Uren: Abbott promises threaten Budget

abbott

The AFR is reporting today that:

The federal government is scrambling to find more than $3 billion of additional savings in the two weeks before the budget after Treasury halved the projected price of carbon when Australia links to the European scheme.

The government plans revise down the projected price of carbon in 2015-16 from $29 a tonne to around $15.

…As a result, the government is seeking additional savings from across government in 2015-16 and 2016-17 in the remaining weeks before the budget, adding to the difficulties posed to the bottom line by falling revenue and big- spending commitments on disability and schools.

That’s going to be a challenge all right.

Just as concerning, in fact more so given the lack of coverage and the liklihood of regime change, is an excellent analysis by David Uren of The Australian looking at Tony Abbott’s much larger spending promises.

Uren lists the paid parental leave scheme, cutting the carbon tax but effectively keeping the tax cuts, carbon direct action, a commitment to lift defense spending “by 3 per cent a year until it reaches 2 per cent of gross domestic product – an annual lift of $7.5 billion”, removal of means testing for the private health insurance benefit and improvements to the indexation of military superannuation pensions,  along list of state infrastructure projects plus 100 dams and development for northern Australia.

These can be weighed against the abolition of the school kids’ bonus and the rebate of superannuation contributions tax for low income earners, and $1 billion from winding up the the Clean Energy Finance Corp plus vague gesture at cutting 20,000 public servants and “stopping waste”.

Uren’s conclusion:

The firm commitments to spend to date far exceed the firm commitments to save.

Paired with its determination to reduce and abolish taxes, there are grounds for concern that the Coalition’s strategy would weaken the budget bottom line.

The Coalition gives little indication of recognising the severity of the budget challenge it would face.

Commonwealth taxes averaged 24 per cent of GDP in the last six years of the Howard government. They slumped to just above 20 per cent in the two years following the GFC. That translates to a shortfall of about $45bn a year. If that had to be covered by taxpayers, it would be $6000 per household.

Yes, revenue is growing, but nowhere near fast enough to return it to its former share of the economy. It will only be 21.4 per cent of GDP this year.

…Even if commodity prices fall only very slowly from their current peaks, the economy is trapped in a long-term trend of weak growth in the total value of the goods and services it produces – the so-called “nominal GDP” which provides the basis for taxation.

The last line is the problem. As I’ve said, modest deficits are part of the solution for Australia in the years ahead. But the Coalition is showing no sign of understanding the constraints they will face.

I am not doing the Uren piece justice and suggest you read it yourself.

 

David Llewellyn-Smith
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Comments

  1. I cannot believe how this idiot is going to win.. Don’t Australians know that there are other parties they could vote for? What goes through these people’s heads, seriously? I can’t help but feel they are automatons, not living and thinking beings like me. How else can one explain it?

    I can’t see the logic in many of Abbott’s policies. It does actually seem like they are designed to benefit the well off. Why should someone like me get double the parental leave of someone with a lower paid job? Or not get means tested? Especially if those lower paid people are paying for it!

    I can only watch in depressed amusement as these sheep vote for their own destruction.

    • “Don’t Australians know that there are other parties they could vote for?”

      This has been puzzling me since I arrived in this country. The press is at least partially to blame for not giving anyone else a look-in. I’m trying to influence as many people as I can to vote for anyone BUT Labour and the Liberals, preferably an independent. The two of them need to get the message that we’re sick of them both and the best way to do that is to vote in someone else

    • “Don’t Australians know that there are other parties they could vote for?”

      Hopefully everyone votes for the Australian Communist Party in protest.

    • drsmithyMEMBER

      I cannot believe how this idiot is going to win.. Don’t Australians know that there are other parties they could vote for? What goes through these people’s heads, seriously?
      Same message that gets pounded out ad infinitum in America: a vote for anyone except the two major parties is a vote wasted.

      Uncle Rupert & Co. don’t want to have to buy off dozens of political parties. Much more expensive than just two.

  2. Great pic of the shouty man. The Uren piece is a good one and I’d expect to see more of this sort of stuff as the election approaches. The nominally conservative media (e.g. the Oz) has been successful in their objective of helping to bring about a change of government. Therefore they are starting to turn their minds to what the world might look like after September 14 and giving the Coalition’s offering a bit of belated scrutiny. As much as Abbott might not want to, I think he’s going to be pressured into putting a bit (perhaps a lot) more meat on his policy bones.

  3. I cannot believe how this idiot is going to win..

    He hasn’t won. Labor can still win. Calm down.

    Don’t Australians know that there are other parties they could vote for? What goes through these people’s heads, seriously?

    Yes. I will be voting for the Stable Population Party. Is that OK by you?

    I can’t help but feel they are automatons, not living and thinking beings like me. How else can one explain it?

    The idea that anyone who disagrees with you is not a “living and thinking being” is dangerous and frankly bizarre.

    I can’t see the logic in many of Abbott’s policies. It does actually seem like they are designed to benefit the well off.

