Secret of the Howard Government’s surpluses

ScreenHunter_22 Jan. 11 09.26

By Leith van Onselen

Little-by-little, inch-by-inch, the common misconception that the Howard/Costello Government were fiscal superheroes is unravelling and the truth is being revealed.

The latest salvo came from the Sydney Morning Herald’s economics editor, Ross Gittens, who published a well reasoned article on Saturday arguing that the lion’s share of the current budget deficit stems from tax and spending decisions undertaken by the former Howard/Costello Government, which moved the Budget into structural deficit, causing revenues to collapse once the once-in-a-century mining boom began to subside:

They say it’s only when the tide goes out you discover who’s been swimming naked…[W]hen you calculate the ”structural” budget balance…Peter Costello was completely starkers…

Costello’s luck was a lot better than Swan’s. Costello presided over the first part of the resources boom when the government’s coffers were overflowing, whereas Swan wasn’t in office long before the global financial crisis hit.

He spent a lot of money trying to stave off recession but, though he had much success, the government’s revenues still haven’t fully recovered…

[Using the mid-point of estimates from the OECD and IMF] the budget began the noughties in structural surplus, but then the structural balance declined steadily between 2002-03 and 2011-12, from a surplus equivalent to about 2.5 per cent of nominal gross domestic product to a structurally balanced budget in 2007, before falling to a structural deficit of about 3.75 per cent of GDP in 2011-12…

So what are the causes of this deterioration and then improvement? From the structural balance’s biggest surplus in 2002-03 to its biggest deficit in 2011-12, the structural level of revenue fell by about five percentage points of GDP, while the structural level of spending rose by about one percentage point…

The budget office says more than two-thirds of the initial five percentage point decline in structural revenue was caused by the cumulative effect of the six tax cuts in a row delivered or promised by Costello… A further quarter of the five points, the office tells us, results from a decline in excise receipts, caused [mainly] by Costello’s decision to end the indexation of petrol excise in the 2001…

The Libs keep saying the problem is Labor’s unrestrained spending but, in fact, it’s almost all on the tax side. The tax weakness arises overwhelmingly from Costello’s eight delivered or promised tax cuts.

Gittin’s critique of the Howard/Costello Government’s fiscal record concurs with arguments expressed recently at MacroBusiness (see for example here). While the Coalition paint themselves as good fiscal managers and Labor as incompetent, the primary factor separating the diverging budgetary fortunes is that Howard/Costello governed during a period of benign macroeconomic conditions, both locally and abroad, whereas conditions have been largely unfavourable to the Labor Government.

While the inexorable rise in commodity prices under Howard/Costello’s reign and the unwind under Labor’s watch has been well documented, perhaps the best illustration of the diverging fortunes of the Coalition and Labor are shown by the below chart:

ScreenHunter_02 May. 26 22.48

As you can see, household debt levels literally exploded during the 11 years that Howard/Costello Government was in power. This extra demand (spending) by the household sector meant that the Federal Government was able to run bigger surpluses, without adversely affecting overall demand in the economy (see next chart).

ScreenHunter_01 May. 26 22.48

Since the Labor Party came to office in late-2007, however, the ratio of household debt to disposable income has flatlined as households dramatically lifted their savings rates. This deficiency of household demand (spending) effectively left a whole in the economy that had to be filled by increased demand (spending) by the Federal Government, which pushed the Budget into deficit.

Had roles been reversed and Labor was in power during the Great Moderation and the once-in-a-century mining boom, the chances are that it would now be claiming fiscal superiority over the Coalition.

The Howard/Costello reign was a case of good luck and being in the right place at the right time over good fiscal management.

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60 Responses to “ “Secret of the Howard Government’s surpluses”

  1. GSM says:

    “The Libs keep saying the problem is Labor’s unrestrained spending but, in fact, it’s almost all on the tax side. The tax weakness arises overwhelmingly from Costello’s eight delivered or promised tax cuts.”

    Well, theres a surprise. Gittens thinks we are taxed too little and that’s the problem. Labor’s almost $50 billion annual increase in revenues since Howard / Costello is not relevant. The fact that Govt spending has exceeded those revenues to a tune of around $200 Billion over the Labor term of office also small beer. Gittens never met a tax he didn’t like. I wonder when, after 6 years of Labor Govt, he will begin to ask Labor to own their budgets and performance?

