10/17/18

Crisis? What crisis? Budget bluff finally becomes clear

Federal budget 2014: Full coverageFederal budget 2014: Interactive data explorerFederal budget 2014: Where will your tax dollars go?
Nanjing Night Net

The sense of urgency that the government engineered going into this budget can now be seen in perspective. There was no crisis forcing savage spending cuts and revenue-raising measures.

Indeed, there was a risk that budget savagery would backfire, undermining an already tentative economic handover from the mining boom to the rest of the economy.

There was (and is) a longer-term problem, however (that’s problem, not crisis): the gap between revenue and spending, the budget’s ”Jaws” in financial parlance, are narrowing at a time when the government is already running a deficit that in the year to June will be 1.5 per cent of gross domestic product.

Joe Hockey’s first budget attempts to balance both issues, and while the wealth tax is confirmed, it is spending cuts that carry the strategy, delivering savings that start at $1 billion in 2014-15, rise to $15.5 billion in 2017-18, and total $28.1 billion over four years.

The budget is not as tough on spending as the 1996-97 budget that Peter Costello delivered at the beginning of the Howard government’s tenure. Costello cut spending by 0.5 per cent in year one, and 2.1 per cent in year two. Hockey’s budget will actually increase spending by an average of 0.8 per cent a year over the next four years.

That 0.8 per cent rate is less than half the ”do-nothing” four-year spending growth rate of 1.9 per cent in December’s half-yearly budget report, however.

All the big pre-budget leaks were confirmed, and the government is predicting that the squeeze will continue beyond the four-year horizon of the budget itself.

It says, for example, that the amount it sends to the states in specific grants for education and hospitals is ”unaffordable,” and that it plans to save $80 billion between 2017-18 and 2024-25 by re-writing the rules.

Unless school and hospital budgets are gutted, the $80 billion that Canberra expects to save will be an extra $80 billion that the states need to spend. If this is not to be merely a transfer of pain from Canberra to the states, then the states will need to find more revenue, in other words, and it will probably come in the form a taxation quid pro quo that includes an expansion of the GST.

The Reform of Federation and Reform of Tax white papers are both due to be tabled by the end of next year, and will set the stage for Canberra and the states to negotiate a new deal that Tony Abbott takes to the next election.

The budget pain was spread widely, as also pre-advised, and for businesses, it was a mixed bag. The government said it remained committed to cutting the corporate tax rate from 30 per cent to 28.5 per cent from July next year, for example, but persisted with a parental leave scheme. That means the 3000 or so largest Australian companies will still effectively pay 30 per cent after paying a 1.5 per cent parental leave levy.

The corporate tax cut does, however, promise to boost profits, spending and employment at about 750,000 other companies.

Industry support was slashed. Cuts start at $469 million this year, go past $1 billion in 2017-18 and total $2.5 billion over four years. They are ideological as well as practical cuts, and some of them will be reversed by the next Labor government. The impact of the cull can only be measured over time, rationalisation project by rationalisation project. It is being described as downsizing of government, but can service levels be maintained?

One small agency, the Corporations and Markets Advisory Committee, is for example eliminated as part of a wider rationalisation of more than a dozen smaller agencies that saves only $19.4 million over four years.

CAMAC has just three employees, and has provided important advice to successive governments for a quarter of a century about possible changes to company and securities law – advice usually provided after a debacle or disaster shows the current law to be inadequate, or after new developments overtake the rules. This is not work that grabs the headlines, but it is important, and it will still have to be done when CAMAC is gone. One wonders if it can be done as cheaply, or whether the change just means that a higher bill for the same service is buried.

Overall, this is the right point in the electoral cycle for a new government to deliver a tough budget. It will hope its third budget sets the stage for re-election. If Hockey’s first budget hits confidence and demand too soon and delays or derails the handover from the fading resources boom, however, the government will be relying on rate cuts to get it back on track.

This story Administrator ready to work first appeared on Nanjing Night Net.

10/17/18

The populist PM is gone, meet Abbott the ideologue

Illustration: Andrew Dyson hockey-abbott
Nanjing Night Net

Federal budget 2014: Full coverageFederal budget 2014: Interactive data explorerFederal budget 2014: Where will your tax dollars go?

Joe Hockey says this budget is not the last word in fixing the nation’s finances but the first. And that first word is “surprise”.

It’s a brave beginning for the Prime Minister who had promised to run a government of “no surprises and no excuses”.

It’s a surprise on three levels. First, because Tony Abbott has broken so many of the vows he swore to keep.

No new taxes, no increased taxes, no cuts to education, no cuts to health … these are promises discarded. This is as easy a job for Bill Shorten as any opposition leader has ever had.

