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Economic geniuses perform epic backflip

By Ad astra

The sheer effrontery of our politicians never ceases to astonish me. To them black can be white, and in an instant white can be black. It is not just the monumental back flip that such a change of language involves that astonishes me, it is the bald-faced nerve they exhibit when they change course to the opposite direction, as if nothing had happened! The 2017 Budget starkly exemplifies this.

So burned into our neural networks are the slogans, the mantras, and the catchphrases of past eras that no change of heart, no change of language, no denial of history can ever erase them. Check your memory of the Abbott epoch to see if I’m right.

You will remember the Coalition’s sarcastic description of Labor’s economic team as being quite unsuited for the complex task of managing the economy during the Global Financial Crisis. It insisted they should stand aside and let the adults, the superior economic brains in the Coalition, the geniuses at economic management, take over. Labor’s team was depicted as kids playing games in a sandpit.

Let’s go back then to the time of the GFC, an emergency that threatened economies the world over.

You will remember that at that time the advice of Treasury Secretary Ken Henry to PM Kevin Rudd and Treasurer Wayne Swan was to provide economic stimulus, (which was plainly Keynesian) and to “go hard, go early, go households”.

They did, with cash handouts and infrastructure projects. The Rudd/Swan response was a spectacular policy success, tarnished only by poor implementation of the so-called ‘Pink Batts’ program by the Department of the Environment, during which the lives of four workers were tragically lost.

You will recall that while the Coalition supported the initial stimulus, although castigating the government for sending cheques overseas and to some deceased people, it reneged on supporting the second tranche – the bulk of the infrastructure stimulus. Prominent in that tranche was Julia Gillard’s ‘Building the Education Revolution’ that involved the construction of new and refurbished school halls, libraries and classrooms, science laboratories and language learning centres, covered outdoor learning areas, shade structures, sporting facilities and other environmental programs.

Infrastructure
You will remember the sarcasm that the Coalition heaped on these infrastructure projects, not only criticising elements of them, their suitability and their cost, but pouring contempt on the concept of infrastructure spending, which Tony Abbott and his Shadow Treasurer Joe Hockey deemed a waste of money. Malcolm Turnbull too chipped in with his two-penneth. Yet that infrastructure endeavour not only gifted thousands of schools with much-needed amenities and facilities, which now enhance them splendidly, but it also gave local builders work and hardware suppliers business. It kept many a small town going at a time when many businesses were threatened with closure, and many workers were facing unemployment.

Now, in 2017, suddenly Treasurer Scott Morrison tells us that spending on infrastructure is fine as it accumulates ‘Good Debt’. To confirm his newfound belief in the value of infrastructure spending, his Budget features a plethora of such projects: road, rail, airport, hydro, and energy infrastructure, many with timelines stretching into the distant future. While there will be debate about the merits of some and their timing, Labor is not condemning them as a waste of money, as it has always appreciated what Morrison has just awoken to, that infrastructure spending, especially when interest rates are low, is good for the economy.

Here then is the first example of how the Coalition’s economic geniuses, after all their previous scathing condemnation of infrastructure spending, have finally had the scales fall from their eyes, have seen its value, and have endorsed it extravagantly. But have they acknowledged their epiphany? Of course not!

Debt and deficit
Next, let’s reflect on the ‘debt and deficit disaster’. Remember how almost daily newspaper headlines trumpeted: ‘Labor’s financial mismanagement’, ‘Debt spiralling out of control’, ‘Budget in freefall’ and ‘Labor’s debt time bomb’. There was even a truck doing the rounds with ‘Labor’s Debt’ festooned on placards.

Joe Hockey was sarcastically indignant about budget ‘blowouts’ and revenue shortfalls. He revelled in lampooning a mining tax that raised no revenue. He insisted that a Labor government would never achieve a budget surplus. “It was not in their DNA”, he asserted. But of course it was in the Coalition’s DNA. It knew what to do. But as we know it didn’t. Year after year it showed it had no idea how to achieve a surplus! Now Morrison thinks he’s found the magic formula.

Image from scoopnest.com

Scared of a downgrade by the rating agencies, Morrison’s magic formula for a surplus in the 2017 Budget curiously still includes a corporate tax cut for big businesses and multinationals, no longer costing $50 billion, but now $65 billion, still predicated on a mythical trickle down benefit for those at the bottom of the heap. Surprisingly, while he gives with one hand he takes away with the other by imposing a new tax on the five big banks, levied on various types of borrowing that banks use to fund their lending, including corporate bonds and large deposits. Good luck with that one!

Here is Alan Austin’s assessment of Rudd/Swan period in his October 2016 article in Independent Australia: Australia’s debt mismanagement under Turnbull: It’s worse than you think.