    On luck; you make your own luck. I think this Govt has demonstrated many times their ability to screw up their own destiny. Their reign is littered with own goals; Carbon Tax, Mining Tax, Budgetting disasters.

    Howard/Costello were not perfect, but MB’s obsession with fashionably apologising for Labor’s financial ineptitudes by rubbishing the evil twins as bad guys is too obvious. Time to move on and be accountable? Is 6 years not enough to show what you have got?

    • SP says:

      I think MB’s position on Labour’s short comings is well known. Highlighting the Howard government’s short comings is justified given that the Coalition is using their “record” as a campaign tool.

      I’m not convinced that the Coalition can do much better really, given the limited amounts of actual policy information that has been released. Take away the hysterics and mind numbing discourse from Mr Abbott and co and really we don’t know much about what they are about. Blindly following a party just because the other was mired by internal feuds and ineffective doesn’t mean that the new government will be effective.

      I think it is time that the Coalition cease with the small target politics and tell us what they really will do and be held accountable.

    • PhilBest says:

      Note the partisan focus on the Coalition’s tax cuts, and none whatsoever on the increased spending that also occurred on their watch, mostly middle class welfare.

      I suggest the middle class welfare and the committals to lavish new unproductive spending programs have done far more damage than the tax cuts.

      The real tragedy to my mind, about the Howard era, is that they NEARLY introduced reforms to urban land supply that would have stopped the housing bubble dead in its tracks – but Howard himself over-ruled his deputies on this – and they failed to spend the windfall revenues on self-liquidating investments such as roads and water schemes.

      • emess says:

        A large proportion of the increased expenditure was/is on infrastructure such as, for example, renewing over 20% of mainline rail in the country. Similarly, big increases in pensions, most of which gets spent locally, and is means tested, so not really middle class welfare.

        That does not mean that they haven’t done plenty of the middle class welfare stuff, but how about leaving the partisanship to sites like Catallaxy or the Political Sword, where no doubt the hive minds will nod sagely in agreement with you, or not as their prejudice allows.

        The issue is whether or not the alternative government really has better economic credentials or not. The alternative government makes that claim, so why not examine their claim on a site like this?

        Perhaps you could address some comments to where the analysis of the alternative government in this article is wrong, rather than saying: “…Look! Over there! A great big distracting Labor Pinkbattsyschoolhallcommo thingy.”

        We all know that the present government has done some pretty stupid things (I for one would like to have seen the Henry Report recommendations addressed – and the government squibbed it). What we need to know now is whether or not the alternative is any better. Parroting the wisdom of the Catallaxy crowd is just not going to do it here. That has everything to do with putting up the facts and figures to support the Coalition’s credentials.

    • Lothar Grosserschlongen says:

      This does not look like a fashionable apology to me:

      http://www.macrobusiness.com.au/2013/02/the-astonishing-ineptitude-of-the-mrrt/

    • Nunatak says:

      When it comes to fashionable apologies for political parties, GSM, you wrote the book.

    • rob barratt says:

      +1
      We’ve had to wade through a government with not just an appalling record of financial incompetence, not just a failure to manage projects, not just a failure to act against their entrenched, unaudited backers, but with something almost worse: The sheer hubris of their leadership. Have we forgotten so soon about Conroy, minister for censorship, the man who gives parliament days to pass his laws? The woman whose spin-doctor crafted hysteria was created as a political weapon, who then silently watched Peter Slipper slither to their side of the bench? The only honest (for a time) voices coming from this contemptible farrago are from it’s recent internal victims.
      Have we waded through all this to look back at mistakes made by Howard & Costello? Every man and his dog (even me) knows that household debt at least between 2000 and 2007 arose because of the housing bubble, and that the resulting wealth effect (added to the mortgage payments) led to our current malaise.
      Now, the sixty four thousand dollar question: tell me how many governments in history have stepped in to rein in an equivalent credit-driven frenzy? Stepped in to control excessive lending? I think we asked too much of H & C. Democratic governments of any persuasion lack the suicidal bravery needed to provide tough cures in such times. The public mood is in no mood for cure when they perceive a route to wealth and financial security, however misguided.
      Harping back to the previous administration (which witnessed very little of the nationally degrading theater we see played out at the moment in parliament) seems to me more like fist shaking from the doctrinaire Labor ship as it goes down with all hands. Let’s stick to the future, continue to challenge our broken MSM – unfortunately that’s the only force that will keep the next shipload of bastards relatively honest.

