The Budget is toast for whoever rules

ScreenHunter_11 Apr. 16 14.56

By Leith van Onselen

Yesterday, Jessica Irvine has posted an interesting article on Business Spectator on the budgetary headaches facing the federal government as the commodity price boom unwinds:

At one point, nominal GDP was growing 7 per cent plus a year, while the real economy grew just 3 or 4 per cent. As commodity prices soared, national income grew much faster than output. The gap between real and nominal GDP grew.

It all seemed too good to be true. It was.

This year the budget is shaping up to be a revenue bloodbath. Murmurings from within government are not good.

Treasury sources are now shaking their heads over another spectacular economic phenomenon: the collapse in nominal GDP growth. Never before in Australia’s history has nominal GDP grown by less than real GDP for three consecutive quarters as it did in the final nine months of last year.

Nominal GDP has only lagged real growth on three occasions since national accounts began in the 1950s: during the 1961 post-Korean wool boom recession, the 1997 Asian Financial Crisis, and of course the Global Financial Crisis.

The winding down of our biggest commodity boom since the Gold Rush days is upon us. The Reserve Bank sees the peak of the investment boom later this year.

But the peak of the nominal GDP boom, and hence government revenue boom, is well behind us already.

Journalists and other interested onlookers can now expect revenue write downs as big as the revenue windfalls of a decade ago.

That is the big back-story to Wayne Swan’s sixth budget.

It’s easy to feel sorry for Swan. His predecessors presided over the halcyon days of the mining boom. He got a global financial crisis and the end of the boom.

Irvine makes some good points. Nominal GDP is the dollar value of what’s produced and earned. It’s also the measure that drives taxation revenue. Nominal GDP grew by just 2.0% in the year to December, far below real GDP growth of 3.1%. While the fall in nominal GDP below real GDP is unusual, having happened only a handful of times since the late-1950s, it has happened twice under the current Labor Government’s watch: during the GFC and currently (see next chart).

ScreenHunter_12 Apr. 16 15.18

The Howard Government, by contrast, experienced ever growing nominal GDP growth as commodity prices surged, whereby it reaped the benefits of growing personal and company taxes, not to mention increased capital gains taxes as asset markets boomed. Put simply, it was an easy time to be in government as revenues rose year after year and global economic conditions were benign. The current government has not been so lucky.

Whoever wins the upcoming federal election is likely to face ongoing budgetary challenges. Not only is the terms-of-trade expected to continue to fall as commodity prices retrace – weighing on both disposable incomes and nominal GDP – but the working age population are projected to shrink over time as the baby boomers enter retirement (see below Treasury chart).

The broader risk is that commodity prices fall more sharply than expected, resulting in a faster than expected collapse in mining-related capital investment. In such an event, the next federal government would face a sharp contraction in incomes and jobs, resulting in big falls in taxation revenues and expanded fiscal outlays as automatic stabilisers kick-in and stimulus measures are deployed to support the economy.

It will be a difficult period for whoever is in government.

[email protected]

www.twitter.com/leithvo

Comments

  1. “..expanded fiscal outlays as automatic stabilisers kick-in and stimulus measures are deployed..” And what might they be? I’m lost. How do we get increased fiscal outlay when nominal revenue is falling? Borrow? But aren’t we borrowed to the max already? Have a look at Europe. That’s our template.

    • We’re not Europe – we’re fully sovereign in every sense of the word.

      But we can expect that fact to be ignored by policy makers who will steer us on a course toward looking like Europe.

      • Fully sovereign? Really? In name perhaps, but what was the purpose of Globalisation, if we were to retreat back across the border when things got tough? Sovereign nation!…..when it suits….and it doesn’t suit the rest of the World right now.

      • GunnamattaMEMBER

        As long as the RBA and government are prepared to do absolutely nothing about monetary setting and the value of the AUD (which is basically being set by foreign sovereigns and their money printing operations – which may make sense there, but certainly arent applicable to Australia) then we are in many ways not much more sovereign than a nation using another nations currency.

        We are sovereign when we make decisions about the currency (in particular) reflecting our circumstances. We are not sovereign when we bound and gag ourselves from using that sovereignty by monetary orthodoxy.

        • +1 we are stupidly importing global financial repression – this will see Australia drown under our own private debt and travel the the same path.

