New cost discipline part of the wider corporate environment

One of the key features of the US economic recovery from the financial crisis has been the divergent performances of the business sector and labour market.
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Although the unemployment rate of 6.3 per cent is well below its peak, the US economy is still a long way off full employment. Long-term unemployment – those out of work for more than 12 months – remains stubbornly high while the slow recovery in the participation rate points to still far too many discouraged workers.

Janet Yellen, the Federal Reserve chairwoman, recently reiterated that monetary policy will remain accommodative for as long as it takes to restore full employment to the US economy.

A flipside of considerable slack in the labour market has been a rapid recovery in the corporate sector. Profit margins and the profit share of GDP have continued to increase to reach record highs as has the S&P500, which is 20 per cent above its pre-GFC peak. The boom in profitability stems largely from near-zero interest rates and corporate America’s aggressive approach to trimming costs in the face of a weak domestic economy and anaemic revenue growth.

More recently, the penny has dropped for Australian firms that low nominal GDP growth and an anaemic revenue environment is the new normal. The economy has been stuck in a nominal recession for two years now, with nominal GDP growing by less than 4 per cent per annum in 2012 and 2013, the weakest consecutive years since the recession of the early 1990s.

Faced with the headwind of weak top-line growth, companies have sought to boost profitability by deferring capex, shedding non-core businesses, trimming costs and lifting efficiency. BHP and Rio Tinto have divested underperforming assets; Telstra, ANZ and QBE are just some companies that continue to offshore IT and other back-office operations, while the big banks have cut back on staff in areas burdened by excess capacity, notably business lending.

The relentless focus on cost control is now being reflected in generational change among senior management and boards. CEOs and chairmen who have a demonstrated track record of delivering strong acquisition-led growth during the boom years no longer command a premium in the managerial market, and are being replaced by more cost-conscious CEOs.

The new cost discipline is a welcome development following decades where CEOs focused on growing revenues and empire building, at the expense of profitability and shareholder value. The more ruthless approach is starting to pay dividends; gross operating surplus – the key economy-wide measure of profits – grew by almost 10 per cent in 2013.

From its quarterly statement of monetary policy released last week, it is clear the RBA expects nominal GDP growth to remain weak, due to further falls in the terms of trade and the view that the economy still has a fair degree of spare capacity.

The prospect that revenue conditions will remain soft for a while will therefore continue to focus the minds of CEOs on what they can control rather than chasing the pipedream of double-digit revenue growth and market share gains that destroy shareholder wealth.

Any risk that corporate Australia’s focus on cost control could lead to a shortfall in aggregate demand should give the RBA plenty of scope to keep interest rates lower for longer than many expect. Ultimately, the new cost discipline promises to be good news for investors, less so for workers and job-seekers.

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Picking mushrooms the safest way

Don’t risk it: Death cap mushrooms which are found in the ACT region. Photo: Jay Cronan
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There are some foods that really speak of the changing seasons – soon as you see them, bam, a recipe pops straight into mind. Like in early spring, a box of asparagus has you thinking of the warming weather, of new growth and longer days. This time of year, a box filled with wild mushrooms plus a bag of freshly picked chestnuts has me thinking of frosty mornings, achingly clear cold days and late autumn food.

The mushrooms come from Tumbarumba and came with freshly dug onions, garlic, fennel seeds and oregano. Autumn in a box. The couple who supply this have a Scandinavian connection so knew a lot about foraging, saunas and pickling before it all became trendy. Every year they scour the pine plantations for saffron milk caps, aka the pine mushroom. Risky stuff: we have been told repeatedly not to pick wild mushrooms unless you have something like a PhD in microflora. Why? Because every year there are poisonings from death caps, so just buy packaged dried mushrooms if in doubt.

There are many great things that came out of Europe: our wine industry, clogs and Eurovision to name just a few. However we also got things we didn’t count on, such as Portuguese food, soccer and these death cap mushrooms. They grow around European oaks and can look similar to some edible mushrooms but they are nothing like pine mushrooms which, as their names suggests, grow around pine trees. Anyway, I trust my Nordic friends fully and welcome their autumnal gifts along with a half kilo of fresh killed venison. They directed me to make a meat loaf or a pie out of all this, which is exactly what I did, with an Italian twist.