      • Lori says:

        Hmm, very strange, obviously not only this government is “with not just an appalling record of financial incompetence, not just a failure to manage projects, not just a failure to act against their entrenched, unaudited backers,” but with … sheer hubris of their leadership”, but it is fair to say the same for the whole manufacturing and even mining sector, tourism etc…..

        What about all those “very competent” businesses and their managers, and CEOs etc. private geniuses who failed in their leadership and high competence, once the money flow from mining sector dried? It looks like Australia lacks not only political leadership, but what is much, much worse, lacks competent business leadership. With easy money everyone can be a great financially competent leader and manager .

        I don’t support Labors, for the record.

      • Alex Heyworth says:

        I seem to recall from a book I read recently that one of the Billiton executives commented before the merger with BHP that Australia was a country with first-rate assets, second-rate companies led by third-rate managers, and fourth-rate politicians.

        Sounds about right.

    • Mr Squiggle says:

      “the budget began the noughties in structural surplus, but then …declined …to a structurally balanced budget in 2007″

      Am I reading this wrong, or is Gittins saying Costello delivered structural surpluses when he was in power and a structural balance in the year he left office?

      Should I accept Gittens view on this point?

      The real problem here is that Costello could afford the tax cuts he delivered.

      By comparison, Swan couldn’t.

      I agree with GSM, Swan needed to introduce proper taxes to maintain the structural balance he inherited in 2007.

      Instead we got alcopops, Carbon tax and Super mining tax.

      • AB says:

        “The real problem here is that Costello could afford the tax cuts he delivered.”

        No, the real problem is that Costello returned short-term surpluses via long-term spending decisions and ongoing tax cuts.

    • Mark Out West says:

      GSM

      Howard pump primed the housing bubble through middle class welfare (MCW). Australians were spending at record rates, wages went through the roof (mining boom) and productivity plummeted.

      At the end of the Howard years Australian were never more indebted at any time in the past sending billion in interest O/S.

      Work Choices only assisted extremely bad employers to be worse and force the others to utilise their workers into an ever decreasing work life cycle.

      Of course there wasn’t a GFC just ask Andrew ROBB.

      The ALP are a lower taxing government than Howard, not squandering it on MCW and vote buying.

      I look forward to the coming Nirvana as it will be easy to turn that $250B into working capital, we should be in the black in a year as the deficit is $20B.

      Plus he’ll stop the boats saving another $4B a year. What will we do with all this extra cash?

      Booking my holiday now.

  2. Crocodile Chuck says:

    “Howard/Costello were not perfect…”

    Duly noted, GSM.

  3. PhilBest says:

    But the same applies in NZ, without a mining boom, to the Clark – Cullen combo.

    The crucial factor is not the mining boom at all, but a house price bubble, and households using the rising “value” of their home as an ATM.

    Of course Gittins will never admit this.

  4. PhilBest says:

    Voices from the other side of the spectrum; from “Quadrant”:

    http://www.quadrant.org.au/blogs/allan/2013/05/truth-or-consequences-mr-abbott

    Truth or consequences, Mr Abbott

    by James Allan

    May 24, 2013

    “Let’s assume that Mr. Abbott is going to win the upcoming election. I certainly think he will. In fact I think he’s going to win quite easily. But that’s then. What about now? What can Mr. Abbott do now that will help him later?

    And here’s the answer. He must only make promises he absolutely intends to fulfill. Trust will be a crucial ingredient in any long-term success of an Abbott government….

    “…..Let’s be honest. Australian voters are craving a dollop of honesty and promise-keeping after what must be considered the most wayward government of all time. If Abbott confines himself to doing what he promises, and not doing what he didn’t promise, he’ll be in fine shape in three years ….”

    http://www.quadrant.org.au/blogs/qed/2013/05/julia-gillard-unprincipled-to-the-bitter-end

    Julia Gillard, unprincipled to the bitter end

    by Peter Smith

    May 26, 2013

    “…..Apparently, facing almost certain defeat in September, Julia Gillard wants to leave a legacy. Something for us to remember her by; and she cares not for constitutional niceties.