          It is stupidity on a scale that boggles the mind!

      • Lefty
        The stupidity of MMT is incurable. We’ve just had a couple of days of discussion around the CAD and capital flows and the difficulties attached thereto.
        Last year we had a great series from DE on the external account and how it effects the economy.

        Yet you still operate on the assumption that thaqt the CAD is an eternal unlimited and free source of funds. It ain’t.

        • the assumption that thaqt the CAD is an eternal unlimited and free source of funds

          MMT doesn’t make that assumption, and that point has been demonstrated to you countless times.

          For you to keep asserting that only shows one source of enduring incurable stupidity.

          • Thank you for your personal insult. it shows the standards you abide by! None…any lie will do!

            You have NEVER shown that. MMRT is supposed to consider the external account. MMT does NOT. Barnacle clearly states it over and over.
            All you did was support the idea that CAD’s don’t matter because they never have to be repaid by using Bill Barnacle’s stupid example of some beads or something from way back in time.

            If Debelle’s paper did one thing it demonstrated that we are paying for our CAD through asset sales of our resources.

            The idea that we can now just print money without any effect in the external account is so stupid.
            I really don’t mind re MMT as long as you all tell the truth.
            Sure print the damned money. All you have to decide is whether you are going to increase the rate at which we flog the country off or whether we are going to constrain the capital account, allow the CAD to drive the dollar into the basement, and generally tolerate a much lower living standard.

            Any means whereby we have to cut our consumption to match our incomers and quit living off debt is fine by me.
            Just don’t pretend that printing money can maintain the current debt driven lifestyle at no cost.

          • Thank you for your personal insult. it shows the standards you abide by! None…any lie will do!

            You introduced ‘incurable stupidity’.

            if you can;t stand the heat…

            You have NEVER shown that. MMRT is supposed to consider the external account. MMT does NOT.
            Barnacle clearly states it over and over.

            No he doesn’t.

            He says exports are a loss of product.

            Imports are a gain of product.

            To put this into an abstract, if are country decided to give you product for free, eternally, and never redeem the cost of it, your country is enduring a benefit better than it would if not inbound trade of products occur.

            As this isn’t rational, the transaction of for sovereign currency, the external account and under the scenario above, a CAD.

            All you did was support the idea that CAD’s don’t matter

            I’ve never once stated they don’t matter.

            …because they never have to be repaid by using Bill Barnacle’s stupid example of some beads or something from way back in time.

            They do have to be paid back, when the currency the foreign entity holds eventually comes back to redeem it for product.

            This ONCE AGAIN has been explained to you for the umpteenth time.

            If Debelle’s paper did one thing it demonstrated that we are paying for our CAD through asset sales of our resources.

            Great… now we are getting to the crux of the matter.

            This isn’t a MMT issue.

            This is a FIRB issue. We are not compelled to sell assets. We can limit the redemption of our currency that foreigners hold to as narrow as inventory.

            If they can only buy inventory, then we have greater demand for inventory, thus spurrin more jobs.

            Conversely, if foreign holders are disincentivised from our dollar because the only exchange is inventory, then our dollar will drop.

            The idea that we can now just print money without any effect in the external account is so stupid.

            And yet MMT doesn’t make that assertion.

            I really don’t mind re MMT as long as you all tell the truth.
            Sure print the damned money. All you have to decide is whether you are going to increase the rate at which we flog the country off or whether we are going to constrain the capital account, allow the CAD to drive the dollar into the basement, and generally tolerate a much lower living standard.

            None of which are outcomes based on MMT.

            Any means whereby we have to cut our consumption to match our incomers and quit living off debt is fine by me.

            Tax.

            Another abstract.

            A country where government collects no tax.

            Then, a country that collects tax, but provides no services.

            Guess which country has lower consumption?

            Just don’t pretend that printing money can maintain the current debt driven lifestyle at no cost.

            No one who understands MMT puts forward that idea.

          • And for the MMT proponents join me on Facebook – I should be pretty easy to pick out.

            To say MMT ignores the external sector (X-M) + NPI + NSI is silly.

            It is part of what is taken into account.

        • Flawse!

          As you know I am looking forward to Japan ‘exploring’ the concepts of MMT when they go beyond the routine swapping of accounting entries for bonds and really get down to the business of using fiat currency in its true glory.

