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EYE-BALL’s Herman on – Federal Economic Update – A conjuror’s spin –

August 2, 2013
Links to Previous ‘Herman’ Posts:

– 17th July – Constitutional Reform – This time it is recognising Local Council.

– 5th July – Gone – Ski Part II (Gone is Gonski)

– 27th June – Gone-Ski: Prime Minister Julia Gillard

– 24th June – The Ashes

– 21st June – The Senate

– 5th June – Zombies

– 1st June – Canberra – and black holes

-30th May – What is an adequate Contrition?

– 24th May – Simplex

– 19th May – The Tears of a Prime Minister

– 24th Mar – An Example of bureaucracy gone mad

– 10th Mar – The Carbon Tax – Post Election …

– 7th Mar – Wayne Swan – Please Stop

28th Feb – The Australian Labor Party View

– 6th Feb – Corruption

– 25th Jan – Anti Discrimination

– 17th Jan 2013 – Atheism

– 12th Nov – Hegemony

– 2nd Nov – A March early Federal election

To see more EYE-BALL ‘Herman’ posts:

click here …

– Federal Economic Update –
– A conjuror’s spin –
| Author: EYE-BALL’s Herman O’Hermitage | 2nd Aug 2013 |
Some have termed it a mini-budget. Unless it is debated on the floor of parliament it is not that. It will not be passed into law until after the election. It contains updated Treasury estimates. The deficit trajectory is now for a fiscal deficit of A$30.1bn in 2013/14.

It is yet another ALP policy statement. Everything that has occurred since Rudd ascended back to the lodge, is another roll of the dice, attempting to reverse the contrarian opinion polls since early 2010. Virtually nothing has received scrutiny through parliamentary processes only trial by media. Each roll of the dice is asking us the electorate to give them another chance. Given the tardiness or lack of merit of the opposition we continue to grasp at any other alternative.

That is particularly what the opinion polls are saying. There is no realistic choice.

When the budget was passed down in May, I was deeply shocked to find a structural deficit approaching $20bn. I expected a deficit approaching 10bn. Gillard has gone, Swan is gone and so on but Swan is standing again for Lilley, and more. Wong switched camps, and Dreyfus and Burke (it all doesn’t really matter). Hey Bob Carr appointed by Gillard switched horses mid race.

The real problem was how do you reverse the structural deficit when GDP is under immense pressure, where cutting government consumption will make things worse? The deficit and government debt prior to last May (at that stage of the economic cycle) was totally inappropriate. Stimulus was required rather than cutting federal government spending.

Anyone who said the bleeding obvious, that a recession by 2015/16 is becoming more probable is guilty of talking down confidence. But should you quietly speculate on this bleak outlook, then that is OK because that is called free markets. Not predatory behaviour.

Costello did well to put a surcharge on superannuation drawing from future spending rather than current spending in the late 1990’s but it came at a cost. The cost of reversing the policy and compensating in time for the cost, the desecration. Some might even argue the reversal was the seeds of part of today’s problems but I see that as part of the overall stresses created by the ensuing mining boom.

There was a major economic policy shift in November 2007 and from there onward. Australia started running substantial fiscal deficits. With every turn of the page, government ramped up consumption.

The package today at 1pm AEST is currently all about bank’s deposit insurance and tobacco excise. Each are worthy of careful scrutiny but they are also a major smokescreen.

Unemployment has risen. Volumes to export for the major miners are up in coal. A glimmer of hope has appeared for the live cattle trade, with prices stabilising. The AUD has fallen to just below 90, to assist terms of trade. Several sectors of the broader economic spectrum are doing well, as measured through ASX performance. But WA property prices are weak, the mining services sector is sick, the signs are mixed. The problems of major sectors like SPC Ardmona in the Shephardon and Goulbourn valleys are insignificant compared to those like the car industry.

On Wednesday morning local radio featured a story of Mark who is sleeping rough on the steps of Parramatta Town Hall. He had a job once , but when he was made redundant he sooner or later found himself on the street. When you couch surf, sooner or later you burn your friends. You outstay your welcome. Surviving on $220 a week is impossible. You can’t afford rent. You can’t save a deposit bond, or an electricity deposit. Vagabonds drift towards Parramatta because of the meal van each night at Prince Alfred Park. Sooner or later all your worldly possessions are moved around in a shopping trolley. The fridge and TV and stereo were hocked to pay bills a long time ago. There is a core group of men sleeping rough in the Parramatta precinct of 40. The aid services are stretched. No one would consider hiring you or giving you a job. You are sleeping rough, and generally considered to be of poor mental health. Definitely dishevelled unwashed and unkempt.