The pasticcio pre-dates the pie by a few hundred years. A very thin, buttery, pasta-like pastry is filled with all sorts of meats and vegetables, baked and served with a bitter greens salad.Venison, wild mushroom and chestnut pasticcio pie

70g unsalted butter plus 50g butter (for bechamel)

12 roasted chestnuts, peeled

2 small onions, diced

2 cloves garlic, chopped

1 tbsp fennel seeds

1½ cup marsala

100g prosciutto fat, diced (lardo or even pork fat works too)

2 large chicken livers, chopped to a puree

3 tbsp tomato extract or paste

olive oil

500g venison shoulder, minced

300g pork belly, minced

100g dried pine mushrooms (or 20g dried porcini mushroom) soaked in a little hot water to soften

½ bunch parsley, leaves chopped

4 sprigs oregano, chopped

⅓ cup plain flour

1 cup milk

chicken or veal stock, as needed

3 eggs plus 1 yolk

200g finely sliced prosciutto

pasticcio pastry (see recipe above)

salt and pepper

Chop the chestnuts and saute in a little butter. Put them aside. Remove the mushrooms from the soaking liquid, saving the liquid for later, and saute in more butter on a low heat.

Remove the mushrooms and reserve with the chestnuts.

Add more butter to the pan and saute the onions and garlic until soft. Add fennel seeds and cook for another minute. Increase the heat and add the wine plus the soaking liquid for the mushrooms. Cook this down to a thick sauce, about ¼ of a cup. Stir in chicken livers, tomato paste and prosciutto fat, mix them together. remove and reserve. Clean the pan or, if you are like me, just keep using them until you have dirty pots and pans piled up.

Get the pan hot and add oil to just coat the bottom. Quickly sear the venison and pork in small batches. Add this to the onion mixture along with the herbs. Combine the two mixtures and season.

Make the bechamel. Heat the butter and cook until it stops sizzling. Add flour and mix with a wooden spoon to remove lumps. Cook for a few minutes until it turns a sandy colour. Add milk and whisk until smooth. Cook over a low heat for 20 minutes adding stock if it looks stodgy – it should be quite thick and creamy. Mix this alongside the eggs and egg yolk into the pie filling.

Roll two balls of the pastry out into thin discs just slightly larger than the 22cm spring form pan you have ready, buttered and lined. Roll the other ball into a 4cm wide strip that will go around the circumference on the pan.

Lay one disc on the bottom, press the strip of pastry around the edge of the pan so that it just folds over the top, sealing the edges and joins. Lay half the prosciutto across the bottom in one layer, cover with the filling, lay the rest of the prosciutto on top.

Cover with other round of pastry, fold and pinch the edges and poke a few air holes in the top. Whisk the egg yolk and brush all over the top.

Bake at 180C for an hour or until it is golden brown and tests at 65C internally. Serve with a green salad.Pasticcio pastry

3 cups strong flour (Petra 3 or high protein)

100g butter, melted

2 tbsp vodka or other white spirit

8 drops of lemon juice, no more, no less

2 egg yolks (extra large or 3 small)

1 tsp salt

It’s best to do this by hand. Make a pile of flour and scoop out the centre, mix everything else in a bowl and pour it into the flour. Take a fork and mix it all gradually into the flour, working in just enough to make a dough ball.

Knead this for 15 minutes until it is smooth and elastic. You can use a mixer but be careful not to add too much flour. Divide into three equal balls, chill for a few hours. Now it’s ready to use.

>> Bryan Martin is winemaker at Ravensworth and Clonakilla.

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Growing pecans in Canberra isn’t nutty

Stately: Pecans have been grown in Australia for more than 150 years. Photo: Supplied
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Last Saturday I had a visitor asking me what nut trees could he plant in Canberra. Well, he came to someone who has tried to plant every possible nut tree, with mixed success. Almonds flower too early and the frosts seem to always nip the buds, so we have not gathered any crops and our early plantings of walnut trees have died.

However, one of the loveliest nut trees that can be grown is the pecan tree. It will grow into a large spreading tree, quite shapely in appearance with long, willowy branches and finely shaped leaves.

We did not plant pecans initially, preferring to plant an avenue of walnut trees along our driveway. Walnuts have a very deep tap root system and alas, we did not deep-rip our shaley soil alongside our driveway. So the 12 walnut trees struggled to grow and finally died.