          The real flaw in MMT is not the stuff about accounting entities etc or whether or not foreigners will have any interest in accepting a currency in exchange for goods that has been treated to a bit of MMT.

          The problem is that it places too much faith in politicians and the job guarantee concept assumes that work that people value can be created simply by government fiat.

          Converting theoretical ‘unused’ or wasted labour into productive activities is likely to be a lot more difficult than most MMT proponents imagine. Most proposals seem to involve people being paid to perform services that people are not currently willing to pay to have people perform.

          I suspect that the currently ‘wasted’ labour that will be provided ‘willingly’ is a lot less than the unemployment figures suggest is ready willing and able.

          If one was going to print money the best way of finding out productive uses for it is to give it to individuals who by exercising choice may drive economic activity and employment.

          Does it serve any purpose creating make work schemes and requiring attendance as a condition to providing someone with money?

          Why not cut to the chase and simply print and let people spend.

          This does not mean there are not useful public works – clearly there are – but they may not be match between the skills sets available and those the works require. MMT fans tend to gloss over this issue.

          Japan remains the best chance to see a bit of MMT in action.

          Keep the popcorn handy.

  2. One wonders why nominal GDP isn’t more widely reported, because the vibe of the economy feels more like the nominal GDP numbers than the real GDP numbers.

    As for dealing with the coming adjustment, I can’t think of anyone more worthy than Tony Abbott, and anyone more capable than Joe Hockey.

  3. GunnamattaMEMBER

    OK my little chickadees…..

    Another straightforward draft documentary script there gents…….. (Circa 15-20 minutes worth – shorter than the housing one – but you could easily make it longer)

    Get something like this up and the punting masses may just slow their mastication in a sea of reality and game shows for long enough to think a bit…..

    Macrobusiness Australian Economy Circa April – May 2013 piece.

    The Australian economy is at a fork in the road.

    That road has carried the nation since the early 1990s without a recession, on the back of the economic restructuring of the 1980s and early 1990s, a massive expansion of Australia’s private debt load, and the investment phase of a mining boom over the last decade. But as that investment phase reaches a peak, without debt having substantially fallen, and with productivity and economic restructuring off the national agenda for a decade, there are hard decisions ahead.

    [[Overall grab from someone significant (economist, politician, business figure) about nature of outlook – preferably contrasting with past]]

    The recent decision to shelve the 45 billion dollar browse LNG project off Western Australia, following a similar shelving of the 35 billion Olympic Dam expansion project in South Australia and 15 billion Port Headland port expansion by BHP in late 2012, points to a mining investment phase close to its peak, if not actually past it.

    The road ahead is seen as a gentle decline, providing scope for economic adjustment, if the large number of projects still in the pipeline come to fruition. But If more projects are pulled in the face of prohibitive costs then that decline becomes rockier.

    [[someone comparing mining investment decline scenarios]]

    Even if all the projects come off as planned the outlook for commodity prices – particularly the iron ore, coal, gold and gas, which make up Australia’s four major exports – could mean that the revenue projections from the capex phase take a big hit. And this carries enormous implications for Australian GDP

    [[economist talking about what mining has done for GDP over last 4 years]]

    Although only about 5% of GDP, mining and its boom since 2004 has enabled the Australian economy to avoid the painful consequences of the global financial crisis. It also underpinned tax cuts and welfare increases by the Howard Government until 2007 and further stimulus measures by the subsequent ALP government. The end of the mining investment boom, coupled with the prospect of lower future revenues – not to mention a botched mining tax from the Gillard government – leaves the federal budget exposed. Nominal GDP is already receding.

    Regardless of who wins the September election, the government looking at a tight budget outlook, and with state governments in Queensland NS and Victoria already pursuing austerity, the state sector will become a drag on Australian economic performance going forward.

    [[comment about likelihood of state driving economic growth, and traditional responses to downturn in growth]]

    This brings the Australian non mining private sector into sharp relief, and the existing structure of the Australian economy.

    For more than 20 years it has ridden an increasing preparedness of Australians to take on more debt, which has fuelled a consumer and retail boom. That preparedness has been helped along by the wealth effect from rising house prices – essentially increasing nominal house values have seen consumers more prepared to borrow against the increased value to fund day to day item purchases. But that debt load has risen to nearly 150% of average disposable income – with mortgage debt at about 87% of GDP – Which places a limit on consumption and the retail sector going forward.

