EYE-BALL’s Guru on – The Wayne Swan 2013-14 Federal Budget – Special EYE-BALL Guru Report – The Economic Triggers Part 2.5 –
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– 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 –
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– The Wayne Swan 2013-14 Federal Budget –
– A Special EYE-BALL Guru Report –
– The Economic Triggers Part 2.5 –
| Author: EYE-BALL Guru | 28th May 2013 |
|Links to previous posts in this series about – “The Wayne Swan 2013-14 Federal Budget” – A Special EYE-BALL Guru Report:
List of Chapters in this Post:
Economic Trigger – Unemployment:
Employment and Unemployment is a result of economic health – it has a ‘double-whammy’ effect in good times and in bad. As employment grows and unemployment falls, the Government collects more tax and pays out less welfare. If employment falls and unemployment grows, then tax revenues are down and welfare payments are up.
The Table at right – [Click on Table to open and enlarge in a web browser window.] reproduces the ‘Unemployment’ numbers forecast in successive budgets since 2007-08.
The ‘actuals’ result versus the forward estimates make for some interesting assumptions.
For example the 2008 forecast for 2009-10 was for 8.25 % unemployment ton the back of the GFC crisis. In 2009-10 the forecasts for 2010-11, 2011-12, and 2012-13 were also high relative to actuals and again were in fear of the GFC impact.
These high forecasts meant the budget expenditures had high welfare numbers that were never needed as ‘actuals’ proved.
In fact the savings in the ‘Unemployment’ expenditures should have been a reason to celebrate. The 2009-10 forecast of 8.25% against an ‘actual’ of 5.2% measures an error factor of 3.05% or 37%.
The budget savings on this number from a 10.971 million employed workforce – [see Labour Force Table overleaf] would be roughly 350,000 jobs. With a fortnightly Newstart allowance payment in 2010 of near $550 at the time, the budget savings equates to near $5 billion.
The budget deficit in 2009-10 was $56 billion against a 2008-09 forecast of a $22.4 billion surplus. The $5 billion windfall savings makes the deficit look even worse.
Similar errors were made for the 2009 forecasts for 2011-12 unemployment numbers – i.e. forecast was for 7.5% against actuals of 5.1%.
Two things – the GFC was an easy excuse to lift unemployment forecasts, and the resultant savings from reduced actuals were never used to increase the forecast surplus – i.e. the $22.4 billion forecast became a $56 billion deficit. What is $5 billion in Unemployment savings going to do against a Government with a Budget deficit some 400% off target.
The flat line context in the forward estimates for Unemployment numbers across the 2012 and 2013 budget estimates will look challenging as job losses across the Nation continue to mount over plant closures, and resource industry wind-backs.
And all as a direct result of the continued high A$ impact on competitiveness in manufacturing and other export related industries since before the GFC.
The ABS produces the Labour Force numbers monthly and based on ‘sampling’, after adjusting for seasonal factors and a six-year smooth average.
It’s a ‘bullshit’ number pumped full of bureaucracy steroids to give the best possible numbers.
For example – when Swan and his fellow Ministers brag about 971,000 jobs created, what he should say is that there have been 493,000 full-time jobs and 478,000 part-time jobs.
[See Table Below: Click to enlarge in a new window.]
The liar illusion Mr Swan promotes along with all his Parliamentary colleagues is the economic prosperity we all enjoy because this Government has created this number of jobs …
The reality in the Table of Labour Force data above is that average monthly hours worked has been falling since the early 2000’s – down from 145.3 to 140.4 hours per month in Mr Swan’s term as Treasurer.
Also, every December/January some 200,000 school leavers begin to look for work. Come mid-January and if they have not found work they join the ranks of the un-employed.
This number is ‘smoothed’ by the season adjustments and the six-year average – i.e. every new month or each year a number from six years ago drops off … it is hardly a true indication of real un-employment in the now time frame …
People on un-employment who are attending courses are also treated differently, as are long-term unemployed … in fact the ‘un-employment’ number could not be more ‘doctored’, and when forecasting the number for budgetary purposes economic forecasts are about the best guess any forecaster can employ.