    When government contemplates profound changes to the way a country runs its affairs, which will be expensive and difficult for future governments to unravel — for example, the implementation of an increased taxation levy to pay for a new disability scheme or a new unfunded formula for dispensing money to state schools — it should have mandate from the last election, or should seek bipartisan agreement, or seek a mandate at the next election. John Howard’s introduction of the GST is a great example of acting in keeping with good constitutional government.

    It doesn’t matter whether you think any particular change is beneficial and absolutely required. If it is, the political party promoting it will presumably be able to convince the electorate and gain a mandate. What is happening now is un-Australian. If you think that’s an old fashioned way to look at things, well think of something unconstitutional that could be described as un-North Korean…..

    “….Historians can be found in Australia who won’t let the facts get in the way. Gillard might therefore go into Labor Party folklore as the saviour of schools and the disabled, undone by the rascally Rudd and the misogynist Abbott…..”

    • AB says:

      Abbott’s parental leave scheme will be the test of his honesty for me. He’s going to face a lot of party and business pressure to dump or delay it.

      http://www.theaustralian.com.au/news/banks-to-pass-on-cost-of-parental-leave/story-e6frg6n6-1226650957465

      “While opposition to the scheme is strong and growing, large companies are being urged not to speak out before the September election. Some have been told that the best chance of convincing Mr Abbott to dump his “signature” scheme, which would give new mothers their regular wage for six months, up to $75,000, is after an election victory, as the pressure on the budget at that time would be at its most intense.”

    • DT says:

      The whole “mandate” argument is void, wheeled out by bad losers. It’s nothing to do with the constitution and everything to do with playing politics.

      The people elect their representatives. If the government has the numbers to get it through, they have a mandate. If not, they don’t. Governments must be able to make decisions mid-term or they can’t govern.

    • drsmithy says:

      “What is happening now is un-Australian.”
      Argument forfeited.

      • dumb_non_economist says:

        By the way, can anyone tell me where this term came from? I don’t recall hearing it prior to Howard.

        I sick of hearing it, “un-Australian,” anything that happens that the speaker doesn’t like. We need to start a campaign to stop it, its use, is un-Australian.

    • Lori says:

      When the whole world is in the greatest crisis of trust, what do you expect from the least trusty people – the politicians?

  5. flawse says:

    Yes Phil While I’ve been a trenchant critic of Howard/Costello I can’t help but feel the blame really lies elsewhere. It lies with ourselves (as per Phil’s comment,the RBA and the stupid non-sensical beliefs of the modern economic profession.
    Is it really the Govt.’s duty to tax it’s citizens to the max? Should in fact interest rates have been higher, with capital controls so that Australians saved and invested in their own country?
    Should our monetary policy be that we depend on foreigners to save and then we just sell them our country in exchange for short-term benefit consumer trinkets?

    Had we instilled policies of saving accomapnied by capital controls we would not now face all the problems we now face.
    The real problems lie in monetary theory not all in the Howard/Costello fiscal policy

    • Nunatak says:

      Flawse,
      There is much truth in what you say.
      But surely we elect politicians to lead, not just to follow the crowd or be dictated to by “the stupid non-sensical beliefs of the modern economic profession.”
      Should Australians have “saved and invested in their own country?”
      Of course…..but we had a government at the time that had the wherewithall to do so on our behalf. Did they do it?
      No.
      Instead, they chose to lavish a once-in-a generation windfall upon the punters for fairly obvious political gain, allowing us to piss it up against the wall, as they knew full well we would.
      Is this the modern definition of leadership?
      We once had a leader who saw the writing on the wall – he warned us that we were in danger of becoming a banana republic…he tried to put the brakes on runaway asset prices with a recession we had to have.
      But Little Santa Johnny and his elves told us we could have it all, and we could have it now.
      They knew it would work, and it did.
      Yes, we are all to blame – the mob has never been renowned for its financial wisdom or restraint.
      That is why we put our future in the hands of those we expect to lead.
      So far, that hasn’t worked out all that well, has it :-)

      • flawse says:

        Yes Nun I think I agree mostly. Even following my line of reasoning the ‘leaders’ should have said this can’t go on and changed the RBA’s charter etc.
        Of course we’d have had the ‘other’ leaders saying Johnny and Pete didn’t care about ‘Austrlian Working Families’ and we’d have voted Johnny and Pete out at the first oppurtunity.

        The pretence by both sides that we can have it all for nothing has really lead us down the garden path or up the proverbial creek…take your pick!