    [[comment about retail being hammered despite 175bp in rate cuts]]

    The manufacturing and services sector have been pressured by a strong Australian dollar. Averaging about 70 cents USD between 1985 and 2005, it has been higher than parity for more than 2 years making much of the globally exposed manufacturing sector unviable, having a dramatic effect on tourism, and is pushing the offshoring of Australian services – including business services and education, which have been major economic contributors. As this pressure has mounted Australia’s underlying trade balance has worsened – And at the top of the investment phase of the Nation’s greatest ever mining boom it has been running endless current account deficits.

    [[comment vis offshoring and competitive position of globally exposed businesses]]

    So far, that this hasn’t been seen in terms of job losses, with unemployment remaining below 6%. But it has hit the number of hours worked, and is generally seen as a key factor – along with the level of indebtedness – in why consumers haven’t begun spending again despite 175 basis points in rate cuts since 2011. [[Video Graphic of working hours chart]]

    [[comment from businessman employee about sentiment for business]]

    From here the Australian economy poses two key questions to economic decisionmakers including the government, the RBA, and business leaders. The first is what sort of economy current Australian schoolchildren will mature into.

    Is Australia still trying to forge an economy which can provide advanced jobs for well educated scientists, technicians, and professionals, in an economy that is still looking to compete in the global technology, manufacturing, and value adding sectors? Is it still worth Australia making an effort for this in our policy settings? Or has the policy focus of the Hawke/Keating era gone amidst a boom squandered on cheap imports and the real estate boom of the last decade?

    [[comment from manufacturer about competitiveness in Australia at present]]

    From here further questions need to be asked about the services, including professions that many aspire to – in accounting, law, business services, finance and insurance services, and even education. How competitive are they at a global level? Will they still be viable career aspirations for the graduates of tomorrow?

    [[comment about competitive position of Australian services]]

    Finally there are questions about the role of the state in that future economy. Does it have a role in providing services, or is it best left to creating and refining the legislative framework? Should it have a role in leading the Australian economy through the use of Australian taxpayer funds? Should it be seeking to promote industrial development and undertaking to protect nascent industries?

    [[comment – or maybe two – about role of government in setting direction]]

    The answers to these questions provide the backdrop to numerous other policy issues. Is it worth looking for large scale immigration to drive an economy that is only really aspiring to be an efficient commodities producer? How does Australia’s real estate – currently amongst the most expensive in the world – influence the range of economic options available? How does current Australia manage an ageing workforce?
    [[comment – from economist/analyst – about the range of economic decisions required and timeframe available for making them]]

    But the big issue is how does Australia deliver an economy for its future that matches up to the commitment shown by its past to providing it with its prosperous present? Regardless of who wins the election, and regardless of a range of competing messages from societal vested interests, Australia needs to start doing the hard yards once again.

    Gunnamatta
    Macrobusiness TV

    • (Crowd rises to its feet and applauds wildly- that will be just a couple of us then! Excellent, sir…)

    • Great stuff Gunna.

      It is amazing that the politicians and economists do not even approach any of these issues. Flailing around is the political response.

    • Now that’s good TV!

      If we can squeeze that in between Masterchef and The Biggest Loser you might even get people to watch it

    • I’d imagine that 4 Corners might consider something like that. They seem to like tackling the big issues from time to time.

    • Australia needs to start doing the hard yards once again

      Amen brother. We know what’s wrong, we know what we need to do fix it, most of our infrastructure (social and fixed) is in reasonable shape.

      Time to stop acting like a bunch of pussies and smart-arses, let’s get on with it.

    • Col. Jessep: You want answers?
      Kaffee: I think I’m entitled to.
      Col. Jessep: *You want answers?*
      Kaffee: *I want the truth!*
      Col. Jessep: *You can’t handle the truth!*

      • GunnamattaMEMBER

        Rutger Hauer (Roy Batty from Bladerunner) does Glenn Stevens …….

        I’ve seen things you people wouldnt believe, hmph
        Attacked real estate on fire off the shoulder of a once in a lifetime mining boom.
        I watched endless containers of crap come through customs in the dark near East Swanston dock gate.
        All those moments will be lost in time, like [coughs] tears in rain. Time to move into the private sector.