Over the entire period of the first Kevin Rudd Government, debt was added at the rate of $2.85 billion per month. This was required to deal with the early onset of the global meltdown. This rate of borrowing increased slightly through Julia Gillard’s term until the GFC was over in early 2013. Through her last eight months, the gross debt added each month averaged just $1.02 billion. For Labor’s entire duration, the monthly increase averaged $3.06 billion.

Then came the appalling maladministration of Tony Abbott, during which $4.75 billion was added each month, without any justification related to global conditions. This resulted from wasteful spending on a colossal scale and refusal to collect taxes from the rich.

Further on, Austin writes:

Malcolm Turnbull then successfully challenged Tony Abbott for the prime ministership primarily because Abbott had “… not been capable of providing the economic leadership our nation needs.”

So what happened thereafter? Did the new regime start to repay the debt, as it had been promising to do for years? Not at all! Further fresh debt was added in Turnbull’s early months at a rate just below Abbott’s figure. That has since blown out disastrously, with more than $8.5 billion borrowed per month over the first four months of this financial year. Turnbull’s total rate has been $4.78 billion per month.

Gross debt is now $450.79 billion. This is $173.4 billion higher than the $277.4 billion Labor left in September 2013, up 62.5%. Net debt has also risen alarmingly. We only have the figures until the end of August, but these reveal a rise of $15.9 billion just since June, up 5.35% in two months to $312.3 billion. This is $137.7 billion above Labor’s $174.6 billion legacy, up 78.9%.

This was written six months ago. The situation is even worse now. The adults, the economic geniuses, have produced the situation reflected in their latest Budget.

“We don’t have a revenue problem; only a spending one”: Morrison
For as good an analysis of the Budget as you could wish for, and a scathing assessment of Morrison’s mantra, do read Greg Jericho’s article in The Guardian: Federal budget 2017: the 10 graphs you need to see:

There was a revenue problem after all!
After nearly a decade of saying the problem was all on the spending side, the 2017-18 budget is where the Liberal party has finally admitted that there is a revenue problem.

The 2017-18 budget estimates that by 2020-21 the budget will be firmly back in surplus, and it does it mostly off the back of government revenue returning to the level it was during the surplus years of the Howard government.

In the 11 years prior to the GFC, when the budget was either in surplus or balance, government revenue averaged 25.1% of GDP. In the nine years since the GFC, the highest it has been is 23.4%, and this year it was just 23.1%.

To give some context, 2% of GDP is around $34bn, so it’s a fair gap. But that gap is about to be reduced.

The budget predicts that by 2019-20 government revenue will reach 25.1% of GDP and in the following year a very healthy 25.4%. The last time we saw revenue at that level was in 2005-06.

To get there the budget anticipates revenue growing over the next 4 years by around 4.4% in real terms. That growth was not uncommon during the mining boom years, but has been reached only once in the past nine years.

And what is the revenue that is growing? Income tax.

In other words – revenue was a problem after all! The economic geniuses were wrong, again.

Morrison has now predicted that the long-wished-for surplus will first appear in 2019/20, four years from now! Let’s see if this prediction, based on very optimistic assumptions, is any better than his other predictions.

There it is. For years, the Coalition boasted about its prowess in economic management and denigrated Labor’s. For years, the Coalition decried infrastructure spending. For years the Coalition trumpeted the ‘debt and deficit disaster’, which it insisted that Labor created and turned into a ‘budget emergency’. For years the Coalition was adamant that it did not have a revenue problem, only a spending one.

Only now, with the 2017 Budget, has the Coalition and its financial geniuses tacitly admitted that infrastructure spending is ‘good debt’, that it has been even less effective at reducing debt and deficit than Labor, that it will not produce a surplus until 2019/20, and then only if its heroic assumptions come true, and that indeed it does have a spending problem, which it intends to solve with higher taxes on everyone.

It’s taken only four years to awaken to the bleeding obvious and back flip spectacularly. That’s real genius!

How much longer will it take these geniuses to wake up to the error of giving large tax cuts to the big end of town? How long will it be before they cotton onto what has been known for decades, namely that such largesse does not and never has trickled down to the masses?

How much longer though will it take for Morrison, Cormann, Turnbull, Abbott, Hockey and Co. to say: “We were wrong, very wrong”?

Don’t hold your breath!

This article was originally published on The Political Sword

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23 comments

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  1. OPPOSE THE MAJOUR PARTIES

    $150 bill on corp tax cuts, negative gearing and capital gains tax concessions alone. get rid of these and the debt will be paid off in 4 years. those tax breaks cost each and every aus adult $6000 per year. who are the lifters and who the leaners?

  2. Freethinker

    I agree with the points in this excellent article, it will “educate” a lot of people that still believe that the Coalition it is better with money.
    I just wonder if the editor of the Australian will be happy to publish this article.

  3. OPPOSE THE MAJOUR PARTIES

    the LNP have 2 economic strategies only.