        It’s a mess! We’re a mess!

    • drsmithy says:

      Is it really the Govt.’s duty to tax it’s citizens to the max?
      It is the Government’s duty to tax its citizens *sufficiently*. The point being made is that was not done, hence a structural shortfall.

      Of course, this goes against the contemporary articles of belief (followed slavishly by both major parties, since there is so little to separate them now) that lower taxation is always better, and that money is always best spent in private hands.

      • flawse says:

        Somehow you miss the whole point.
        Why did the Govt need to tax its citizens more at the time if there was indeed a surplus? The real question is “WAS IT INDEED A REAL SURPLUS OR AN ARTIFICIAL ONE?”
        (I apologise for the caps but I think the idea is an important one that is at least worth pondering)

        If you had higher interest rates along with capital controls on, at least, short term spec money, such that the whole housing bubble had not arisen then the BS GDP growth in the economy would not have occurred, the CAD would have been under control, we would not have had to sell so many assets to foreign interests, and the Govt of the day would NOT have been able to lower the tax rates in the first place.

        The problem lies in monetary policies mostly.
        What is a ‘structural deficit’ really?
        Aside from the idea that a Govt should be minimally responsible with the people’s money that they, largely, earn through hard work a government can raise or lower taxes whenever it wants.
        What is essential is that we run a balanced economy and then taxes are set accordingly.

      • AB says:

        “The real question is “WAS IT INDEED A REAL SURPLUS OR AN ARTIFICIAL ONE?””

        I don’t think that’s the real question. I think the real question is:

        “Should short to medium-term surpluses have been returned via ongoing transfer payments and tax cuts?”

        I’d have no problem with what Howard and Costello had returned the surpluses as once-off measures or linked them to the actual surplus balance.

      • flawse says:

        AB

        Without low interest rates stimulating the economy into more and more debt there would have been no surplus to return.

        Why must we have a policy that there must NEVER be any saving by private citizens in this country?
        Why do we have a policy of running a permanent CAD resulting in not only very high foreign debt levels but also the massive sell-off of our natural resource assets to foreign interests.

        Why must that always be the policy?

        Governments cannot control themselves. They always spend surpluses on grandiose schemes that are not temporary. Ther4eis no brake applied by eh balance of the external account in modern economics so there is no reason for govts not to spend all surpluses. The external account doesn’t matter until the it collapses.

        Surely it makes more sense to have positive RAT interest rates, rewarding savers, conserving the environment, balancing the external account and having Aus citizens have some equity in their own country. i can’t see the problem except for those seeking the expansion of their own power over private citizens through Govt oppression.

  6. Chaos says:

    Whilst the criticism of Howard/Costello is very fair (no problems with that) we don’t know how exactly they would have reacted to the GFC if they where in power. I doubt the stimulus measures employed by Rudd/Swan would have resembled the H/C ones. Even Turnbull in an alternate world would have been different. I vaguely remember policies such as defering payroll taxes etc…

    Anyway.

    The biggest mistake Rudd/Swan did was not ‘politically’ destroy the Howard/Costello legacy in their first budget. It’s politics 101, take the axe to everything in your first year, blame the previous mob and then rebuild a new political narrative.

    • littleguy says:

      Turnbull’s might have been different given his educational background but I think H/C would have done largely the same thing. The R/S actions in general followed the Treasury’s advice and I think H/C would have done the same.

  7. myne says:

    Things Howard’s government did badly:

    Superannuation: stopped at 9% instead of 15 – Boomers will hurt now; Stupid rules that allowed people to pull out 100% of their super, structure it into a trust and claim a pension simultaneously; generous co-contribution and lump sum contribution rules.

    Childcare: Introduced a subsidy that paused inflation for 2 years and then caused it to jump to 2-3x inflation. Subsidies have never worked as intended.

    Energy: Stupidly generous solar panel subsidies that drove prices for installation through the roof and energy costs to consumers even higher. Did a single coal powered station close during this period of enormous solar investment?
    Was the recent post-carbon-tax closure of a coal plant merely a coincidence?
    Direct action doesn’t even fit as a liberal ideal.
    Also removed the CPI increases on the fuel excise. This has contributed to the structural deficit state governments are seeing today. The RBA’s inflation calculator puts the $0.38143/litre excise at 52c today. Given that the tax receipts are 7bn at 38c it’s logical to assume they’d be at least ~9.6bn.
    This also suggests that the road congestion we see today might not be as high if prices discouraged private vehicle use.