Mark was very well spoken, and it was radio, so I can only wonder was it all a political beat up?

But the story is indicative of what is really happening out there, of the long term unemployed, how it breeds mental health issues, of those struggling to find hope. Those who know of a better world, but are on the outside looking in. Too often cold and hungry.

So today while we speculate on the price of tobacco and the efficacy of bank deposit insurance, both designed to distract from the real issue ie the fall in government incomes (taxes) and the excesses of federal parliamentarians, do we spare a thought for Mark or Mary (the single Mum) or Ralph (the alcoholic) or Beryl (the broken grandma – who hasn’t seen her grandchildren in over a decade for whatever reason).

The more I dwell on it, the more I dwell on the speech I made at 7.45am on election day 3 years ago. In 15 minutes those doors will open and we will go into a working frenzy. We will assist the little fella to play his part in our democracy. We are the servants of democracy. Today we are expected to help those little people cast 4000 votes. Each polling assistant is expected to serve 600 local electors, and each declaration officer is expected to help cast 100 votes. Today is the one day in the 3 year electoral cycle when we get to hear from them. We have heard enough of the politicians and all their promises. Today it is the little persons turn. The ones who to get to have their say every 1100 days. We will treat them as the voice of democracy. Etcetra.

Within a fortnight of that day as the counting was pointing to a hung parliament, the media was in their speculative frenzy, could we have true bi-partisan cabinet, should we go back to the polls, the futility, the chaos and now nearly 1100 days later, just the void.

Today as the Australian Bankers Association threatens how if a deposit insurance tax is not implemented properly, it could jeopardise the core strength of the banking sector – that is a euphemism for the banks who each make roughly 6bn per annum will pass it on to the mortgage sector.

0.05% deposit insurance can be passed onto term deposit rates, but can it be passed on to savings accounts where nominal interest is 0.10% (before outrageous fees).

Without going on to tobacco excise, Canberra misses the point. When they talk of Public Service productivity savings of 2.25% (having risen from 1.25% last May – in the forward estimates) it is hollow – it is rhetoric, it is pyrrhic. As a financial planner you talk about discretionary spending.

If Canberra be serious about cutting discretionary spending they might start in their own backyard. During this parliament Canberra (the Productivity Commission) awarded themselves pay rises of 30% (according to some 40%). Only weeks ago they were discussing new electoral funding measures.

How about cutting parliamentary wages by 10% (make that 20%) and cap parliamentary expenses for the next term at 80% of parliamentary expenses for the current term (about to expire). The flow on to senior civil servants will start a meaningful dialogue. That will really affect discretionary spending.

Nextly get tough with the banks. WE ALL DRINK from the same well. Your sector’s health is not beyond that of the household sector or small business. Any bank paying any executive million $ bonuses we are watching! We have levers we will use to curtail your excesses! Why do you charge the destitute silly fees (without decency – yet encourage this deregulated nonsense)?

Then comes real change with the public service. This word we use called Productivity is becoming an oxy moron. It is mixed up and abused, with regulation, green or environmental and culminates in red tape. All projects will be affordable. Cost benefit will become a core value embodied in all mission statements. Transport will be affordable and efficient. Taxes and charges must be justified, or eliminated. All types of cash splash will not fall on the household sector or small business. There will be no new taxes in the next 3 years.

And it will go on.

And On.

Don’t forget -This will be implemented by Christmas.

Everything we are currently hearing is nothing but spin. The spin of the conjuror. It is that stage of the electoral cycle. It is time to hear from the little fella. But he has no idea what to think.

What might I say on election day this year.


Believing in sanity, is itself insanity.

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EYE-BALL’s ‘Herman’ …

  1. Suzanne Crawford
    August 2, 2013 at 6:31 pm

    “Deposit levy” means more than a tax on interest payments. My understanding is that every deposit will be taxed at 5 points. If those same funds are then deposited into another account, another 5 points. I hope I am wrong, because this is far more swingeing than a tax on savings. Hard to get any detail from ALP on this.

  2. August 2, 2013 at 8:44 pm

    Herman – you have often spoke of a ‘Super Tax’ on the Banks – this lame 5% levy on deposits is hardly an equitable measure. What are they affraid of?