  4. One way or another Gov’t spending will be curtailed. Potentially severely. The writing is on the wall. Time to seperate priorities and necessities from the nice to haves. Hand wringing about the “revenues” is pointless. Treasury would have trouble predicting next weeks fuel price let alone an economy. Time to get real about what we CAN control- Govt expenditures.

    • One of my concerns about Abbott (and I agree with The Lorax that it’s going to be fun watching him deal with the oncoming mess) is that he’s shown no signs at all of wanting to deal with middle-class welfare, and has opposed even the token measures that Labor has proposed.

      I can see him cutting back all infrastructure spending but not actually dealing with one of the major problems with our economy.

      I say this as part of a family that receives some of this welfare but absolutely should not (in my view).

      • Are you alluding to negative gearing? Yes, politicians should be cutting this harmful form of middle-class welfare/warfare.

        • Not specifically but I would be happy to see that go (we own our home but no investment properties).

          More like non-means tested (or high cut-off limits) rebates like private health insurance rebate, baby bonus, family tax benefits, etc.

          We even received rent assistance for a short period after having a child a few years ago, despite the fact that both of us have 6 figure incomes. Apparently it is/was based on an annual limit that is calculated by multiplying a six month period by two (happy if someone can correct me here).

          We both stopped working for a few months and voilà…didn’t matter what we did for the other six months.

          • And another huge one – the fixed tax for additional super contributions. I reckon it should be something like a discount from your marginal rate rather than the same figure for everyone.

          • Well said, AB. Abbott seems to have no stomach for any of this. Let’s hope his courage matches his swagger when he’s in the hot seat. As for negative gearing, if he’s prepared to touch the easier stuff (like the non-means tested payments you mentioned), there’s no chance he’ll even contemplate negative gearing. Abbott’s biggest slogan is that he’ll cut government waste. THat’s a laudable objective and Campbell Newman is to be congratulated for at least having a go at that. Abbott is not in the Newman ideological mould and it’s hard to see him delivering on his claims of massive expenditure cuts.

          • Ralph, not a chance that Abbott even looks at negative gearing. He fully believes that increased house prices means more wealth for the country.

            http://www.liberal.org.au/latest-news/2013/02/15/tony-abbott-transcript-committee-economic-development-australia-state-nation

            “We know that real wealth per head has actually declined over the last five years because of stagnant property prices and because of falling share prices and that’s led to so much more restraint in spending which is why so many of our main street retailers and businesses feel under such pressure today.”

          • Amazing. It’s the easy out clause for all politicians, isn’t it. Keep house prices going up, keep people spending and avoid having to confront any structural issues.

      • AB,
        I’m sure the ATO takes contributions above the minimum tax applicable , if you are so inclined to give back.

        • GSM, our family has a good income but I’m pretty sure I could give it all up and it wouldn’t make any difference to the budget position.

          • I’m in the same boat AB. But I look apon the obsence taxes I pay as a value for money proposition. After all, it’s not Govts money- it’s mine they are taking.

            Stupidly, I expect my taxes therefore to be spent reasonably wisely where I can see an acceptable return to the public or services I need provided. My taxes should be meaningful and respected , not be treated with contempt or smugly harvested to fund vote buying from those who choose to avoid work or to not generate enough of their own earned income- preferring instead to sponge off mine.

            I’m all for a fair go you see.

          • GSM, serious question, not just taking the piss.

            So how do you see a budget surplus being conjured up by the Coalition?

            As far as I can tell, the level of middle-class welfare leaves us in a structural hole which is going to grow even larger when the mining boom ends.

            I’m all for efficiency in government but sacking public servants can only get you so far.

          • AB,

            Serious answer. Australia is in a world of shyte, staring us in the face as the resources boom unwinds.

            There are no silver bullets to avoiding it. All we have available to us are choices that will help mitigate the worst.

            Surplus or no surplus – we MUST keep our Debt levels down. Minimal. That means a rigorous review of all Govt spending . No sacred cows. During that process Australia has to be informed and then decide what Govt can and should afford to provide. The tax impost must be reduced so more income is available to consumers after tax.

            We don’t need public spending on horrendously expensive CC baubles, we dont need layer apon layer of PS expense and massive duplication of State processes, we do not need to fund the Rolls Royce NBN, we do not need to pour money into foreign despots accounts.