    First. create debt to facilitate and justify privatisation of whatever public assetts remain and to assist in the introduction of the TPP; and
    Second. Perpetuate the discredited trickle down theory.

  4. kerri

    When hell freezes over?
    But that won’t happen coz hell is a hot place.
    And these Luddites won’t do anything worthwhile about climate change either!!!!!

  5. freefall852

    Yes..I remember when we railed and railed about the injustice of it all and the MSM ignored us completely and pushed the coalition line relentlessly and completely. With Mark Scott at the helm of the ABC it seemed wall-to-wall LNP / IPA opinion pieces…and it was!..But that was when social media was still getting its “sea-legs”…WE are calling the shots now, and the MSM is fighting not only for relevance, but for its very life…and SERVE THEM RIGHT!…cowards to a person.
    It’s like that old joke about the young fella tells his family that he is going to be a comedian when he grows up..:”and they all laughed at me…so then I DID..and successfully…well..they’re not laughing now!”…but in the case of the success of social media and the failure of the MSM…it really happened.

  6. Vikingduk

    Thanks, Ad Astra, this and other articles from AIMN and others should be what the typists of the MSM are writing but no, just the the usual bullshit. Why is it, do you think, that MSM are so intent on pushing the toxic LNP garbage? Why is it that reducing the income of those that can least afford it is considered good policy? By reducing the ability to consume, not only luxuries, but more likely necessities, aren’t the LNP policies hurting that which they champion?

    LNP, the superior incompetents, liars, spivs and very dangerous.

    Once more, my head hurts, my heart sinks, realising these f*ckwits are believed. Oh well. Once again, time to drain the hogs, they fly better on empty bladders.

    On a brighter note, the whales are heading north, we have seen several, some quite close. Always amazed at the joy and happiness this brings.

  7. Bob Parker

    It just might be that the Turnbull government is the most corrupt federal government on record. There are more reasons than tax avoidance for hiding assets in the Cayman Islands.

  8. Michael Taylor

    Bob, they must be corrupt … they don’t want ab ICAC. Either that, or they’re so friggin’ squeaky clean that it’s an insult to even suggest one. But I doubt it.

  9. Michael Taylor

    Thank you, Vikingduk. Ad astra and our writers will be chuffed with that compliment.

  10. paulwalter

    They are corrupt in ways people can’t even imagine. Dyson Heydon’s Industrial Relations witch hunt was a lawyers junket with a preordained ideologically driven outcome meant to provide a pretext for further union persecution. Once the unions were weakened other stuff followed.

    The Centrelink stuff for example.

    This is driven by the peculiar notion of a moral obligation to ruin the lives of people on welfare to provide massive tax cuts for big corporations and rich individuals. This sort of thing was once referred to as “extortion”.

    We all know it is daft, but using “Terrierism” and the “Perils of Islam” as an excuse, the sheep were stampeded into voting for conservative arms of Oligarchy across the world and now one fears a line has been crossed as to the retrieval of sanity and democracy.

  11. paulwalter

    NONE of them want an ICAC. Much of Labor is poops itself at the thought of offending the upper echelons- they need the money from elsewhere, like developers, now that the unions are being eroded away.and the Tories are like pigs gleefully rolling in their own wallow.

  12. Kaye Lee

    The Coalition were hugely disparaging about the stimulus cash giveaways but the reality is they gave retail spending a big boost keeping us out of the recession forecast by Treasury for 2009-10. Instead of the predicted 0.5% contraction, the economy grew by 2.1%. Put more money in the consumers pocket and you will get growth and the jobs that go with it. Put more money in the hands of the big corporates and it will end up in dividends to wealthy shareholders and in the pockets of accountants skilled at tax avoidance.

  13. paulwalter

    57 cheers for Kaye Lee.

    Rudd gave us a $grand each, Tudge extorts us via Centrelink.

  14. Aortic

    Great article Ad Astra. Sheesh we must be the Lucky Country to survive under such fiscal managers, none of whom would know an “economy” if it jumped up,and bit them on the bum. We are fortunate enough to be rid of Hockey and Abbott but replaced with Morrison and Turnbull, how much longer can we survive successfully under such vacillation and ideological panderings? We have been fortunate enough not to have endured recession or war but whether our kids and grandkids will be able to voice similarly is a moot point.

  15. Johno

    Vikingduc… Lucky you, Thar she blows !

  16. economicreform

    There is no revenue problem, and never has been. And there is no budget emergency — the federal budget does not need “repairing”. However there is certainly a spending problem — namely, there is currently insufficient spending by the federal government. More specifically, federal government spending needs to be of a magnitude sufficient for maintaining a healthy economy. And that spending does not depend upon tax revenue — we are talking about deficit spending, which is another way of describing the injection of net financial assets into the real economy. The economic illiterates in charge of the federal government Treasury just don’t get it.