    The last 5 weeks of the Rudd Carnival has allowed the media to soak up the cheer in the Gillard demise, but the ICAC reports into ‘Jasper’ and ‘Acacia’ inquiry’s were always to be released at this time – how shallow and blinded our media behave … all that print, words, and speculation and all the time the ICAC inquiry was going to be released in the middle of the election …

    The timing of the Gillard election was lmown to be in the middle of all this corruption revelation report … was it planned that way or was it that Gillard knew she would be gone and the after taste she would leave behind bittersweet? What a wicked person if that be so …

    All those who slid back across the ALP line are now about to slide back – especially in NSW … the RUDD shine just got crapped upon …

    Your view as to the ‘who should lead’ us is unclear … but choices in who we don’t want to lead us are … is it an election where we want to see who loses worst, or about who we don’t want to lead us.

    No Winners there …

  3. Herman O Hermitage
    August 2, 2013 at 9:17 pm

    Dear Ms Crawford,
    Nobody knows.

    It is not properly debated – it is not understood.

    The Greens (and before them the Democrats) loved this concept of a transaction tax. A tiny insignificant tax on massive volume. Neither Bowen nor Wong want you to understand.

    This is not law but a policy statement.

    What we all understand is that in each fixed period, we receive a fixed income, and we need to try to rationalise our expenditure. When those unforseens – like 10% electricity price increases happen we struggle. We have to defer our expenditure. Sometimes it might mean the kids go without a new pair of school shoes. Sometimes we might have a stay at home holiday. Instead go to the movies and the zoo and get some more videos. Maybe even buy some microwave popcorn. But each use extra electricity or have on cost.

    She indoors does not see her paracetamol, bottle of minchinbury or makeup as luxury items, nor does the old man see his beer or fags as a discretionary spend.

    When you live in the lodge, you holiday at Kirribilli. You don’t pay for booze. Kirribilli has a wonderful cellar. All you need to do is invite any old public figure to dinner and all expenses are on the house. Kirribilli house.

    Gee one PM – had his daughters engagement party and wedding at Kirribilli. No one knows whether he paid for the marquee or champers out of his salary, you see he is the PM and it is very important you know beyond, way beyond public scrutiny.

    They are known as perks of office.

    Only in very few positions do these perks of office exist.

    Who gets to determine their income. Chief Executives, Prime Ministers and all other parliamentarians (and therefore civil servants) and who can control their expenses.

    Sadly the only answer is;

    who cares (maybe politicians every three years)

  4. Herman O Hermitage
    August 2, 2013 at 9:19 pm

    It is kind of funny;

    My second daughter’s married name is Crawford. But she was never Suzy.

  5. Herman O Hermitage
    August 2, 2013 at 11:36 pm

    A super tax on banks is not easily explained.

    No major bank has been formed within our lifetime. The barriers to entry are overwhelming.

    The Australian and New Zealand Bank so named in 1959 (ANZ) was an amalgam of the Australasian Bank and Union Bank of Australia. Every bank of significance goes back well over a century. Every bank. The Commonwealth Bank might be the newest name of Australia’s big 4, some might argue Westpac. The Bank Of New South Wales (Westpac) is 1983 or 1817

    Some of the newer names like Macquarie (1985) are formed from Hill Samuel Aust Ltd, yet truly new start up like Australian Bank (1981) were doomed to failure through thin capitalisation. Suncorp Metway is an amalgam of Building Societies (not really that significant) dating back to 1930’s or 1950’s and government insurance businesses (SGIO).

    Talk to your friends (Community Bank – Bank of Adelaide) and try to start up a bank under the Banking Act 1959, and the barriers to entry are enormous.

    Heritage Building Society could compete, so could Bank of Queensland, but now look at Wankbest (Bankwest) or Rams or any other real force in their time (St George, Bank of Melbourne or even RBNZ) they are ultimately taken out by old names to kill competition. When they fail, SBV, SBSA Australian Bank, former Bank of Adelaide (Finance Corporation of Australia) then the RBA taps one bank on the shoulder, and tells them, make a bid.

    When ANZ merged with former Bank of Adelaide circa 1981 their profitability was enormous. At that time Bank of NSW were too busy working on Commercial Bank of Australia, and National on Commercial Banking Company of Sydney.

    I told you it was complex.

    With these major barriers to entry, comes the part of ASIC, APRA and RBA. When Macquarie were on their knees post 2008 (after Babcock and Brown) it was thought that should Macquarie not meet a call on their liquid assets, then the lender of last resort will be the Big Four – collectively. The take out would be ANZ 25%, CBA 25%, NAB 25% and WBC 25%.

    At that time there were questions over ANZ, and lesser so CBA. Each declared substantial impaired assets. Macquarie Bank is today healthy but desperately trying to re invent itself. A bank of diversified income streams.