    Yes, that’s what conservative governments do and have always done. They pursue policies that benefit the rich. Nothing new here.

    I can only watch in depressed amusement as these sheep vote for their own destruction.

    Again, the idea that people who disagree with you are “sheep voting for destruction” is dangerous. Democracy allows for people to hold a variety of opinions and yours isn’t the only one that is valid.

    • He hasn’t won. Labor can still win. Calm down.

      Nonsense! And FYI, blockquote tags in comments don’t format correctly on a lot of browsers, so don’t use them.

          • That credibility is in the toilet though voting for Abbott who has already pressed the flush button is insane. It’s as if tehre’s a forced A/B choice.

            I just don’t understand why people don’t look at other parties. It takes less than 10 minutes these days with the internet. Otherwise, on election day you get pamphlets from other parties too that you can read while lining up. Yet people just keep voting as if there were only two.

        • Agree with HnH. The government has so little credibility that the only consideration is getting rid of it. Fidel Castro and Kim Jong-un could run on a joint ticket and still win in a canter. That’s how bad it is.

          • If things get bad enough before September — and they will — they could still bring back the Rudd-bot or maybe try the Oompa Loompa. I think either would do better than Gillard. A lot of the anti-Labor vote is personal dislike of Gillard.

          • Yes, Rudd would be interesting. I reckon it’s not out of the question either. Plenty of ALP backbenchers would be outright sh**ing themselves right now and if they thought Rudd would keep them in their jobs for another 3 years, I reckon they’ll make the switch. Not sure about the Oompa Loompa. What’s his/her policies look like?

          • Oompa-Loompas are mischievous, love practical jokes, singing and are very good at improvising … Oompa-Loompas sing moralising songs accompanied by a drum beat, and tend to speak in rhyme.

            Sounds like he has all the qualities required to be Prime Minister.

    • I understand there are different valid points. But Abbott doesn’t have any redeeming features. He has introduced more and more American style politics here. He (rightly) criticizes Gillard for some things that he openly plans to do no different or worse. Often he just says no, just because.

      The issue here is that people tend to vote in circles for the least worst of only 2 parties. Then they always complain about the government. They never look or think about an alternative. They just swing from one to the other, or maybe just stick to one no matter what. Policies are irrelevant and if they are, they only look at most inconsequential ones. This kind of behavior is definitely more automaton than a free thinking person. My question is.. why? No matter how many times they do it, it keeps happening.

      • Alex Heyworth

        “I understand there are different valid points. But Abbott doesn’t have any redeeming features.”

        These two statements are not compatible.

        • I don’t think so. It could simply be that an opinion which considers Abbott a great leader with great policies is simply incorrect. If so, I don’t consider it a ‘valid’ point of view.

          I haven’t heard of any economist praise Abbott’s policies. Always the opposite. So just like yelling about the dangers of vaccination, or demanding communism, it is fair IMO to consider a pro-Abbott position as mistaken.

          • Alex Heyworth

            You don’t need to consider Abbott to be a great leader with great policies to consider that he has some redeeming features. For example, he’s not Julia Gillard. That is a major redeeming feature in many people’s opinion.

          • Phroneo,

            One of the often overlooked subleties of our Democracy is that Govt hold power by consent. When the electorate believe legitimate consent has been thwarted or even betrayed, the response can be visceral.

            Abbott’s redeeming quality, rightly or wrongly is that it appears he/LNP is being granted consent to govern. Without it this country becomes unglued. I think that at least you could give him credit for that.

          • If someone is simply voting for B because they dislike A (ignoring that there are choices C to X), then its even a more obvious invalid opinion.

            Abbott hasn’t shown much honesty and his position on various things are not unlike Melbourne weather. I understand people are upset with Gillard but it looks like Abbott will be more of an upset.

          • Alex Heyworth

            There aren’t choices C to X. Either the ALP or the Coalition will be the next government. Which do you choose?

            Yes, you can register your disdain for both by giving your first preference to another party, or voting informally. Still doesn’t change the options.

          • GSM:
            What do you mean by the country being unglued? I can’t be certain but would the country be in trouble if suddenly, the Liberal Democratic Party got 50% of the vote? Or perhaps something small like the Stable Population Party / Legalise HEMP Party?

          • Alex:
            Perhaps I misunderstand Australian politics. Are you saying that if the majority of people voted say, Liberal Democratic Party, we would still have a Liberal/Labor government?

          • Alex Heyworth

            I still have that squadron of Berkshire Whites fueled and ready for take-off.

  4. Alex Heyworth

    I don’t know where Uren is getting his Commonwealth revenue as a %age of GDP from, but his figures don’t agree with the official ones http://budget.gov.au/2012-13/content/myefo/html/13_appendix_d.htm.

    According to the official figures, the lowest that revenue has been as a proportion of GDP* is 21.6% in 2010-11. That grew to 22.5% in 2011-12.

    *In recent years. The proportions were lower before the mid-70s.

  5. Rumour has that the international nuclear waste dump will bring in $100 billion, as a deal done by Johnny and Halliburton.