            We do need sensible workplace laws that encourage job creation and investments. We do need massive reductions in red/green tape for the same reaons. Small Businesses, where the vast majority of Australian’s work, must get special regulatory and tax attention.

            I accept that even in doing all the above, we will have a very tough time as the resources boom unwinds and PRUDENT infrastructure spending may not allow for a surplus.

            But, we need to get back to simple clear basics that everyone understands and ensure that Govt is a value for money proposition, where transparency and accountability prevail. That way , when things do get tough, we will all know we are doing all that is optimum to ride tough times out. And not left wondering ; are we working hard and smart enough to get out of this mess.

          • Jack,

            “No easy answers i am afraid ”

            Like I said, there are no silver bullets.

            On welfare, don’t know how I failed to mention it. Believe it or not there was a time when it was somewhat shameful to request Govt assistance in Australia. Not that long ago either – I certainly remember it. I’m not saying it was right because people at times do need temporary assistance of one kind or another as they transit a rough patch.

            But, we have allowed what was once sensible welfare system to become a monster. We have bred a smug bludger culture where welfare is a lifestyle choice funded by Taxpayers.It is out of control, being abused by rorters, parasites and lazy spivs who have no intention of earning their keep legitimately- ie working. Complete and total overhaul is needed. Stringent tests must apply to all welfare recipients to ensure they are deserving of the benefit and that the benefit is structured as an incentive towards self sufficiency.

            All able bodied welfare recipients should be required to work for their benefit with compliance to D&A testing.

            Fun and games are over kiddies. Time to roll up the sleeves and get really serious about spending Taxpayer dollars. THEN there may be some respect for our Govt and our hard earned which they expense.

          • An excellent link there, GSM. Continues the IPA’s fine tradition of unbiased analysis.

            +0.27 cents

          • “All able bodied welfare recipients should be required to work for their benefit with compliance to D&A testing.”

            I tend to agree but I find it hard to reconcile with your apparent opposition to any means testing for welfare payments.

            Why on earth should the government be subsidising private health insurance for high income earners?

          • The IPA are immature fundamentalists, and it gets tiring rebutting asinine rhetoric, GSM. Which is all.you.have.

          • For what it’s worth, I like GSM’s style. We certainly do need a lot of wasteful government spending to be cut. Plenty of people say ‘not now, we’ll go into recession’. That may be true, but if now isn’t a good time, when will it be? There will always be a reason to delay until next year. After 10 years of delays because now isn’t the right time, we’ll be looking just like Europe is now. I certainly don’t have faith in either side of politics to do what is required. But we may as well get started now.

          • I enjoy GSM he has toned down somewhat overtime. I miss 3D1k though.
            The other point though that I would make to GSM, if your nation is running a huge CAD , and the govt cuts you can expect rising unemployment and a non virtuous circle of rising govt expenditure via social sercurity payments and falling tax receipts. No easy answers i am afraid as Flawse says they are back in time.
            Re the earlier comments regading MMT, it works so long as you have a closed economy or a very tight economy and dont require huge imports ie Nth Korea

      • That’s exactly right, AB. Testostertone (to borrow Gunnamatta’s term) has shown absolutely no inclination to wind back any middle class welfare whatsoever. He’s even frothed at the mouth in wild opposition to the ALP’s tentative attempts to reign in this hideous beast. If Abbott were to show signs that he might even contemplate cutting middle class welfare it would be a complete 180 degree change of direction. He might change in government, but he’d be at risk of being labelled a complete hypocrite if he does. I see no evidence that Abbott has any plans at all to deal with the structural issues. It’s really hard to imagine what an Abbott government would look like. The best guess I have is Rudd Mk 2. That is, reviews and deliberations followed by very modest tentative attempts at reform. We’re not about to see a marauding, cost-cutting ideological warrior here. I think we’re all going to be quite disappointed.

        • “We’re not about to see a marauding, cost-cutting ideological warrior here. I think we’re all going to be quite disappointed.”

          I for one will be Ralph, if this is comes to pass.

          • As surprising as it may sound, I’d like to see Abbott and Hockey come out with all ideological guns blazing.

            It would finally give us a big difference between the two parties and I’d love to see what effect it would have on the economy (I don’t think it would be good but what good is political capital if you don’t use it?).

            I can’t see it happening though.