    Now parallel all of this to Broken Hill Prop Ltd. Formed in 1890 (ish) in far west NSW as a silver lead and copper miner. Took over Australian Iron and Steel and Comsteel. Discovered Bass Strait OIl, and on, and on. Merged with Billiton 2001. As part of its acquisition of Western Mining Corporation acquired uranium and silver mine of Roxby Downs. Very questionably the big Australian. No real difference to RIO. Government announces a mining super profits tax. That means they very profitable, and mining Australia’s economic resources. Super profits tax mutates to MRRT. A negotiated super profits settlements tax. Can hold the country to ransom. Forestalls the expansion of Roxby downs and sends the Australian economy into a tailspin.

    How is that different to the Australian banks? Govt announces a 0.05% levy onto implicit government guarantee of deposits. Banks say there is no alternative but to pass on cost to the consumer.

    Believing in sanity is indeed insanity.

    Each time the RBA says they will change targeted cash rate the banks pass on only that portion they consider fit, yet their profits outgrow GDP year on year immeasurably virtually without risk. They have no social conscience. They will contract employment at 0.4% while growing their balance sheet at 18% annually.

    Which expected cash flow carries the greater risk?

    Post Script
    It further turns out that today’s 30 bn deficit is struck by moving GDP growth from 2.75% to 2.5% and unemployment from 5.75% to 6.25%.

    Who is now guilty of talking down confidence?

    Maybe Treasury has simply got real!

  6. julia
    August 4, 2013 at 11:36 am

    oh david the p i would love to have you back in

  7. August 4, 2013 at 10:43 pm

    Now that the electoral writs are in process, what is there left to say.

    The electoral rolls will close at 8pm on 12/8/13.

    Nominations will be accepted up until whatever.

    Pre polling starts on August 20th. Applications for postal votes can be registered now online.

    This morning I met a friend, both of us smokers, relatively common age, “can you believe this goose, he says he is putting up the excise of tobacco, to discourage smoking yet it will generate 5.3bn to government coffers. If he was for real, it should be income neutral, that the number of smokers quitting offsetting the increased price/excise?”

    The friend replied with words to the effect, “tell me when one smoker has caused a car accident, or been involved in street violence. Why isn’t he taxing alcohol?”

    Bloody good point. Last time he put up tobacco excise he also started the alco-pop fizzle. Why is he attacking smokers this time yet not drinkers?

    Hearing Krudd address why he has gone 1 week earlier than previously announced, and thereby ruled out the plebiscite on recognising local elections in the constitution is just hollow. It doesn’t have bi partisan report? You are joking.

    Fact, the government allocated 10 times the funding to the Yes campaign compared to the no campaign. Who thought it was a bad idea? Who for one moment knew the ramifications of any proposed change?

    Just get to ballot box on time.

  8. August 5, 2013 at 10:19 am

    I don’t quite understand bi partisan report. Is that a Clive Palmerism or a Freudian slip? I think it is meant to be bi partisan support. Maybe it is both.

    Now that the election has been set, my only real mindset is has anything changed, what will the electorate decide?

    There are several bits and pieces.

    Mr Rudd is positing the question if the economic outlook is so bad then why do the 3 major ratings agencies all rate Australia AAA. Blind Freddie will tell you, it is 2 factors, Australia’s primary productive industries, and their relative position to the growth markets of South East Asia. If you compare us to Europe or North America of course we have an enviable position, but that does make down right stupid, less stupid. We are now facing the end of Australia’s 4th great mining boom in history. In each of the previous 3, history has the same lesson. Our hope is to supply higher protein food stuffs to those emerging markets of South East Asia. As I write, China is buying about 2/3rds of the worlds exported soy meal product. We have high protein wheat and other substitutes. The corn and wheat prices are toppy, and our declining dollar is a positive for export of commodities in USD.

    The ALP election slogan of “a new way” will be parodied for decades to come. Will it end up “no way”? After nearly 6 years of Gillard and Rudd, is a new way serious? What does it imply? Leaving recent disasters behind?

    On what will the electorate decide?

    I see “a no way”.

    In 2010 the ALP main losses were in QLD and WA. That was a function of mining, and to a lesser extent, Qld’s first PM being replaced by a Vic/SA PM.

    This time around NSW is currently ALP 26 Ind 2 Coalition 21. After election it could be ALP 19 and Coalition 30. At best it will be ALP 23, Coalition 26. Therefore ALP must pick up a minimum of 6 seats in the other states. There is very serious conjecture they will lose a couple in Tas, maybe even 1 or 2 in Vic. I truly believe WA will be roughly the same, and even if (virtue of car industry assistance plan) ALP was to gain Boothby in SA, then Kevin must win a solid handful in QLD.

    For me, no way.

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