    Communications: Totally screwed up the structure of the sale of Telstra which has directly led to the requirement for the NBN. If Telstra was sold as two entities – wholesale infrastructure and retail, we would not be seeing the ridiculous debates about FTTN vs FTTP right now. about half of the country would already be on FTTN and half(growing annually) on FTTP. Additionally, we would most likely have a broader range of tier 2 mobile providers.

    Housing: The quadruple whammy. Removal of mortgage interest from the CPI, un-quarantined subsidies to first homeowners that removed banking risk from price speculation, endless negative gearing for investors, and CGT reductions.

    Baby bonus: The most cynical policy combination ever. The slow (multi-government) removal of free schooling in favour of a single unrestricted lump sum payment to women of any age or standing. The plasma bonus and the bogan bonus were some of the terms I’ve heard. I have to wonder what the socioeconomic breakdown of the births really was. I doubt 5k would ever be enough to entice a median income woman out of the workforce. It seems more than enough to entice young, not terribly bright women in poorer areas though. How many children were born into a poverty trap? How much more are social services costing in poorer areas because of short term policies?

    Other middle class welfare: Let’s narrow the tax base to GST, stamp duties and young singles!!11 Enough said, really.

    Boat people: Not economic, but my god, the horror of the xenophobic attitude to the worlds most desperate people, the anti-boat sentiment from a nation founded by criminals on boats. It’s a national fucking travesty.

    Iraq war: Afghanistan was iffy, but Iraq was utterly wrong. Both have been executed poorly.

    His government was an unprecedented disaster but because the sun was shining it took a lot longer for most to notice.

    • littleguy says:

      I know of a lifelong Liberal supporter who voted against them because of the cost of the wars which he took the trouble to assess because he is an accountant.

    • rob barratt says:

      Though some of your points are valid (by the way, most government policies have an element of the cynical about them) with the exception of

      1) blaming Howard for mismanaging Iraq (look to Donald Rumsfeld for that) and

      2) The boat people (an issue that in no way is the “fault” of one party)

      I think you’ll find that Australians are currently able to forgive Howard’s mistakes in the face of how they feel about the present administration. Of course the real “unprecedented disaster” is the one that is underway but still below the general consciousness – the failure of Australian industry due to the high Dollar and the extreme feelings of entitlement that have led us to be terminally non-productive. Though policies like those you pointed to above have pandered to this entitlement, the real architects of our industrial failure don’t sit on Howard’s side of the bench.

      • littleguy says:

        “…the real architects of our industrial failure don’t sit on Howard’s side of the bench.”

        I’m afraid you are wrong there. They sit on both sides of the bench. There are a lot of ways, some not so obvious, that they have all failed.

      • myne says:

        I blame Howard for ENTERING Iraq.

        On the topic of Defence and industry, was there any problem with buying licences to build and maintain the hundreds of M1A1 tanks we bought? How about the JSF or even more elementary vehicles like personnel carriers?

        Given that we consider the car industry as a strategic asset – not for the cars, but for the skills and logistics chain – why was this so badly managed?

        The dollar is interesting. Australia will always be a cork on the ocean in this regard – at least until we can compete on pure population and breadth of market. I would argue that free trade was not the answer. I would argue that tariffs are quite necessary to correct for imbalances in labour prices. Simple fact is, an Indian worker costs 20% of an Australian. But part of that is due to our much higher housing costs. So it’s a self-sustaining-defeat.

        Why make stuff in Australia when it costs at least 20k/year for a worker to rent a roof here?
        That 20k goes immediately from the bottom line of everyone. Housing probably screwed more industries than the dollar.