Walnut trees need good drainage and the opportunity to penetrate deeply into the soil below. The best walnut tree I have seen growing in Canberra is near Bert Hauptmann’s house at his Pialligo orchard in Beltana Road, growing in the alluvial soils close to the Molongo River.

We can see the difference in growing conditions when we visit our son Stephen and his family in Leeton. The newly established walnut grove on the eastern outskirts of Leeton is doing very well where the soil structure of the Murrumbidgee Irrigation Area is so different from our highlands-based soils.

Pecan trees are native to North America. Coming from the hot and dry parts of the continent they are suitable for our land. They have been grown in Australia for more than 150 years. They need to be able to send their roots down deep into the soil, so if you decide to plant a pecan tree you will need to allow plenty of space, remove any rocky substrata, ensure good drainage and show plenty of patience in the coming years. They can take up to 10 years to begin producing a reasonable crop of nuts. And when the crop is on the tree, it will need regular summer watering to fill out the nuts. In addition, remember that they are typically biennial, so you can only expect a big crop every second year – and that is only when we have a long hot summer. However, they are long lasting trees, very graceful in appearance and they will probably outlive your grandchildren.

As with most other nut trees, pecan trees produce both male and female flowers on the same tree. However, there is just a small window of reception with the female flower so effective fertilisation really needs two or three varieties where the male flower is available at the right time. This is a very similar story to that of cherry trees, so that a single tree will look beautiful but not yield much of a crop.

The male pecan flowers are produced on the previous year’s wood, in the form of long stalky catkins. Female flowers are produced at the end of small shoots that have grown in the most recent season. And with the pollination being windborne, it is best to plant the primary pollinator on the north western side of the group of pecan trees, as that is the prevailing wind direction for Canberra.

Pecan trees need long warm to hot summers but also need some 600 plus chill hours during winter to properly set the flowers. From the last spring frost they need between 180 to 220 days of frost free weather to produce a mature nut (the time difference relates to the variety). The nut matures in late April and through the month of May, so you will have the case of leaves falling and nuts still hanging on the trees.

There are few problems with growing pecans, but their long growing season means that they are an easy target for birds, especially cockatoos. The biggest plantation of pecans is located in Moree and they have even resorted to using helicopters to chase the birds away.

Western Schley is the main variety planted in the commercial plantations to our north but this has a long maturing period, of around 230 days so is not really suitable for Canberra. Cheyenne is a high yielding variety with only 180-200 days for its growing season. It is a smaller tree than most pecans and it produces good quality, smallish sized nuts. It does require very regular waterings to fill out the nuts in late summer and autumn.

Cherokee is another high-producing variety with under 200 days in its growing season. Cherokee does produce large quantities of medium-sized nuts. If it is growing on fertile soils, it does require regular pruning. Shoshoni is another early maturing variety, producing a large nut. Tejas is the fourth suitable variety, with a short growing season. Its nuts are small in size but normally well filled. It acts as a good pollinator for Cherokee and Cheyenne.Pecan pie

20g ground pecans

200g shortcrust pastry

75g pecan nuts, shelled

2 large free range eggs

100g brown sugar

50g maple syrup

250g golden syrup

½ tsp vanilla essence

Mix the ground pecans into the shortcrust pastry then roll it out. Line a shallow pie dish. Blind bake for 20 minutes at 190C, making sure to weigh the pastry down with rice.

Remove and allow to cool. Layer the shelled pecans onto the pastry. Beat the eggs and add in the brown sugar. When well mixed, add in the maple syrup, golden syrup and vanilla essence. Then carefully pour the mixture over the pecan nuts.

Bake at 220C for 10 minutes then reduce the heat to 180C and bake for another 30 minutes. Cool and place in the refrigerator for one hour before serving with thick cream.> Owen Pidgeon runs the Loriendale Organic Orchard near Hall.

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Federal budget 2014: Young to wait until 25 to get dole

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Young people wishing to sign onto the dole will be forced to wait six months before they receive a cent of government money, after which they will have to work for the dole for another six months before either getting a job, or getting cut off again for another six months.

From January 1 next year, all under-30s who want to sign onto the dole (Newstart) or Youth Allowance ”Other” (the present, lesser payment for unemployed people up to 22) will be subject to the new system, which will save the budget $1.2 billion over four years and which is aimed at getting the young ”earning or learning”.

