to revenue writedowns looking like a $5 billion deficit,
  4. Apr ’13 due to further revenue writedowns it looks like being $12 billion,
  5. May ’13 revised again when Finance Minister announced that writedowns now look like being $17 billion.

The true is they have no idea … they have put in place irreversible policy spending and the revenues have increased well above trend/average as the table above shows – but the problem the forward estimates created has come back to haunt Gillard, Swan and the Gillard sideshow of Ministers.

None of them can explain because none of then knew from the outset how bad a Treasurer Wayne Swan really was.   Spending is easy when all you have to do is ask … is just plain crazy to believe that in a GFC impacted world  – finding new revenues to fund new spending will happen without cuts in other areas and restraint.

The writedowns from the equity markets since 2008, the property market flatline,  the interest returns in a low-interest rate environment,  whoever did the forecast numbers on forward estimates for:

  • corporate tax revenues,
  • the property negative gearing impact,
  • the increased pension payouts to self funded retirees when their investment income fell off a cliff,
  • the high A$ impact on tourism, trade, manufacturing, retail, agriculture, mining, and
  • the increased subsidies – i.e. the car manufacturing industry

… had to have some idea what was going to happen.

These writedowns should have been obvious to Treasury, the RBA, and Government advisors in economic terms, and the advice would have been given up the chain.

The issue then becomes why did the Government and its policy advisors ignore the obvious downstream impact issues that would arise if they continued with their spending programs?

There was a magnificent opportunity offered up when the A$ v US$ fell from parity to below A$0.50c in the turmoil of the GFC in late 2008 and early 2009.  This happened as off-shore investors pulling their funds out because they saw the end of the resource ‘cash and carry’ trade.

A decision was made then and there that off-shore capital was more important to the Nation than a devalued currency.   Having got the monkey off our backs in that A$ sell-down,  the RBA and Swan invited the carpetbaggers to hop on board again, and that saw the A$ rise just as quickly, retracing all it’s lost value and more within the next 8 months.

Glen Stevens has to wear the ‘dunce-hat’ on this one along with Wayne Swan – why did the Government allow the off-shore investors to return without a levy?

They should have known what a high A$ would mean in terms of long-term trade and labour costs, and was the reason why the Australia’s resources had lifted the value of the currency in the first place.

This mistake has cost the Nation A$trillion’s in lost trade, industry, labour force, and other domestic revenues, and will continue to harm all Australian industry well into the future as we will continue to export jobs offshore.

We are not in the same position as Spain, Greece or any other members of the P.I.G.S – but give us time.

Our real unemployment number is well above 10%, and perhaps as high as 20% if the measure was against those seeking full-time work.  The 960k jobs Swan boasts about having created is made up of near 55% part-time jobs … see Guru post here – the table data to prove these facts is reproduced at right – [click to enlarge.]

The boasts about our 5.5% unemployment is really ‘sock-in-mouth’ stuff … why highlight a weakness and promote it as a strength.   For many years long-term unemployed have been shifted off the number and parked in some other category … the ABS numbers come from sampling and have done so for many years.  If anyone understands the sampling methodology then you know that the error margin in regional areas is very high.

This all gets us to the Welfare spend – the ‘third-rail’ of all politics – you ride it at your own peril as President Jed Bartlett put it – [West Wing] …

Yet a most interesting stat revealed has the ALP government Welfare spending reduced signficantly as a % spend of all expenditures – look at the Welfare spent Chart at right to get an appreciation of the difference – [again – click to enlarge.]

Crazy to believe right – how can an ALP Government spend less on Welfare than Howard did?

To get to that answer,  the Budget Accounts requires a lot more research.  Where else could the Rudd/Gillard tenure spending be hidden in the accounts … that and more information will be forthcoming in another post.  Now to the nominal GDP verses real GDP explanation.

Nominal GDP v Real GDP:

Who out there understands Treasurer Swan when he gets a ‘gimmick’ study from his Treasury baboons to explain away the point he is trying to make. read what Wikipedia has to say about Nominal GDP

Nominal GDP and adjustments to GDP

The raw GDP figure as given by the equations linked here is called the nominal, historical, or current, GDP.

