23 May 2014

More Budget

There wasn't too much new when the Australia Institute ran its commentary on the recent Budget. The Budget has been all over the papers and media for days, and it's a first budget for a new government and this is always controversial. This one is more controversial than others, given the direction of its cuts. For all the hysteria of budget emergency, there were not really great changes in the overall budget position. One speaker said the cut was only 0.1% of GDP in FY2014/2015. But the cuts are real for some poorer parts of society. See NATSEM and ANU Crawford School for some figures. Three speakers appeared at this session. David Richardson spoke of debt. Australia's is 14% of GDP (read, small, esp vs other countries; small vs BHP-Billiton which was said to have profit of $19b pa and debt of $66b). Australia had debt of over 100% in the 1950s after WW2, and also after WW1. He also queried that we are living beyond our means, given GDP is $1.5t and our consumption (excludes education, hospitals, infrastructure, etc, which he seemed to treat as investment) spending is $1.1t. So Budget emergency is "unquestioned rhetoric". Matt Grudnoff spoke of the Worst and Best of the budget. He gave the Medicare co-payment, indexing of school and hospital payments to CPI (the missing $80b), the Newstart 6 month cuts for under 30s and the $6b cut in Foreign aid as his worst (and the Newstart cut as "nasty"). Then the Goods: reindexing of fuel and means testing for Family Tax Benefit B. He also gave an honorary mention for the Deficit levy despite the high marginal rate and its short duration. He also talked of the "rhetoric" around "unsustainable" and "Labor's reckless spending". Then Ben Oquist spoke of the political aspects, especially in the Senate, the "muddled messaging" as well as the "savage cuts". He made the interesting observation that the Right wishes to reduce taxes because "Government is [essentially] redistributive" and observed that we are a very rich country in the richest period of our existence [maybe excepting the gold rushes?]. He suggested the strategy is for a bad budget then to get through to the next election with some tax cuts on a GST promise. But the reception is worse than expected, partly due partly to poor messaging. He considered the Senate's role and the positions of Greens and Palmer and stated it's the "toughest Senate [for a Government] since 1975". And he mused over Labor and their response and whether they can present a real challenge with real policies. Questions were on the reduction company tax and the involvement of the BCA. The rough figures are: company tax is 30% and raises $60b, thus the 1.5% reduction is a $4.5b cost to the budget. [But then, on forward estimates, getting rid of Mining tax costs $5.3b and Carbon tax costs $12.7b]. They considered electricity pricing (where carbon tax made up 9% of rises, widely agreed) noting that rollout of updated infrastructure is largely done now so electricity prices will return to CPI increases. I found it interesting when a speaker noted that it's "harder to lie in Government than in Opposition". Someone spoke of a son and friends at College who were starting a letter-writing campaign, and this was welcomed by one speaker. Someone asked about Royal Commissions and failed infrastructure, with rhetorical implications. There was talk of research on the likely health costs of a Medicare surcharge. (Hawke introduced a Medicare copayment and it became an issue in the leadership tussle with Keating and was removed, so there are interesting resonances with Labor). Martin Parkinson even got a run with his recent statement on the budget. David said it reminded him of Keynes' response to Treasury officials who worried about the post-war while bombs dropped in WW2: "The future can look after itself". Matt observed that it's strange that we are now living longer, and we find this a problem [such is economics]. There was a clarification of the "structural budget deficit" created by tax cuts (permanent) during a boom (temporary) and also the distribution of these changes. There was an interesting observation that Old Business dominates in influence now, and that New Business is yet to find its voice; also that they don't always have common interests. [I heard a solar business leader commented negatively on changes related to climate policy the other day. That's not the lines from the coal industry]. There were some comments on Rural/Regional and how the budget has a disproportionate effect on them, and how they continue to support the Nationals. David finished by saying why Australia can't end like Greece and Spain, as we are an independent economy with our own central bank: evidence is Greece debt 160% > crisis; Japan debt 250% > no crisis. Interesting, but nothing particularly new. And I wonder how much influence this can have. We live in interesting times, damn it!

Three researchers from the Australia Institute, David Richardson, Matt Grudnoff and Ben Oquist, spoke at Politics in the Pub.

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