The job losses in the last 3-4 years because of the High A$ cannot be measured. Ford sacked 1200 employees a week ago – that was currency related – all the tourism workers now gone and working in mines are somewhere else – a 40 year industry build on Hogan’s ‘throw a shrimp on the barbie’ is in trouble.
Australia produced raw materials, the resources are shipped offshore for ‘value-added’ improvements, and then we import it back here as ‘trinkets’ from China that in six month’s time is on a scrap heap somewhere.
What are Australia’s strategic fuel reserves – information to hand suggest we have about a fortnight’s fuel supply and with refiners shutting down operations because of the High A$ – what happens if we’re held to ransom by a trading partner supplying us with refined fuel or oil …
One of the major failings of all Governments in the past has been in identifying essential industry and business to Australia’s needs, and making sure those industries serve Australia’s interests.
Turning iron ore into steel for example – we’ve shut down most of our steel mills because of the high A$ and cheaper offshore labour costs.
We’ve also exported the emissions associated with the industry to offshore Nations with less than ‘best practices’ for the environment. We still need the steel and when we buy it back at a multiple of the price our miners sold it for – that difference equals Australian jobs.
If world commerce carries on and turns the way it is – eventually we’ll be depended for everything … and what will that do to jobs – the only growth industry will be aged care and euthanasia casualties – i.e. mortuary’s.
Economic Trigger – Real and Nominal GDP Growth:
Addition Research: link to previous GDP comments in Part 2.3
The name GDP stands for Gross Domestic Product and is an index measured formula that looks like this –
The formula is simple, when a Government increases its own budget spending, GDP growth will reflect that spending.
When Mr Swan brags about Australia’s economic climb to 12th on the list of ‘nominal’ GDP rankings – his spend over the past years via massive deficits has fed to that growth. The GDP growth is not natural but Government induced and all for a cause that is beyond sinister when Swan brags about the same growth factor because of good economic management.
Look at the last four years in the Chart above – it shows the impact of large deficits on GDP growth [2009-2012] – as compared with 30 years of previous GDP numbers: [click chart to enlarge in a new window.]
The Swan growth years are manufactured, and knowing what Australian’s now owe – can we ask Mr Swan to give us his reasons to borrow the way he has against the consistently promised budget surpluses?
To make the analogy – the 2012 deficit was $47 billion, and the deficit for 2013 is now forecast at $20 billion.
Does the fall in GDP from actual 3.5% in 2012, to the presumptive growth of 2.6% in 2013 have a connection with the reduced budget deficit?
Definitely – the past years Government expenditure as a factor of the GDP number has averaged A$7.6 billion since 1980 – [i.e. the Government spend as $ factor of GDP]
Another way to look at Government spending as an impact on GDP is to divide the Government Expenditure into the GDP number – this yields a GDP ratio for every Government dollar spent.
In the last four years the GDP impact on Government spend is at its lowest level ever. The ratio of the Swan years is A$4.1 billion. See Chart above: [click to enlarge in a new window] – that means Swan’s spend is getting less bang for the buck spent.
In 1980 under Fraser every A$ billion Government spend yielded $16+ billion of GDP growth. In the last four years it is near $4 billion – meaning spending power by Government in the economy is a quarter what it was 30 years ago.
This can be seen is a good thing – it highlights the diversity of the economy at large.
The GFC and the Response:
There is no doubt that the GFC had Global impact and the visible severity was contained to Europe and Nth America.
Western economies and their Central Banks instigated QE policy’s to flood money into the banking system to prevent it collapsing.
Out of that came a greedy Bank response – they took the monies and locked it into liquid assets – i.e. Government Bonds and the like. They made a decision to not lend the funds because they had capital issues and the GFC downturn meant businesses were failing all over the place.
The Banks perspective was to watch the economy meltdown and survive … they were happy to see jobs contract, house prices plummet, and small businesses go to the wall. It vindicated their choices and the Central Banks were stumped.