    • i can imagine that.

      it’ll plug the budget whilst we’re restructuring, then once the business cycle picks up, it’ll be privatised to a bunch of ex-LNP pollies who’ll dismantle the environmental protection safeguards and poison large swathes of the Australian landscape after they’ve died and sent their kids to Europe.

  6. Her problem is no one believes her and with good reason.These Budget machinations are just the latest subterfuge;

    ““There will be no carbon tax under a government I lead,”

    “We’ll bring the Budget to surplus in 2012-13, exactly as promised,”

    ““I have in the past ruled out a levy and I will do it again now,”

    Credibility and legitimacy is shot.

    http://www.sportsbet.com.au/betting/politics/australian-federal-politics/outrights?ev_oc_grp_id=1070370

    LNP: $1.09 , ALP : $7.00

    Meanwhile, when we weren’t watching;

    http://www.dailytelegraph.com.au/news/enormous-attack-on-defence-spending/story-e6freuy9-1226633467442

    “Enormous attack on defence spending”.

    • “The Daily Telegraph understands more than $1 billion could be sliced from defence over the forward estimates in the federal Budget on May 14.

      The army, which has grown rapidly in recent years, is in line to bear the brunt of the cost cutting via a so-called “peace dividend” in the post-Afghanistan environment.”

      Sounds pretty reasonable to me. What’s the problem?

    • LNP: $1.09 , ALP : $7.00

      Even Singo doesn’t rely on Tom Waterhouse any more. Do try to keep up with the times.

        • Mining BoganMEMBER

          No, he wasn’t. He has claimed that he backed the injured horse himself. And that he lost on the race.

          • Will be interesting to see if we ever find out the truth of that claim (or Singo’s for that matter).

  7. The budget is just shot to pieces.

    The Financial Statements for 2012/13, with adjustments to reflect the latest revisions to receipts announced by the PM show:

    Taxes on individual and company income and capital gains, including CGT, FBT, Superannuation income and Resource Rents
    @ about $243 billion (15.8% of GDP). This is the bread and butter of Commonwealth finances.

    The balance of Commonwealth income, including indirect taxation and other income of all kinds, is distributed away to the States and other bodies.

    For sure, Labor bought into the China boom narrative and, along with the economy in general, are now finding the reality has failed to live up to expectations.

    The problem is not so much on the spending side of the budget, which has not grown as a share of the economy even though some new programs have been introduced and demographic demands on the public sector have been increasing.

    The problem is in revenue, which has been weak ever since the GFC and is going to remain weak, in line with nominal income.

    Other than slashing spending, which will almost certainly induce a recession and possibly imperil the whole housing/banking edifice, the choice is between increasing borrowings or increasing taxes.

    This is the fuse on John Howard’s fiscal time bomb. He created numerous gaps in the revenue in places that have grown in importance over the years – concessions earnings by seniors and on Super income, on capital gains and on excise collections, negative gearing and family tax rebates.

    The politics of reforming these holes in the revenue is formidably challenging. But they will have to be reformed. Alternatively, substantial parts of the social spending structure will have to be dismantled.

    Perhaps this will be the sequel to the Howard era. The apparent generosity of last decade will be replaced by parsimony in the next.

    • “The problem is in revenue, which has been weak ever since the GFC and is going to remain weak, in line with nominal income.”

      I wouldn’t say a 40+% increase in revenue since Costello’s last Budget a revenue problem.

      Most certainly, Govt expenditures have increased way beyond revenues to the point where we now exhibit a 200B +Debt. Spending is running amok.

      This is simply a mismanagement of public finances, the inability to say No and treating taxpayers with contempt. There is far too much demand on the public purse and it needs cutting back now. If that induces a downturn- so be it. Better we restructure now of our own volition than have it thrust on us like various Euro countries. More Debt and more taxes will only serve to kill off capital and job formation with certainty.

  8. GSM, this is not accurate. Spending as a share of GDP is about the same now as at any time since the Fraser Government. The record shows that spending as a share of GDP tends to rise under Tory Governments and fall under Labor ones, but the differences are not huge. What tends to change around a bit is the composition of spending, but even this is not as prone to variation as the polemics suggest.

    From the mid 1990’s on, Commonwealth revenue tended to grow faster than the economy. Since the GFC, the dynamic has been reversed.

    Incidentally, your remark that “more debt and more taxes will only serve to kill off capital and job formation” is more rhetorical than factual. Tax collections have been falling alongside fading labour demand. This suggests that growth trends in revenue and labour demand have the same drivers – that is, the character, direction and rate of growth in demand in the private sector of the economy.

    We have had five years of unstable demand growth in the domestically-facing private sector. In this, Australia is replicating the experience of all industrial economies, where retarded growth rates are now endemic.

    Leaving the rhetoric to one side, the issue is not mismanagement so much as chronically weak growth and resulting misalignment between revenue and spending.

    The question is what to do about it. Making such choices is not made any easier by false descriptions of the problem.