          • Yes, AB, they should come out guns blazing. Even if it’s just with a couple of double-barrelled shotguns rather than a fully loaded semi-automatic. Make some dents into the debt. There’s never going to be a perfect time, so let’s get started. It doesn’t have to be too savage, but there needs to be some movement in the right direction.

          • Ralph, the problem is that I think their method is going to be bringing back the “good old Howard days” by relying on private debt increases.

      • You can’t change the rules in the middle of the game! We never would’ve had these kids if we thought we had to pay for them. Promises were made!

        Homer Simpson

    • So you foresse Abbott scaling back the monumentous waste in governmetn spending that Howard put there?

    • You make a good point, GSM. In a media environment that perpetuates the shallow banality of mainstream thinking, and a political culture that thrives on glib rhetoric, is a site like macrobusiness a ‘nice to have’ or a ‘necessity’ ? How would you prioritise your spending to ensure that a site like macrobusiness can continue to offer a growing readership access to the kind of analysis and information that is otherwise wilfully cast aside in favour of the anaesthetising pablum of re-formatted press-releases parading as journalism ?

      Could your spending priorities absorb 0.27c a day to secure nothing less than the continuing enlightenment of this country’s future leaders, to mark out the path or our nation’s future prosperity ?

      Think on this while you click this link

      http://www.macrobusiness.com.au/membership/

        • I am not affiliated with Macro Associates or any related entities whatsoever, nor am I receiving any form of consideration for whiling away a slow work day trying to pimp up some voluntary subscriptions for an admirable website on behalf of a group of modest young bloggers who are clearly too proud and dignified to start putting the hard word on their mooching readership.

          My only payment will be in virtue, and that is the best hedge anybody has in these crazy, precarious times.

          So, come on GSM. 0.27c a day. You know they deserve it.

          http://www.macrobusiness.com.au/membership/

  5. Its hard to see how the budget can be fixed, when any attempt to actually make the boomers pay their fair share of tax is met with hysterical whining about class warfare and blah blah blah (eg. Henry review, super reforms etc. etc.)

    It seems fitting that at the end of their working lives the boomers will leave the country and the next generation a debt burden, almost entirely caused by their own selfishness.

    • No politician in this country has the courage to make the cuts to wasteful government expenditure that are required. Unless we suddenly find some politicians with a bit of ticker, we’re well on the way to being the banana republic that Keating warned of.

  6. Responding to an interesting point made by Gunnamatta (above) in his TV script – I don’t think the ‘services economy’ actually exists. I think it was really an invention by Hawke/Keating to distract people into believing we could all be professionals and sell services to each other while they closed down manufacturing.

    My personal belief is that tertiary education is a scam that won’t benefit the majority of graduates. I know many people that I went to school and university with who obtained top degrees from eminent institutions only to find that the work simply wasn’t there.

    One friend I went to high school with got a first class law degree from Melbourne Uni in the mid-1990’s and he’s now working in a shop. I bumped into him recently and he bemoaned the fact that law is saturated and the universities are pumping more and more law graduates out all the time. Another friend I know who also went to Melbourne has a double-degree in Arts and Education and he’s teaching English to migrants, something he’s way over-qualified (and under-paid) for. He said the same thing – too many graduates competing for too few professional positions; teaching is apparently also in over-supply at the moment.

    • May I suggest that your teacher friend consider work at an international school overseas. Pay packages, lower taxes, housing allowances, paid flights home, better behaved students, respect for the profession, cheaper food and a more vibrant culture are some of the many possible benefits for teachers who work at international schools.

      Not sure, however, if the current global recession is having any impact on employment prospects for teachers looking for work overseas. Contracts are initially for one or two years and if everyone is happy a good chance for renewal.

      International teaching experience won’t hurt your friend’s prospects for future employment in Australia should he ever want to return–hopefully after house prices have crashed here.

      • Thanks for this advice, Charles. My friend did consider overseas work as an option but for family reasons can’t leave the country.

        It’s a sad reality that many people are in a situation of having to leave the country to obtain work.

  7. As I understand it our Labor government has laid down the future direction of employment. Its services mainly in healthcare and childcare/education.(ie jobs largely paid for by the government aka Ozzie taxpayers).

    • Q$A is more likely to have discussions on Julia’s clothes and other deep issues like whether there is a God.

