Can the Federal LNP deliver its Flatter Taxation Scales in a Slowing Economy?
By Denis Bright
Just four months out from the federal election, current indicators do suggest that the federal LNP is fumbling the future of the investment sector of the Australian economy to achieve its short-medium term budget projections and to appease the erratic policies of the Trump Administration.
The IMF data on economic growth trends in Australia confirms the state of flux relating to federal budget projections and delivery of planned tax cuts for higher income earners. These trends will not be unscrambled until the release of the Mid-Year Economic and Fiscal Outlook (MYEFO) by early December 2019.
Finance Minister Mathias Cormann is still optimistic about future delivery of a fiscal balance for 2019-2020 without depressing economic growth projections or causing unemployment levels to rise further.
A key variable in this balancing act is the strength of the public sector spending at both state and federal levels as well as positive trend-lines for commodity and service exports. This favourable mix is marred by data for private sector capital investment over the last two quarters. Release of the September Quarter data on 28 November 2019 will be eagerly awaited. A continuation of the negative trends will be bad news for budget strategies for 2020-21, rather than in the current financial year.
Australia Private Capital Expenditure
To meet its budget targets, the federal LNP is now reigning in the growth in public sector. Probono Australia has revealed the benefits of under-spending on National Disability Insurance (NDIS) to the federal LNP’s efforts to maintain current budget surplus projections for 2019-20 (Luke Michael, ‘NDIS underspend helps return budget to the brink of surplus’, 20 September 2019):
The federal government spent $4.6 billion less on the National Disability Insurance Scheme than expected because of delays getting people into the program, new budget figures reveal.
Treasurer Josh Frydenberg on Thursday announced the final budget outcome for 2018-19, showing a deficit of $690 million – $13.8 billion less than what the 2018 budget predicted.
This improved financial position – which leaves the budget on the brink of surplus for the first time since 2007-08 – was built on the back of underspending in areas including the NDIS.
The government says this underspend is a result of a slower than expected transition of people into the NDIS, but critics argue the money should be spent fixing various problems plaguing the scheme.
Frydenberg said the NDIS was a “demand driven system”, meaning that a slower uptake of the scheme resulted in less money being spent.
“This is in part because of the delays in some of the states coming on board, and also because it’s taken a bit more time for the service provider market to develop sufficiently to meet the available demand,” Frydenberg said.
Caution with the delivery of future Newstart increases and the delivery of NDIS will assist in the extension of taxation relief that is skewed to middle- and upper-income households as promised in the 2019-2020 federal budget.
Support for market-oriented strategies of the federal LNP came from the US Secretary of Commerce Wilbur Ross on his Australian visit with one important policy recommendation (The Australian, Geoff Chambers, ‘Tax cuts key to driving revival, says Wilbur Ross’, 10 October 2019):
US Secretary of Commerce Wilbur Ross has suggested Australia could increase its global competitiveness and attract direct foreign investment if it replicated Donald Trump’s corporate tax cuts.
Speaking to The Australian on Wednesday, Mr Ross — one of Mr Trump’s closest advisers — said the US company tax cuts combined with regulatory reform had worked “very, very well”.
Wilbur Ross should have added a note of caution to his Aussie Allies Down Under as shown by the latest data from his own Bureau of Economic Analysis (BEA) in his own US Department of Commerce as released on 24 July 2019:
Direct Investment by Country and Industry, 2018
The U.S. direct investment abroad position, or cumulative level of investment, decreased $62.3 billion to $5.95 trillion at the end of 2018 from $6.01 trillion at the end of 2017, according to statistics released by the Bureau of Economic Analysis (BEA). The decrease was due to the repatriation of accumulated prior earnings by U.S. multinationals from their foreign affiliates, largely in response to the 2017 Tax Cuts and Jobs Act. The decrease reflected a $75.8 billion decrease in the position in Latin America and Other Western Hemisphere locations, primarily in Bermuda. By industry, holding company affiliates owned by U.S. manufacturers accounted for most of the decrease.
The foreign direct investment in the United States position increased $319.1 billion to $4.34 trillion at the end of 2018 from $4.03 trillion at the end of 2017. The increase mainly reflected a $226.1 billion increase in the position from Europe, primarily the Netherlands and Ireland. By industry, affiliates in manufacturing, retail trade, and real estate accounted for the largest increases.
US Investment plays a relatively minor role in the Asia Pacific Region compared with commercial interactions with Britain and Europe as well as countries in the American Hemisphere from Canada to Central and South America:
Making America Great Strategies have resulted in a decline in US Capital Flows across the Asia Pacific Region between 2017 and 2018. Australia is an exception to the regional trends and provides the US with highly favourable surpluses for trade in commodities and services as well as capital flows.