      • rob barratt says:

        Entering Iraq is not what you said Myne, you talked of management. I don’t believe either Iraq or Afghanistan are of strategic interest to Australia. Of course, it’s only been a short while since Gillard was wittering on about a lasting presence in the latter. Afghanistan was rightly called the “graveyard of empires”. Another unwinnable war in a country which sadly has no future. The next time it gets invaded (probably for it’s mineral resources) I suspect the invaders will have immeasurably better remote killing technology and won’t be too particular about the civil population.
        Iraq might have been different. The real tragedy of Australia’s involvement in Iraq is that none of America’s allies knew how little Rumsfeld had done to prepare the country politically and organisationally for the post war period. His personal lack of planning and post war blunders (eg. disarming the military and leaving stockpiles of weapons everywhere) allowed the country to slide into anarchy. As for vehicles, if you had read this week’s Australian supplement on defence, you would have noted that the tender process for the acquisition of military vehicles is still an appalling shambles. Every government has to face this entrenched bureaucracy. It wasn’t any different for the Howard administration. Of course, whether you personally would have welcomed the invaders if you had been in one of Sadam’s torture chambers is another matter.
        The dollar? The dollar will fall, the question as to why anyone would want to manufacture in Australia will be valid until our level of unemployment becomes such that we have to rethink our attitude. .

      • Rusty Penny says:

        We don’t have ‘hundres’ of M1A1 tanks. We’ve got around 60-70, including support versions.

        it was a pretty seamless purchase.

        The JSF is a quantum leap in air tech and the evidence is now appearing. The UK looks to be taking devliery within 15 months. The platform is a complete game changer and will look to be worth the wait.

        Our upgrades of the M113… well that utter incompetnecy is due to Rugby Union playing, GPS old boys attending ADFA, but everything GPS old boys touch turns to faeces anyway.

      • rob barratt says:

        Just a hint of class warfare there RP?

      • Rusty Penny says:

        DMO is full of them.

        Observe at will, stop being so paranoid that everything is class warfare.

      • JC says:

        “the real architects of our industrial failure don’t sit on Howard’s side of the bench”

        Yes they do. Look at how inflexible and inward looking our economy and industry was when Howard was Treasurer and we had Peacock and the likes in the Lib party.

        Almost every great piece of economic and social reform in this country has been driven by Labour. Howard and Costello rode KEating and Hawke’s coat tails.

      • JC says:

        no criticism rob, just venting on my part.

    • littleguy says:

      Telstra was a big screw-up.

    • JC says:

      As for us following America’s adventures into Iraq and Afghanistan, that is a complete disaster for us other than sharpening our operational ability.

      It opens us up to blowback from foreign terrorist groups, and makes the radicalisation of a home grown terror threat more plausible. Entering these wars has made us a target, not safer, and any claim to the contrary is asinine on a level i wouldn’t be able to comprehend if i hadn’t seen the witless rationalisations and stupidity of 50% of our populace.

      Iraq? Where to even begin? Take out the natural enemy and counterbalance of a Sh’ite dominated and growing power in Iran in the mid east? Sounds like a great strategy to me…………ughhhh

      • rob barratt says:

        JC
        I stated quite clearly that
        a) Neither country was of strategic importance to Australia;
        b) Afghanistan was always a lost cause;
        c) Iraq could have been different. Howard’s decision to become involved was irrelevant

        I assume you are not writing this as a criticism of my views.
        As for your comment about sides of the bench, I spoke in the present tense. The “Labor” we have today bears no resemblance to the Hawke or Keating period. One of the primary reasons they succeeded was that they were able to separate union demands from economic realities. Contrast that with what’s happening now to Australian small business (our one hope of regenerating our industrial future) who are the true barometer of our industrial reality. Check out the building projects with CFMEU bikie enforcers roaming around.
        Come back Jimmy Hoffa, all is forgiven.

    • dumb_non_economist says:

      Myne, absolutely love this:

      Boat people: Not economic, but my god, the horror of the xenophobic attitude to the worlds most desperate people, the anti-boat sentiment from a nation founded by criminals on boats. It’s a national fucking travesty.

  8. Alex Heyworth says:

    While I accept the broad outlines of the argument that the Howard/Costello government was not quite as fiscally responsible as we once thought (you may not remember that Costello was broadly criticized at the time for not making the tax cuts bigger!), I am puzzled by one thing. At the time, I thought a good deal of the tax cuts was merely returning the effects of bracket creep. Yet there is no mention of this in the PBO analysis. How come?

    • Sweeper says:

      Bracket creep isn’t as significant as people think. I think I read somewhere that if Howard/Costello hadn’t cut personal income taxes, the cumulative effect of bracket creep would have been to add about $20b in revenue. Which isn’t nothing, however it doesn’t even come close to offsetting the $160b or so cumulative loss caused by the tax cuts.