      No episode would be complete either without an endless debate on what to do with refugees arriving on our shores by boat.

      Q$A is entertaining but hardly informative. Things will have to get much more dire economically before Australians sit up and take notice.

      Australians live in a bubble–a housing bubble so big that they can’t even see it. Talk about ignoring the elephant in the room.

  8. On the politics of the matter of it happening twice under Labor – they can probably be forgiven for the first one – GFC and all that but there’s been time to get the house in order since then so I’m not so forgiving on the second one.

  9. Had a very interesting, long chat (heated discussion as well) with a very senior Coalition official on the weekend.

    I was a little surprised to be frank, they KNOW there is a slowdown coming, and they KNOW that cutting spending at same time WILL result in job losses.

    But they are adamant about cutting a huge swath through the public service – maybe even whole departments, but not touching middle class transfer payments – because they KNOW that people will need more disposable income in the years ahead.

    That means the focus on going back to surplus will be tossed aside – it will be talked down and away.

    Their main focus, according to this official, will be on reducing regulation to help businesses create jobs.

    I told them good luck with that sort of transition. Dog knows SME need government to move out of their way on a myriad of issues.

    But I told him in no uncertain terms that the macro is against the Coalition.

    • We had better hope that a semblance of the old DLP instincts prevail in Abbott (and that he isn’t rolled by the hard right in his party), because as you suggest, there are some hard-heads in the Coalition who are hell-bent on implementing fiscal policy that risks miring our economy in recession and burning hundreds of thousands of jobs (and not just in the public sector). If the Coalition intend to hold power for more than one term, then they will need to hold the centre. The more reasonable approach would be to commit to capping the size of Government workers as a % of the total workforce at a reasonable level, say a reduction of 2% to be achieved over time, as well as committing to further efficiency reforms in the PS. This is not quite end of days for Australia just yet. The Coalition need to start getting the buy-in on this issue now – Tony Abbott would be all too keenly aware of the electoral lesson of Workchoices.

      http://www.macrobusiness.com.au/membership/

    • Is that for real? You can’t make this stuff up! This is supposed to be the party of free enterprise, reward for effort etc, not continued government handouts. Some, perhaps even a lot, of those public servants would be making productive contributions to society. But the public servants have to go so middle class welfare can stay. I suspected the Coalition would be soft on middle class welfare and this confirms it. Unbelievable.

    • Furthermore, I’m all for reducing government spending, but it has to be in the right areas. To specifically reduce relatively more productive expenditure so that middle class welfare can be maintained just boggles the mind. Perhaps they want to create a society that becomes even more dependent on government for their existence. But if so, it goes against the very grain of what the Coalition purports to stand for.

    • Thanks for the insight Chris. If PS jobs and whole Depts go, I very much doubt there will be a blip in votes lost. So no real electoral damage done there with LOTS of savings on offer, to spend elsewhere.

      Obviously they are putting a lot of credence in workplace reforms to improve new job formation. Good plan.

      Overall, I expect a significant reduction is Govt expenditures but the real big changes will be seen in spending priorities. The tide there is changing and many will be effected.

  10. Very interesting Chris. Will be interesting to see what happens politically if they do abandon the drive for surpluses.

    • I would expect it will be stage managed – i.e blame ALP economic mismanagement and explain the situation gravely etc. have to be managed over the cycle etc etc

      • On day one of the Abbott Regime there will be an announcement about a (insert huge number here) billion dollar black hole.

        • GunnamattaMEMBER

          Yep yep, agree with all that.

          But the moment they do you would expect a one off jolt downwards of the AUD which I would have thought would still entail a risk of the RBA having to lift rates for inflation purposes (unless Joe Hockey can convince Glenn Stevens there is as much chance of inflation as of the Libs backing out of a promise).

          The other thing is as soon as they start shredding public servants there will be a service reduction for lots of things the APS does (I understand they are running on an oily rag in a lot of customer facing areas already), and if they cream the actual policy types then presumably we end up with a gamed policy somewhere which folds at some point.

      • something like that!

        lots of gravely nodding heads with usual non-biased partisan economists standing behind.

        then a lot of shaking heads when they explain its because of ALP “over-spending”.

        No admission of guilt (or fact) that it was How/Cost policies that led them to this.

        Just smile and wave boys. Smile and wave.