It’s a surprise on a second level because, while Abbott was a cheap populist in opposition, he now reveals himself to be a purposeful prime minister.

He’s not looking for popularity but respect. His budget is a bold political bet that people will not punish him for breaking promises but reward him for being tough and responsible.

The budget inflicts pain on most of the population, young and old: young people lose any right to unemployment benefits for a minimum of six months, uni students will pay more for degrees, pensions will be less generous, two million families will lose part or all of their family payments, the free visit to the doctor is history for almost all, motorists will pay more for petrol, high income earners will pay a new 2 per cent tax levy.

A great outcry will rise up across the land. Some of this will vindicate Hockey’s argument that people have come to feel entitled to government benefits. But actually cutting into them is a politically dangerous way to prove a point.

The budget’s a surprise on a third level because it exposes Abbott as a more ideological conservative

prime minister than even his mentor, John Howard.

Abbott once described himself as Howard’s political “love child.” But Howard was the sugar daddy of the family payments system. He was the arch exponent of middle-class welfare in pursuit of the votes of the “Howard battlers”.

Abbott now cuts into the Howard edifice by about $6 billion over

five years.

Howard never attempted the deregulation of the university sector. Abbott has.

Howard never attempted to impose a “price signal” – otherwise known as a co-payment – on the routine visit to the GP. Abbott has.

Howard’s treasurer, Peter Costello, once called Abbott more a DLP man than a member of the Liberal mainstream. It was a reference to the fact that Abbott spent some of his formative years incubating in the company of BA Santamaria’s now-defunct Democratic Labor Party.

But Abbott now proves Costello wrong. Abbott and Hockey are forging a small-government, pro-market country, distinctly at odds with the DLP agenda.

Overall, the budget marks Abbott as serious about achieving an overarching promise: to stop the debt.

The budget’s declared aim is to cut the federal deficit from $49.9 billion this financial year to $29.8 billion next and to achieve a near-balanced budget – a $2.8 billion deficit – in the fourth year.

If so, he will have pursued the national interest of better finances over the political interest of greater popularity.

But, in truth, he’s making a virtue of a necessity. Abbott is not popular; he has never been popular as prime minister. He is, according to the Nielsen poll, the first unpopular leader to take the prime ministership in 40 years.

He has concluded he cannot expect to win popularity by spending more money. But he can hope to win grudging respect by being tough with the national finances.

He and his treasurer are making much of the equality of sacrifice in the budget; people across every income bracket are taking some pain.

But the truth is that, in this budget, the poor will make a permanent sacrifice, while the rich make only a temporary one. The 2 per cent tax levy on people earning over $180,000 expires after three years. The cuts to welfare and pensions will endure.

So while the budget does put Australia on track to better national finances, it also sets the country on a path to greater inequality. Hockey will regret the moment he was snapped puffing a cigar.

This is the angle that Labor, the Greens and, probably, Clive Palmer’s United Party will seize on to try to block key measures in the Senate. The $7 Medicare co-payment, for instance, will be hard fought there.

The budget does achieve the big economic task that it needs to accomplish. The boom in mining investment is in the process of tapering off by a big 4 per cent of gross domestic product in the few years to come.

The economy needs a new source of growth to replace this. The Hockey budget switches some money from recurrent spending to pay for new infrastructure, and roads in particular.

And it does it at a moderate pace. The cut in spending in the budget’s first year is sizeable but not savage. At about the equivalent of 0.8 per cent of GDP, it will not do any appreciable harm to growth in the short term.

Abbott has revealed his true prime ministerial character in this budget. And it’s entirely different from his character as opposition leader. The populist is gone and the tough ideologue has arrived.

A prime minister’s first budget is his best chance to impose tough decisions on Australia; Abbott has not missed.

This story Administrator ready to work first appeared on Nanjing Night Net.

10/17/18

An indexation trick without an asterisk

Federal budget 2014: Full coverageFederal budget 2014: Interactive data explorerFederal budget 2014: Where will your tax dollars go?
Nanjing Night Net

Honest Joe has delivered a stunning first instalment. It’s stunning because he has harnessed the power of compound indexation to restrain spending by more and more as each year goes by. It’s the first instalment because his second, due within two years, will deal with tax.

Until now, pension and disability payments have climbed twice a year in order to keep pace with wages.

From 2017 (a date chosen to keep an election promise about no pension changes in the first term), they will climb more slowly in line with the consumer price index.

The CPI typically climbs 2.5 per cent a year. Wages have typically climbed 3.5 per cent. The difference will create an ever-widening gap in living standards, allowing the government to save an ever-increasing pile of money.

He couldn’t try the same trick with family tax benefits because they are already linked to the CPI. Instead, he’ll freeze them for two years.