When one compares GDP figures from one year to another, it is desirable to compensate for changes in the value of money – i.e., for the effects of inflation or deflation. To make it more meaningful for year-to-year comparisons, it may be multiplied by the ratio between the value of money in the year the GDP was measured and the value of money in a base year. For example, suppose a country’s GDP in 1990 was $100 million and its GDP in 2000 was $300 million. Suppose also that inflation had halved the value of its currency over that period. To meaningfully compare its GDP in 2000 to its GDP in 1990, we could multiply the GDP in 2000 by one-half, to make it relative to 1990 as a base year. The result would be that the GDP in 2000 equals $300 million × one-half = $150 million, in 1990 monetary terms. We would see that the country’s GDP had realistically increased 50 percent over that period, not 200 percent, as it might appear from the raw GDP data. The GDP adjusted for changes in money value in this way is called the real, or constant, GDP.

The factor used to convert GDP from current to constant values in this way is called the GDP deflator. Unlike consumer price index, which measures inflation or deflation in the price of household consumer goods, the GDP deflator measures changes in the prices of all domestically produced goods and services in an economy including investment goods and government services, as well as household consumption goods.

Constant-GDP figures allow us to calculate a GDP growth rate, which indicates how much a country’s production has increased (or decreased, if the growth rate is negative) compared to the previous year.

Real GDP growth rate for year n = [(Real GDP in year n) − (Real GDP in year n − 1)] / (Real GDP in year n − 1)

Another thing that it may be desirable to account for is population growth. If a country’s GDP doubled over a certain period, but its population tripled, the increase in GDP may not mean that the standard of living increased for the country’s residents; the average person in the country is producing less than they were before. Per-capita GDP is a measure to account for population growth.

Here is a YouTube clip to help you understand –

In Principal it’s part of a card shuffle number crunchers use to confuse the audience when numbers don’t give you the answer you want.

This was Wayne Swan’s explanation … [the GDP explanation begins near the 5min 30sec mark.]

I counted 50+ outright lies Swan told to cover his mistakes and incompetence. The lies are subjective if we use the ‘nominal’ verses ‘real’ argument …

Blaming the high A$:

Swan uses the high A$ value as a reason for revenue writedowns – yet the A$ has been well – some 40%-50% above its mean average – [A$0.75c v US$] since the float in 1983. No Government has used the value of the A$v as a reason previously – yet it has been at these levels for over 10 years … it is desperate in the extreme to blame revenues when they have actually grown at 7%+ in 2012-13 and above trend of 6% since 1996. The 2012-13 forecast revenue growth at 25% to cover the expenditure that had to be funded to allow the Government to bring its forecast budget surplus in when they announced the 1012-13 budget in May ’12.

Blaming the Treasury Forecasts:

Yes – that’s right – the Government knew in May ’12 that it was selling a budget that misrepresented the facts. The Nov ’12 review revised it ever so slightly – and four months later is was a $12 billion budget hole, and now it is a $17 billion budget hole.

Treasury don’t make these mistakes – or are we to believe that the $11 billion black hole they found in the Coalition’s 2010 election policy initiative might have been equally wrong. It raises more questions then it answers.

Are the Treasury ALP stooges … are they prepared to ‘cook’ the books for political outcomes?

Truly legitimate questions now that the modeling used to predict the surplus has proved to be so horribly wrong.

No matter who the Government, i.e. Swan, Wong, Bradbury, and any other MInister or spokesperson sent out to sell and gift the media the next story in this crumbling facade – the reality is that Government’s lock in spending via policy’s they make to win elections.  Been happening for 40 plus years.

The revenue side of the equation comes after the fact and if they screw-up the economy then we get to where we are now.

The high A$ has cost Australia $trillion’s in trade, revenue, GDP growth, and many other connective opportunities over the last 10 years or so … yet no one thought to think about currency intervention to protect the economy – hell they still think it is wrong to do so despite RBA Governor Glen Stevens comments made when he announced the .25% interest rate reduction this week – see comments here.

For the educated observer and some who understands logical argument – Swan has no creditability, nor any entitlement to be a Treasurer.   His baboons beneath him are appointed on the basis that are not allowed to be any smarter than Wayne Swan.  In fact that type of hiring mentality is across all the public service hiring policy.  It’s the reason the asylum has been taken over by nutjobs – nobody has a clue from the top down.

Abbott and Hockey have their work cut out because in matters of finance – they hold no better credentials that Swan or any other of the current bushranger pack.