Days after this visit to Australia by Wilbur Ross, President Trump announced new compromises in his trade and investment war with China that undercut our own export gains in the Asia Pacific Region in favour of new export incentives from the US farm lobby.
The honeymoon after the last election may still be in session. As the rhetorical euphoria continues, it is time for Aussies to do a fact check of our unfavourable commercial relations with the USA. The Trump Administration has left Australians high and dry in a slowing global economy as the Trade and Investment War is replaced by a new Lovefest with China to the cheers from the US farm and resource sector lobbies which are our real competitors on the world market.
It’s surely time for our federal LNP leaders to show a spark of independence in defending Australia’s commercial sovereignty within the Australia-US Free Trade Agreement as President Trump focuses on his re-election strategies for November 2020.
Denis Bright (pictured) is a member of the Media, Entertainment and Arts Alliance (MEAA). Denis is committed to citizens’ journalism from a critical, structuralist perspective. Comments from Insiders with a specialist knowledge of the topics covered are particularly welcome.
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14 commentsLogin here Register here
Up to date data is a powerful weapon for change.
It is great that the US Bureau of Economics has released this data and analysis of this data leads us to ask the question
‘is the US really so great again?’
Great article Denis, Australia needs to look after its world wide trade opportunities & not just rely on China & the USA
We need to maintain our independence
Also , I don’t think Australians are as concerned about our deficit as the Treasurer & PM are. Australians are crying out for more infrastructure development & jobs to boost the economy
Denis, Thanks for a great article on Australian Government expenditure and investment.
Good data is so important in public policy and in media reporting.
Thanks Denis for the amazing article and insights on this important topic that impacts our economy so much!!!
We should be hearing more about this on the 7:30 report.
A hard read that left me and my bias with”
The rabbott with the help of the extremist left doubled the debt and scummo is worse. Then add two items that you want investigated or better still give the morning show twits the questions to ask the lnp crooks. ie NDIS, trade that puts us at a disadvantage and will affect our economy.
where are you albo??
Agree with Wam: Why does the LNP support a US Administration which imposes disadvantages on Australia? Is this the insurance payment on the Military Alliance with successive US governments under the control of advice from Military Intel rather than civilian leaders since Kennedy. Even Obama got conned into a 30,000 troop surge in Afghanistan and did not like Tony Abbott’s support for the Infrastructure Bank in China where Australia has significant deposits undiminished by the recent Trade War with China.
Wake -up Aussies or you will all be players in an American Dream of Greatness particularly if Donald Trump gets re-elected in 2020
Great article Denis!
Time for both sides of politics to protect our future by reaching more towards local investment.
Reducing interest rates is a great burden on retirees and does not encourage local savings.
Australia needs independent agencies like the US Bureau of Economic Analysis and an Australia Online Institute (DFAT Research) to release information on complex topical issues. The alternative is a continuation of the Fake News Campaigns at election time. Both the Carbon Tax in 2013 and Bill Shorten’s Tax Reforms in 2019 were torpedoed by sensational advertising from the Coalition to “scare the horses” into being more docile by fearing legitimate changes. This has left our political future in a difficult state by allowing corporate and military intelligence viewpoints to prevail over legitimate concerns.
Analysis of the 2004 AUSFTA shows it was not a good deal.
“AUSFTA was responsible for reducing – or diverting – $53.1 billion of trade with the rest of the world by 2012. Imports to Australia and the United States from the rest of the world fell by $37.5 billion and exports to the rest of the world from the two countries fell by $15.6 billion over eight years to 2012.
Beyond that, there is no evidence that the agreement has been associated with an increase in trade between the two countries, or with the creation of efficient low-cost trade.
AUSFTA was negotiated and signed within a year – a feat unmatched in trade negotiations today – driven by the political determination of Australia’s prime minister, John Howard, to do a deal with America’s president, George W. Bush, after the second invasion of Iraq. One of the conclusions from the Productivity Commission’s review of free trade agreements was that their economic benefits are usually overstated and that they are often more political than economic in their motivation. As the figures show, the cost of those political gains has not been trivial.
Deals that are struck in haste for primarily political reasons carry risk of substantial economic damage. ”
Thanks for your research Denis. New productive investment can advance living standards in all countries in our region but we need less investment in bars and fast-food outlets
I will take up the issue of Australia’s investment shortfalls in my next article. Even conservative commentators in The Australian are calling for a change in direction from the Morrison Government in re-interpreting its election commitments. Unfortunately, the directions offered including industrial relations reforms which John Howard attempted during similar slow-downs in his first term (1996-98).
This is not the time for Labor to return to stimulus spending as attempted during the GFC as the electorate has just rejected such measures on 18 May 2019.
Should retirements from federal Labor caucus precipitate by-elections in marginal seats like Eden-Monaro and Isaacs, stella candidates are hopefully waiting to extend generational change to federal Labor.