In addition to the six-month waiting period, the eligibility age for Newstart will rise from 22 to 25 years. Newstart is worth about $45 more a week for a single person living apart from their parents than the Young Allowance ”Other” payment.

During the mandatory six-month waiting period the young unemployed person will be required to participate in a government-funded ”job search and employment services activities”. If he or she has previously been employed, the six-month waiting period will be discounted – for every year of previous employment, a month will be taken off the waiting period.

Once the six-month waiting period is over, the unemployed youngster will have to do at least 25 hours a week in Work for the Dole activities for another six months, before either getting a job or going back through the whole cycle again, meaning another six months of no government money whatsoever.

Employers who pick workers off the dole queue will be eligible for a wage subsidy – meaning the young person’s dole payment would be re-directed to his or her employer for six months.

In addition to these changes, threshold tests for the dole will remain frozen for three years from July 1, as opposed to rising in line with the CPI. The actual rates of Newstart and Youth Allowance will also be frozen.

Some jobless under-30s will be exempt from the tough new scheme, including those unable to work more than 30 hours a week, carers and parents, part-time apprentices and Disability Employment Service clients.

Young people on the Disability Support Pension also face a crack-down. All DSP recipients under 35 who signed onto their pension between 2008 and 2011 (when tougher eligibility criteria were introduced by the previous Labor government) will be reassessed under the new, tighter system.

People with a ”severe or manifest” disability will not have to re-apply, which appears to leave the way open for recipients with a mental illness to be reassessed. Those recipients under 35 who are assessed as being able to work for at least eight hours a week will also be given a ”participation plan”, meaning they will have to engage in labour market activities of some sort, such as Work for the Dole, work experience or education and training. People who do not comply will be sanctioned, although the budget papers do not specify how.

Disability Support Pension recipients will not be able to leave Australia for more then four weeks and keep collecting their pension overseas. This will save the budget $12.3 million over five years.

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Federal budget 2014: Greatest family tax benefit sting in threshold for part B

Family tax payments will be tightened from 2015, with families on sole incomes – those who currently receive family tax benefit part B – to be hit hardest.
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The new income threshold test for recipients of FTB part B will be reduced to $100,000 and these families will be cut off from the payment when their youngest child turns six, a drastic change from the current situation where it stops when the youngest child turns 16.

This change reflects the government’s view that assistance should be limited once a child is in school, and will save the government $18 million over two years.

FTB part B was a pet policy of the Howard government and targets families with stay-at-home mothers. ”Staying at home should be a parents’ choice but there are limits to how much support the taxpayer can give,” the Treasurer Joe Hockey said in his budget speech.

The policy changes were designed to help boost female workforce participation, he said.

The effect of this measure is softened for the poorest single parents by a supplementary payment of $750 per year for each child aged between six and 12 years old.

The reduction in the FTB B income threshold will save the government $4 million in 2014-15.

Recipients of family tax benefit A have also been slugged, with the income threshold for eligible families reduced from a maximum of about $150,000 to a new maximum of $94,316. The FTB A and FTB B end-of-year supplements will be reduced to $600 and $300 respectively, a measure which will save the government $3 million over the next two years.

Although these changes will not be implemented until July 2015, the payment rates of the two benefits will be frozen for the next two years.

There are two million families currently receiving family tax benefit A or B, and most families who receive one of the FTBs receive the other as well, a fact Mr Hockey said on Tuesday was a surprise to him when he began the Expenditure Review Committee process.

Family tax benefit payments account for well over half the family assistance budget, and will cost $19 billion in the 2014-15 budget year.

Families and those wishing to start them will still be able to access a range of other payments, from the large-family supplement of up to $314 for the fourth child and subsequent children, and a newborn supplement and upfront payment of up to $2,001 per child.

The government was also keen to advertise its ”genuine” paid parental leave scheme, which budget papers confirm will be reduced from a maximum income threshold cap of $150,000 to a threshold cap of $100,000.

The scheme will be introduced from July 1, 2015 and will include superannuation. It provides up recipients up to 26 weeks pay at their replacement wage at no less than the minimum wage.

With Matt Wade

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Crisis? What crisis? Budget bluff finally becomes clear

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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.

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The populist PM is gone, meet Abbott the ideologue

Illustration: Andrew Dyson hockey-abbott
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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.

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An indexation trick without an asterisk

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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.


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.


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.