  17. Vikingduk

    A pleasure, Michael Taylor, a very impressive lesson in most AIMN articles in how to be a journalist and not a cheap typist. Just about given up on the ABC, so AIMN is, in conjunction with the NASA blog, my main sources for honest, truthful reporting, with enough knowledgable commenters to keep everyone on the straight and narrow.

    Yes, Johno, we are indeed fortunate. Is a great pity we are governed by such an incompetent and corrupt bunch of spivs.

    Well done exiting old mate Ronnyr. When all he had to offer was denigration and ignorance, I was surprised it hadn’t happened sooner.

  18. Dani

    Vikingduk dont give up on the ABC quite yet, its not there fault that their funding gets cut if it even looks like a story is putting the LNP in a bad light ie reporting as is. We just have to wait until the fascists are deposed of. In reading this article its only going over old ground of this regime is corrupt as they come and couldn’t run a chook raffle let alone a country No Federal ICAC says it all really but do remember (if people would like to read into it) that some Labor members also voted against this too so go figure, the LNP is only the worst of two choices that are bad. 2019 election cant come quick enough I think.

  19. Freetasman

    Retails are not happy with the delay of cutting penalty rates, the Fair Work Commission, has ruled that the reductions to existing penalty rates of up to “double time” paid to retail, fast food, hospitality and pharmacy staff will not fully take effect until 2019 and 2020.

    Martin Ferguson, now chairman of industry group Tourism Accommodation Australia, said he realised that reforming penalty rates was a tough decision, “but ultimately this was essential, and we are pleased that logic and long-term vision won out in the end.”

    I do not like that man.

  20. freefall852

    Martin Ferguson has drank the Business Council kool-aid..If he’s presuming that the hospitality proprietor/ owners are going to gain by the cutting of their employees wages, what does he think those very same employees are going to do with reduced wages when THEY go to the pubs and cafes?…I’ll tell you what…the same as those “tourists” and “patrons” who in all likely hood could be casual employees of some other penalty rate cutting establishment…they will spend less..and then the tourist industry / hospitality will scratch their heads wondering why the takings have gone down…no employer / employee is an island.

  21. nexusxyz

    The LNP were created to oppose Labor. They create nothing and destroy anything that smacks of benefiting the community. More so if their mates can extract more ‘rent’. The health and welfare systems will be decimated while they waste tens of billions on pointless weapons. The LNP loves spending but on nothing that benefits the community.

  22. astra5

    Folks
    I thank you all for your informative and supportive comments, and Freethinker, Vikingduk and Aortic for your complimentary remarks.

    Freethinker, as you imply, the media is complicit in supporting the status quo, warts and all. The Murdoch Press (and particularly its flagship, The Australian), will never publish anything that seriously denigrates the Coalition or exposes its incompetence.

    Last evening’s Four Corners added another dimension: corruption, tainting Labor as well.

    To have a government that is both incompetent and corrupt, as well as being indecisive, is such a burden on our economy. Wandering aimlessly in the economic desert it has created reminds us of stories from Biblical times. When will it emerge? Will it take the proverbial forty years?

    Meanwhile, the poorest among us languish, and the wealthy prosper more than ever.

    Now we have politicians who are prepared to divest themselves of their long-held principles for personal gain. Turnbull is a contemporary culprit. He does not need money; it is power that he seeks. Martin Ferguson is a shameful example of a turncoat, now supporting the cutting of penalty rates, having fought for workers all his life.

    Some follow the money. Andrew Robb soon got his snout in the corporate trough, and Sam Dastyari was too stupid to realize he was being hooked by his financial backer.

    The likes of Alexander Downer and Joe Hockey have had their cosy post-politics rewards in high places.

    It’s no wonder the Coalition rejects the notion of a Federal anti-corruption body.

    Previously Labor man Mark Arbib turned corporate to become a senior executive with James Packer’s private investment company, Consolidated Press Holdings. Karl Bitar, National Secretary of the ALP and former General Secretary of NSW Labor, now works as an executive for Crown Limited, and of course Eddie Obeid and Ian Macdonald are in jail for gross corruption.

    Will we ever again see the likes of William Wilberforce? He was not only a politician, but also a philanthropist, a leader of the movement to stop the slave trade, and a humanitarian reformer who contributed significantly to reshaping the political and social attitudes of the time by promoting concepts of social responsibility and action.

    In the present corrupt, incompetent, self-serving, adversarial dog-eat-dog politics, it seems unlikely.

  23. Mirabeau

    An ICAC is required on all the governments and their sponsors of the last two decades, corruption has been creeping into the system for some time now. The greed of politicians once big money is waved under their nose is blatantly obvious by us the punter, yet helped to be hidden by their masters and media moguls.
    One can only hope these people are brought to justice for their crimes against the Australian taxpayer…..Viva la Revolution.

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