With everyone still reeling from the budget delivered last May, and distracted by Tony Abbott’s determination to commit political suicide, Joe Hockey’s MYEFO statement delivered in December passed by with little scrutiny.
In light of recent claims being made by the Prime Minister, the Treasurer, and the Finance Minister, and in the interest of bringing some honesty into the discussion, it would be timely to take a closer look.
The document begins with the statement “Despite a deteriorating global economy over 2014, the Australian economy continues to grow solidly.”
This seems completely at odds with the assessment of the Reserve Bank of Australia whose Governor Glenn Stevens, speaking at a House of Representatives Economics Committee in Sydney on Friday, said “clear signs of a near-term strengthening remain unconvincing at this stage. This is a weaker outcome than we had expected six months ago.”
Joe even contradicts it himself when he says “nominal GDP growth in 2014-15 is expected to be weaker than forecast at Budget, at 1½ per cent. This would be the weakest nominal GDP growth in a financial year in over 50 years.”
In December 2013, Joe told us in his first MYEFO that “The latest Private New Capital Expenditure and Expected Expenditure (CAPEX) survey suggests that resources investment will remain at elevated levels in 2013‑14.”
A year later he is still asserting that “The business environment has improved since 2013 and costs for all Australians have been reduced as a result of the abolition of the Carbon Tax and the Minerals Resource Rent Tax. The abolition of these taxes will encourage investment and job creation. “
Whilst Joe hopes that eliminating these sources of revenue will ‘encourage’ good results, the reality is that, in Joe’s own words:
“employment growth has not been strong enough to keep up with growth in the labour force. This has led the unemployment rate to rise slightly. Weaker wage and employment growth are expected to lower individuals’ income tax receipts by $2.3 billion in 2014-15 and $8.6 billion over the forward estimates and increase payments for existing government programmes.
Business investment growth in 2013-14 was weaker than expected, amid a fast decline in resources investment. From 2014‑15, resources investment is expected to start sharply detracting from growth. The forecast decline in resources investment is now steeper than it was at the 2013 PEFO, with the sector having become increasingly focused on containing costs.”
Joe tells us that “The Government has accelerated environmental assessments and approvals for over 300 major new projects worth over $1 trillion for Australia and these projects are now getting underway” yet investment projections for future years see a drop of approximately 5% each year.
Joe reassures us that “Subdued wage growth and the removal of the carbon tax is helping to contain inflationary pressure, notwithstanding the inflationary effects of the fall in the Australian dollar. Headline and underlying inflation are forecast to be 2½ per cent through the year to both the June quarter of 2015 and the June quarter of 2016.”
In 2012-13, Australia’s first year with a carbon tax ended with underlying inflation of 2.2%.
In August 2013, Treasury released the Pre-Election Economic and Fiscal Outlook (PEFO), which forecast the budget deficit would hit $30 billion in 2013-14 with deficits totalling $54.6 billion over the four-year forward estimates. Four months later, Joe Hockey had added $16.8 billion due to Coalition policy decisions bumping the deficit up to $47 billion in 2013-14 and $123 billion over the forward estimates.
“The deterioration in the underlying cash balance since the 2013 PEFO is $16.8 billion in the 2013‑14 financial year”
The final budget outcome for 2013-14 turned out to be a deficit of $48.5 billion.
Joe repeatedly tells us that “the budget position is fundamentally stronger than it would have been under the unsustainable trajectory of debt and deficits left behind by the former Government.”
Unfortunately for him, due to the Charter of Budget Honesty, he eventually has to state the real figures – since May 2014 there has been a “$43.7 billion deterioration in the budget over the forward estimates. An underlying cash deficit of $40.4 billion is now expected in 2014-15. ”
This compares to PEFO’s forecast of a $24 billion deficit in 2014-15, $34 billion in MYEFO 2013, and $30 billion in the 2014 budget. Since May the budget has suffered a further deterioration of $10.4 billion for the current financial year.
“Total taxation receipts have been revised down by $6.2 billion in 2014-15 and $31.6 billion over the forward estimates. This brings the total writedown in tax receipts since the Government was elected to over $70 billion.”
How can this be? Surely eight months into office Joe had access to the ‘real’ figures? How can he have got his estimates so wrong?
Pages are devoted to this. The short version is
“Declines in commodity prices have resulted in lower forecast company tax receipts, while weaker wage growth is leading to softer income tax receipts. These developments have been primarily responsible for the $31.6 billion write down in tax receipts since Budget.
These commodity price falls have led to a substantial downward revision to the terms of trade which is now expected to fall by 13½ per cent in 2014-15 and 3¾ per cent in 2015-16. The forecast decline in the terms of trade would be the largest fall in the terms of trade in a financial year since the Australian Bureau of Statistic’s Annual National Accounts started in 1959-60.”
We contributed to our own demise by flooding the market with iron ore when demand was low. This drove down the price by 30%, the strategy being to eliminate some of our competitors. It didn’t work.