Governments were pissed, so they had another go and targeted more spending directly at households, this also failed – rather than spend the money to fuel consumption, the people largely paid down debt.
Now Central Banks and Governments are hesitant to print more funds as growth shows little signs of recovery, jobs growth in Europe is non-existent, the US is showing some signs of recovery, but by and large, Western Nations are still hovering over the abyss …
Some 4-5 years after the event EuroZone Nations like the P.I.G.S. continue to suffered under the Euro currency preventing offshore investment. This will ensure the Euro crisis continues indefinitely until Nations opt out and retake their currency and let it devalue under market forces to levels where their population can compete on a global stage.
Example – would you travel as a tourist to Greece, Spain, or other P.I.G.S. Nation if the value of their own independent currency was a third of what it is now under the Euro value?
Mr Swan’s challenges with GDP are on show via several data base sources.
Australian Bureau of Statistics [ABS], RBA, Trading Economics, IMF, CIA, UN, World Bank, and then there are the private researchers tapped into all these resources looking for insight into where the numbers just don’t add up.
Table 4 at right is sourced from ABS database. The Year on Year [YonY] number is the hard data averaged. The [+/- Mean Avg] column is the variance from the mean average.
The construct of this Table provides patterns of GDP growth that extend or contract from the average.
The chart below plots the recessions in true context over the last 30 years – 1982, 1991-2, [the recession we had to have], late 90’s [Asian crisis], early 2000’s [9/11]. The Chart also shows the weakness since the GFC [2008 – ].
This chart is complex in its compilation – the GDP real and Nominal were averaged over the 1981-2012 years. The % growth of each year was then measured against that ‘mean’ average.
Swan tells us that we avoided recession – [recession is defined as 2 negative quarters if GDP growth] – but if Government stimulus propped up the numbers – i.e. exchanging debt for good numbers – the price to be paid is just shoved downstream for the next guy to deal with. In fact this has been happening by successive Governments globally since the 70’s.
It is obvious that something happened to the value of ‘Nominal GDP’ verses ‘Real GDP’ in the 1991-92 Recession. Nominal GDP turned negative against mean averages and only recovered to positive numbers in 2007, ‘08, and ‘11. This points to the impact on Nominal GDP because Inflation targeting has been working.
To help Mr Swan explain away the so-called ‘revenue write-downs’, he has gone to great lengths to blame the relationship between ‘Real’ and ‘Nominal’ GDP as the reason.
The Chart above tips ‘crap’ all over Mr Swan and his debate reasoning.
The explanation difference between ‘Real’ and ‘Nominal’ can be read using this Wikipedia source link.
It would appear Mr Swan and his Treasury advisors get it that as inflation banding, [CPI] narrows and the real cost of money tracks down – the difference between ‘Nominal’ and ‘Real’ GDP growth also narrows. This is simple is it not.
For Mr Swan to promote this natural result as responsible for revenue write-downs is a ‘long-bow’ … and put out there in the hope that nobody will understand the mis-direction it comes with.
Further evidence of the impact of Government spending on GDP growth comes from the Chart below.
Over a 30 year period, Government Expenditures have grown from 6% lows in the early 80’s, to the 25% averages under Wayne Swan. This by the definition of the formula means as Government expenditures rise so does the impact it has on GDP growth.
Mr Swan boasts about the record GDP growth under Labor, and how Australia now ranks 12th in the world and overtaken a few GFC affected Nations. He also uses his favourite catchcry headlines when he fronts the media to respond to economic releases including – ‘contained inflation’, ‘new job creation’, ‘low interest rates’.
Regardless whether the numbers be good or bad, Swan’s intent is to brainwash Australian’s into believing the Government is doing a good job in managing the economy.
To believe that would be wrong. Mr Swan claims credit for the inflation and low interest rate success’ – yet the contraction in Nominal GDP growth as a result is blamed for revenue write-downs. Mr Swan can’t have it both ways …
The Chart overleaf plots Government expenditures as a % of GDP against the year on year growth of Government expenses – [click image to enlarge in a new window – sourced from Table 5 below.]