      • Alex Heyworth says:

        According to the Melbourne Institute, it was worth $3.8 billion in 2005-06, expressed in first quarter 2004 dollars (don’t ask me why). See http://www.melbourneinstitute.com/downloads/labour/WebReport.pdf, on p.3.

        I don’t know how many years your figure of $160 billion covers, nor what dollars it is expressed in. If you can tell me the source, it might be the starting point for a sensible comparison.

      • Sweeper says:

        As I said, I’m not sure exactly where I read it or how round the numbers are. But based on this paper, the numbers are not that far off:

        https://www.tai.org.au/index.php?q=node%2F19&pubid=1157&act=display

        The government would have collected another $169b over past 7 years were it not for the personal income tax cuts from the 05-06 year onwards.

        “The total amount of the tax cuts over 7 years amounted to $125b when bracket creep is removed”.

        So bracket creep didn’t offset the tax cuts. I don’t know how reliable the paper is, but the numbers seem plausible.

      • Alex Heyworth says:

        The only problem there is that most of the tax cuts since 2005-06 weren’t made by the Howard/Costello government.

        A quote from the paper which that press release is talking about:

        The structural budget, which had been pushed towards a deficit in the preceding four years because of the income tax cuts, was weakened further by the tax cuts introduced in 2008-09 and 2009-10. These tax cuts were largely a legacy of the 2007 election campaign when the Howard/Costello government promised large income tax cuts and the Labor party promised very similar cuts in response.

        We would probably have got the latter half of the tax cuts if Howard and Costello were in power, but they weren’t and we still got them. Rudd and Swan have to wear their share of the blame for the mess the budget is now in.

      • Alex Heyworth says:

        PS, it seems you are right about the bracket creep. Negating it counted for about a quarter of the tax cuts. The rest was just the government (of whichever stripe) giving bribes it couldn’t afford.

  9. russellsmith55 says:

    3d1k must be giving MB the evil eye from over at his blog now…

    • Mining Bogan says:

      Nah, he’s in London trying to talk himself into a knighthood for his services to mining…

      • flawse says:

        It’s really intersting how little you know of the person you so malign!
        Quite a comedy really!

      • Mining Bogan says:

        Malign? Never.

        After all, you didn’t see me react when he tried to cast doubts on whether I worked in the industry just because my views differed from his. Or when he tried to put forward that I was just a sockpuppet for another person who comments on here.

        Nah, I took it all calmly. I don’t need to malign anyone.

  10. Alex Heyworth says:

    As a point of comparison, a quote from the 2013-14 Budget Papers Appendix D:

    The Government has delivered $47 billion of tax cuts in our first four years since coming to office. In addition, we have provided further tax cuts as assistance for the cost of living impact of the carbon price from 2012‑13. Even after accounting for the small increase in the Medicare levy in 2014‑15 we will be delivering total tax cuts of around $20 billion a year over the next four years compared to the 2007‑08 tax scales.

  11. Stephen Morris says:

    The article doesn’t mention the extent to which the Howard/Costello budgets were supported by the sale of monopolies and near-monopolies: Telstra, airports, spectrum.

    Contrary to the fairy tale spread by the Sydney investment bankers (of which I was one once) selling monopolies does not create wealth out of thin air.

    The cost is insidious, coming in the form of allocative inefficiency: the private monopolists’ rational strategy of over-pricing and under-supply.

    The Abbott government will try to buy its way out of the current mess with a combination of monopoly sales (Australia Post, for example, sold as a monopoly to prevent competition and thereby raise sales proceeds) and tax-farming schemes (sale of tolling concessions over the national highway network).

    The price will be a permanently elevated cost structure for Australian households and businesses.

    Historically, attempts to keep the good times rolling through tax-farming schemes and the sale of monopolies haven’t had a terribly good record. In France, the tax farmers eventually ended up in Place de la Concorde at the sharp end of the guillotine.

  12. geoffwillett says:

    Had Howard & Costello had a crystal ball & saved $50bn in the future fund, put your hands up everyone who thinks there’d be any left after 6 years of labour?
    It is right to say that relying on a once in a 100 years commodity boom was unwise, luckily Howard/Costello were just less unwise than all of Europe, UK, US, etc. When the GFC hit, they had all been running deficits during the good times for years, so they were just stuffed. Hawke, Keating, Howard, they were the good years, we were well managed even with ups & downs!