You have to be able to trust the Treasury modeling if in fact it is not doctored for political outcomes.  For Treasury to have got it so wrong creates a smell that just won’t do away.

Was Gillard’s forcefulness and commitment to her agenda of spending – when stacked up against a choice for the bureaucrats to either do what I tell you to do, or find another job, the reason they are being blamed for getting it so wrong?

Support argument comes in the fact that the Public Service offers very generous perks and the like – and rather than lose those benefits, senior bureaucrats and the like shut their mouths and do as they are told.

It would seem that integrity, or the standing up for what you believe in is no longer regarded as a personal quality required to work in Government anymore.

Another piece of advice for Mr Abbott – sack every Department head and three rungs down when you take office – hire people from the private sector on MP parliamentary ‘base salary’ levels and offer a bonus to those who get the job done.   Use the – ‘Serve your Country’, or ‘your Country needs you’ motif to sucker some high flyers in to give back.   I don’t see it happening – but you can only try to improve the collective brain value of so-called experts in the Treasury.

The next Guru post will be about the Budget Expenditure breakdowns …

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Have your say where it counts: – contact your Local Federal Representative via the links below and let them know how you feel about this, or any other topic that you feel strongly about – or you can just post a comment below and let off some steam.

The EYE-BALL Guru …

  1. Barry M
    May 11, 2013 at 7:49 am

    I like your advice in the last paragraph.
    Abbott just needs to make sure he does not employ the ones who DID NOT have the backbone and morals to support the Coalition on IR in the run up to the 07 election but rather chose to hide behind the ‘skirts’ of silence. Those so called ‘business leaders’ are now happy to be full of supreme wisdom and criticism of Abbott’s current policy because it does not fit their bill.
    A bit ‘off topic’
    Blind Freddy knows there has to be change in IR laws but the ‘think tankers’ from the right who are also screaming and throwing their dummies out of the cot because Abbott is not going far enough need to take a cold shower. There is not enough of them to vote Abbott into power by themselves, he needs a few votes from the public as well to get over the line. And if I recall the voters thought that far right IR laws in 07 were a step to far and voiced their opinion at the election. Wakey wakey Roskam, Wilson and followers, brilliant minds also need a dose of nous.

  2. May 11, 2013 at 9:10 am

    Barry M,

    You have some idea of what is coming – our labour costs have priced us out of the global market – our resources are too expensive given the St African, Sth American and Mongolian options coming on line.

    I can’t see our population accepting forced pay reductions and mass job layoffs although it is happening via reduced work hours and the relience on part-time jobs growth.

    But in the context of IR rules … the Unions will be on trial and hopefully the full extent of the corruption becomes exposed post Gillard – and that is a maybe at best – but it will take a year or two and but by then the globe will be a diferent place … and Australia’s place perhaps dictated to by others …

    The future is a empty space of leadership that can inspire a Nation to believe in itself … the globe is devoid of such leadership, and in the dark times ahead surely someone can step up … I don’t think there is anyone smart enough on the planet to fix the problems coming … and it is all of our own making and reflects the apathy we have all been conditioned to …

  3. david the pragmatist
    May 12, 2013 at 11:11 am

    Comment begins: Peter Costello …

    12:15pm 12th May ’13: This comment has been removed because of plagiarism issues

    The Moderator.

  4. May 12, 2013 at 11:16 am

    Last I heard ‘plagiarising’ is a crime – if the content in the above comment is pasted from another source – please clarify that source with an accreditation …
    You have a limited time to comply before the comment is removed.

  5. david the pragmatist
    May 12, 2013 at 2:05 pm

    If you want to play it that way. I did not represent as my view as much as ” a view”.
    I wanted to qualify it after the comments as an example of the bias that exists in economic discussion. ie If I disclosed the source the attack would have been against the individual or publication ie playing the man rather than the ball to quote your parasitic correspondents.
    If you like you may alter the opening “to recently published views on the Treasury Management by the current and former governments is reproduced hereunder”.
    If the discussion develops where I need to qualify the writer I will. It is not so much a representation of an opinion as a representation of a series of information.
    ie if a correspondent says ” who wrote this” I will qualify same. But I will be intrigued to see the type of debate that may ensue.
    I accept your view of plagiarising, but I am not taking credit for it, or even qualifying it.
    It is up to you how you want to demonstrate the fair mindedness of your site!

  1. June 15, 2013 at 9:58 pm
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