Between the early 1990’s and 2007, the range of Government Expenditures as a % of GDP was between 13-17% levels. The jump to 20%+ levels started with the GFC spend in 2008 and has continued for all of Labor’s time in office.
Yet the evidence in hindsight suggests that Australia escaped the worst of the GFC crisis. In fact there was no real GFC impact in Australia and the Government stimulus used was largely a taxpayer spend that was not needed.
We were untouched other than the flight of capital that drove our currency from parity with the US$ to below A$0.60c in a few months during 2008. By the end of 2009 the currency had regained all of its losses and went on to reach highs above A$1.10c.
This is summarised by the actions of offshore investors who realised Australia was immuned via the China demand for resources, and the money flooded back in with additional new money that drove our currency to above the A$1.10.
It has averaged around the A$1.04 ever since the GFC impact. See A$ v US$ Currency chart link here.
There were two shocks associated with the GFC – the first happened early 2008, and the second after the Beijing Olympics in Oct 2008. For the next six months the markets were in turmoil.
The Rudd stimulus packages were rolled out through the 2008-2010 years. The ‘expenditures’ in the above chart over the 2008 -2013 years have shown growth levels year on year never before seen.
The trend in growth is indicative of Political Leaders misjudging the understanding of economics.
Politics is now the bigger story and that stems from increasing political egos fighting for the media limelight. Forget the truth and honesty of the numbers being produced by the Government, selling a message to mis-direct opinion has worked for Mr Swan all the time he has served as Treasurer. Mr Swan has never offered humility – only hubris at those who wish to point out the obvious mistakes made.
Winning Government has become about the ‘candy-store’ giveaway and that led to the reasons for the GFC – debt upon debt upon more debt. And since the GFC – it has been more debt on top of more debt and so on.
If one was to point to a reason for the GFC – it is easy to conclude that the rise in Government spending as a ratio of GDP across the globe over the past 40 odd years is a major reason.
If the Swan Budgets were produced for a public listed Company in any Nation – he and his Treasury cohorts would be in front of the Courts explaining how they could justify the expenditures based on unproven revenues.
Government has to learn to understand finance, the cost of money, and its true value relative to our major trading partners.
There are many lingering thoughts – Howard and Costello were very generous with ‘middle-class welfare’, and all through this ‘handout’ phase, the budget surplus kept on growing as did the health of the economy. Why?
A Question: Are Middle-Class welfare recipients more likely to spend the Government handout on consumables that feed to economic growth, as opposed to low-income earners who use welfare for basic needs, i.e. rent, mortgage, essential living costs …
See GDP Explanation above understand the difference between Nominal and Real GDP – and/or linked here …
Nominal v Real GDP Year on Year – [click image to enlarge in a new window.]
The gap between Nominal and Real is obvious. In the Chart below the relationship with CPI is also obvious.
Nominal GDP Year on Year v CPI – [click image to enlarge in a new window.]
The CPI shape up against the Nominal and Real GDP growth patterns in the charts used above does not support Mr Swan’s assertion that ‘Nominal v Real’ GDP numbers are to blame for his so-called Budget forecast revenue write-downs.
A better explanation would be that the revenues were inflated to support the expenditure targeting. And/or – that the expected MRRT and Carbon Tax forecast revenues did not materialise.
All this series of Charts demonstrates is how targeting CPI growth flattens the difference between Nominal and Real GDP comparisons.
This is common sense really – as inflation targeting works and volatility wanes, the value of Real GDP v Nominal GDP adjusted for CPI increases, has to reflect the same narrowing and consistency of inflation performance.
The Federal Budget Papers were not reporting on this number or forecasting it prior to Swan’s appointment as Treasurer. Someone told Mr Swan about the stat and Swan took the bait to use it to confuse media scribes who knew nothing about the resource measure.
In the next Chapter the Debt to GDP ‘Economic Trigger’ is examined.
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