And he’ll make it harder to get nearly every benefit going. This matters when it comes to government spending because benefits (so called transfer payments) make up the bulk of government spending. It’s easy to talk about the cost of government, but the cost of running the government is small compared with the cost of the funds handed out.

The savings won’t be great to start with, all the more so because the changes to the pension will be delayed. That’s why there will be a temporary budget repair levy to fill the gap. It will end in July 2017, when the changes to the pension start.

What harnessing the power of compound indexation gives Hockey is a way to predict ever-greater savings right out to the end of the 10-year projection period. It’s an honest version of the so-called ”magic asterisk” trick used by his predecessor, Wayne Swan. Swan said there would be ever greater savings year by year because the government would cut spending as a proportion of gross domestic product year by year. It was a tautology rather than a plan. Treasury officials in the budget lock-up gave the impression they were glad to be free of magic asterisks and have in their place honestly-described measures that actually would cut spending.

In the budget papers, they say the projections ”do not assume a cap on real spending growth to achieve budget surpluses”. Instead, they are built on an identifiable cut in payments growth as a result of measures actually announced.

If pensioners and other recipients of benefits are smart, they will worry. Left long enough without one-off adjustments, the pension would eventually shrink to a tiny proportion of the average wage. But the first of what will probably be a series of one-off adjustments can be put off for years, until beyond the budget’s 10-year time horizon. When it happens, pensioners will have to justify their demands for a catch-up increase. Until then, their benefits will climb by no more than inflation and they are likely to be happy enough because at least they will be getting what appear to be twice-yearly increases.

The result, far more credible than any of the previous governments’ forecasts, is an end to the budget deficit in 2018-19 and then a steady climb to a substantial surplus of 2.5 per cent of GDP by 2024-25, or 1.5 per cent if, as is more likely, some of the proceeds of bracket creep are returned in tax cuts.

It would be going too far to say the savings are locked in. They depend on one incredibly important assumption – no recession for the next 10 years.

Australia has already stretched it out to 22 years. An extra 10 years would mean 33, a record achieved by no other country apart from post-war Japan.

Treasury secretary Martin Parkinson told a gathering of economists last month that if it were to happen, Australia could be extraordinarily proud, before adding: ”It is not, however, something on which I would want to rely.”

Two-thirds of Honest Joe’s budget savings relate to payments; only one third to revenue. That’s to be expected in a budget that concentrates on spending rather than tax. A tax review will be announced before the end of the year and if its recommended measures are anything like as dramatic as the ones Hockey is imposing on spending, high-income users of the superannuation system and others enjoying tax breaks are going to find that second tough budget unsettling.

And not just high earners.

Hockey is doing to the states what he is doing to pensioners.

From July 2017, their hospitals will be funded in accordance with Labor’s generous National Health Reform Agreement, but by a formula built on the consumer price index and population growth. It will hit the states badly, given what is happening to medical costs.

What will they do? He explained to journalists in the budget lock-up that they have options. Lifting the rate of the goods and services tax is one of them. It would be up to the states, he pointed out. But it would be their problem.

By 2017, his tax inquiry will have made its report. It will doubtless argue the case for a higher and broader GST, as has every other inquiry that has been allowed to examine the question. (The Henry tax review wasn’t allowed to examine the question.) Then it will be up to the states. Hockey might be prepared to help them. He is certainly prepared to starve them of hospital funds in order to concentrate their minds.

Hockey has not delivered a horror budget. It inflicts pain only gradually, and openly. It will help get the budget back into balance. And there is more to come.

Twitter: @1petermartin

This story Administrator ready to work first appeared on Nanjing Night Net.

10/17/18

Australian Tax Office the biggest loser as public service staff cut in budget

Public service: The Australian Tax Office will be expected to lose the largest number of staff in 2014-15, with more than 2300 jobs set to be slashed. Photo: Louie DouvisFederal budget 2014: full coveragePublic service news: full coverage
Nanjing Night Net

The federal bureaucracy is poised for its greatest loss of staff since the early years of the Howard government.

However, the Abbott government’s first budget will hit the public service more softly than the Coalition’s rhetoric had suggested, and its staffing cuts are less harsh than those tipped in its mid-year budget review in December.

Civilian government agencies will shed 7336 full-time-equivalent jobs over the coming year, offset by the recruitment of an extra 2744 military personnel.

Finance Minister Mathias Cormann and Public Service Minister Eric Abetz said the cuts would continue in later years, and they expected the public service to shed about 16,500 jobs by July 2017. In opposition, the Coalition had pledged to cut only 12,000 jobs over two years.

”Around 14,500 of these reductions are the result of Labor’s secret, unfunded, across-the-board cuts, which they initiated just before the last election,” the ministers said.