“While some unprofitable supply did exit the market, the response has been surprisingly limited to date, with much of China’s high-cost production (which accounts for roughly 15 per cent of global production) remaining in the market.
Whilst low cost mines in Australia and Brazil are expected to continue to expand global supply, on the demand side, China’s growth outlook for 2015 has been downgraded from Budget. The associated weakness in the property sector and the ongoing transition from resource-intensive growth is expected to constrain Chinese steel demand.”
Spending has also increased significantly since the Budget.
“The spending decisions that have been taken since the Budget primarily respond to changes in the international security environment, or reflect the commitment to drive growth and support a strong economy.
The Government has responded to a rapidly changing security environment, investing around $1.3 billion to keep Australians safe and secure. To counter the threat of home-grown terrorism, security and law enforcement agencies have been given $631.4 million in extra resources to track, disrupt and prosecute Australians involved in violent extremism, both at home and overseas. Operations in Iraq are addressing the enduring threat of terrorism at a cost of $306.4 million.
The Government has also taken further steps to build a stronger, more prosperous economy. This includes the finalisation of the Japan-Australia Economic Partnership Agreement.” Paradoxically, “This measure is estimated to reduce revenue from tariffs by $1,590.0 million over the forward estimates period.”
Joe then goes on to tell us how we are paying for his decisions:
“the budget costs associated with the Minerals Resource Rent Tax repeal package were fully offset by the end of 2023 by the decision to delay the increase in the superannuation guarantee rate until 1 July 2021.”
To increase the profits of foreign mining companies we are going to decrease the retirement savings of every Australian worker.
“… some of the Government’s largest decisions to repair the budget include the reduction in Official Development Assistance ($7.9 billion over five years) and changes to welfare and social services totalling $2.7 billion.”
We slash money from the poorest people in the world to try and achieve a surplus.
“Building on measures in the 2014-15 Budget, the Government has also agreed to a third tranche of Smaller Government reforms with a further reduction of 175 bodies. This supplements firm action to restrain the size of government by achieving necessary wage restraint and reducing the size of the public service.”
So we address the problem of unemployment and falling income tax receipts by sacking people and paying lower wages?
Despite all the contradictions in this document, where the figures bear no resemblance to the words, Joe valiantly presses on to tell us how much things have improved:
“Compared with the projection of $667 billion in debt inherited just over a year ago, the 2014-15 Mid-Year Economic and Fiscal Outlook (MYEFO) shows the Government on track to reduce this by nearly $170 billion. In addition, budget deficits are still forecast to reduce steadily over the forward estimates and beyond.”
Aside from that debt projection of $667 billion coming from using Coalition policies and decisions, with what accuracy can Mr Hockey claim to guess the debt in ten years’ time when 7 months has changed predictions by over $40 billion? To make up a number and then say you have made it less is just silly.
And whilst the deficits are predicted to decrease each year, they are far higher than those predicted in PEFO, with no sight of the promised surplus (some would say thankfully).
As reported in the Saturday Paper:
“While leaked government speakers’ notes advise Labor should be blamed for the worst budget mess in history, the facts are very different. He has been hit by massive revenue write-downs he himself did not forecast in his budget or midyear review. A total of $56 billion failed to materialise in the 10 months since the budget. This is the same horrible reality he refused to acknowledge contributed to his predecessor’s problems. But Hockey himself has been the architect of much of the fiscal fix he’s in. Unasked, he handed over to the Reserve Bank $9 billion. Then he’s handed back $12 billion in tax revenue to wealthy retirees and big mining and power companies. He’s now promising to give companies running small businesses a tax cut. He is refusing to dip into the $27 billion available by being less generous with superannuation tax concessions.”
I will leave the final word to Liberal MP Teresa Gambaro:
“Real communication is not a three-word slogan, and talking points from political staffers should never be substituted for proper policy development. Equally, policy “initiatives” devised as a spiteful retribution for stakeholders having an opposing view resulting from a government’s own failed policy process is deplorable.
Any politician wanting a real conversation with the Australian people should remember that no-one likes to be talked at. People would rather be spoken with – knowing how to listen properly and being respectful of the “punters” views are key components of any such conversation. Any political figure or party putting political interests ahead of the wishes of the “punters” will quite rightly be shown the door.
Is it too much to ask for a premier or a prime minister to engage in a regular conversation with the people? No, it is not. So why doesn’t it happen?
Voter allegiance should be earned and based on informed dialogue, not by “sloganitis”.
As a federal parliamentarian of the Liberal Party, I despair that the Liberal Party of today is not the Liberal Party I joined 20 years ago and is not the Liberal Party I had the honour of serving in the Howard government.
Open debate is the lifeblood of every democracy, but political collaboration from opposing parties should not be an anathema. These are the conversations we need to have, but instead debate is reduced to a robotic regurgitation of stale talking points that resonate with the public like an overdose of Mogadon.
It is not enough for leaders to listen: they must also hear. A leader must create a team and champion the good performances of team members, not be fearful of them. And finally, a leader should not lie – to their colleagues or the Australian people.”
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