A month before the 2013 election, the Rudd government revealed plans for deep spending cuts across the public service, via a higher ”efficiency dividend” – a 2.25 per cent cut to agencies’ administrative budgets.

The Coalition’s recent independent Commission of Audit strongly criticised this dividend, describing it as ”a particularly blunt instrument to achieve budgetary savings”.

”Rather than make explicit and often difficult decisions about what government should do and the extent of public sector resourcing, an efficiency dividend reduces funding to both areas of high priority and areas of low priority …” the commission found.

However, the government has ignored this advice and increased the dividend even further to 2.5 per cent for the next three years.

Despite stepping up these across-the-board cuts, the Coalition can claim to be a tad less harsh than Labor, at least in the short term: it has set aside an extra $144 million to pay staff wages next financial year compared with the amount in the Rudd government’s last budget update.

The Tax Office will lose the largest number of staff in 2014-15. It is expected to shed more than 2300 full-time jobs, about one in three of the projected losses.

Several portfolios will bear most of the pain: treasury, health, industry and foreign affairs agencies are expected to lose about 10 per cent of their workforces.

The government will also specifically target publicists and communications specialists, saying it will save more than $5 million a year by “moving to more efficient practices for public affairs and internal communications”.

There are a few surprise winners: the bureaucracy’s largest employer – the giant Department of Human Services, which includes Centrelink and Medicare – will gain staff in the coming year.

Mr Cormann and Mr Abetz said the department would be busy implementing the government’s welfare reforms, such as expanding the work-for-the-dole scheme.

The Defence Department and the Defence Materiel Organisation were also tipped to shed thousands of civilian employees, but will together lose just over 400 full-time jobs.

The two ministers also pointed out they had funded the redundancies caused by “Labor’s largely indiscriminate cuts”: separation payouts will reach a record $273 million by the end of June, as a result of most government workplaces retrenching staff this year.

However, very few redundancies have been funded in the years beyond. The government has allocated less than $50 million a year for payouts in the budget’s outlying years, about the same amount set aside by Labor.

This story Administrator ready to work first appeared on Nanjing Night Net.

10/17/18

Ryan O’Keefe takes on mantle of Swans mentor

Ryan O’Keefe (right) hasn’t played a senior match for the Swans in a month. Photo: Daniel MunozSydney veteran Ryan O’Keefe is mentoring one of the young midfielders who has put his future in the game in peril.
Nanjing Night Net

Jake Lloyd is among several Swans in the engine room O’Keefe long commanded who appears to have squeezed out the club hero and left him facing his football mortality.

O’Keefe, 33, last played a senior match in the dismal loss to North Melbourne last month. It was his 53rd consecutive game, taking him to 286 – fourth on the Swans’ all-time list. He won the Norm Smith Medal in the victorious 2012 grand final and finished fifth in the best and fairest in 2013. Yet, the gritty left-footer underwent a rapid demise amid a restructuring this season that has left him on the outer in the final year of his contract.

“He still wants to play senior football, of course, and we haven’t ruled him out of playing senior football,” coach John Longmire said. “But hopefully the supporters are also seeing the development of our players. That’s the reality, we need to keep evolving as a team, our structure needs to keep evolving, our personnel needs to keep evolving. We needed to add some more depth and armoury and variation to our midfield.”

Jarrad McVeigh has returned to the centre after filling in for injured defenders last season. Ben McGlynn and Craig Bird are spending more time in midfield, too. Josh Kennedy and Kieren Jack are consistent performers and Luke Parker is consolidating his position.

“And now you’ve got Lloyd and [Harry] Cunningham; they give us something a little bit different,” Longmire said.

“They’ve been playing well. They’ve had really good pre-seasons themselves and they deserve their opportunities. They add something different to our team, which is very important for us.

“It doesn’t mean that Ryan can’t come back in and play and we’re not going to rule him out because we think he can come in and do certain roles.

“But we’ve got some players there who have had some reasonably strong seasons to date and you’ve got to keep evolving as a football team, adding games, and hopefully the supporters can see some of those younger kids coming through and playing good football as well.”

Some of that might be due to O’Keefe’s contributions. His presence in the reserves, Longmire said, had been valuable for the club’s second tier. Apart from “training as hard as he ever has”, the coach said O’Keefe had been spreading his knowledge among the reserves on and off the field.

“His preparation and leadership has been absolutely second to none. He’s been sensational and really important for what we’re about, helping with the development of some of the players coming through. Whether it’s on-field where he can address them or at the breaks or after the games or pre-games, his contribution has been enormous for our younger kids.

“That’s ultimately what we want, the older players helping the younger kids – he’s even Jake Lloyd’s mentor – and to have him doing such a good job at that is a credit to him.”

This story Administrator ready to work first appeared on Nanjing Night Net.