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Scomo and the Fry: The Great Pretenders

When one takes a close look at the just-released MYEFO, one can rightly shudder with trepidation for the future of the Australian economy.

Pretend prime minister, Scott Morrison, who goes by the name Scomo, and his pretend treasurer, Josh Frydenberg, have set a forward estimates budget target that is scarily like the bad old days of the Howard-Costello era.

They are projecting a surplus in each of the next three years. This is economic madness, made obvious by an already declining consumer spending trend, falling house prices and record private debt.

It’s another case of rubbery figures, most likely worked backwards to deliver a set of numbers that mask trouble ahead, rather than an economic stimulus to get things moving forward.

The thinking, one suspects, is that they can explain away a poor December 2018 quarter, which might well be negative in growth terms, but not have to face the results of a June quarter, 2019, which may well find the economy in recession.

A poor, possibly negative December quarter will be made public in the quagmire of electioneering for a May federal poll, or even after a snap March poll, if Scomo thinks such a move is beneficial to his chances of remaining prime minister.

This erratic leader of his party, one that is self-destructing a little more as each day passes, has no plan beyond conning the Australian people into thinking he has delivered the goods.

Both he and Frydenberg are drowning in their own rhetoric of self-congratulatory praise for outcomes not yet realised.

Both Labor and Coalition governments have delivered continuous deficit budgets for the past 11 years, including 2018-19. Sadly, neither can see that it had been these deficit budgets, modest as they have been, which have kept the good ship Australia, afloat.

If there was a debt and deficit crisis in 2013, as so boisterously claimed by the present government, then what do we call it now, when by their own pathetic management, things are twice as bad.

The future looks decidedly dark. A falling housing market will put the banks on high alert for mortgages that are now higher than the value of the properties they are financing. The banks will want to bring those loans down to more acceptable levels.

Mortgagees on fixed salaries and stubbornly low wage increases, will not have the resources to raise the money needed to meet the banks’ demands. The result: foreclosure.

Given that consumer spending is already slowing, such moves by the banks will further exacerbate the trend. This will do nothing to arrest Australia’s record private debt levels which will then lead to a rise in unemployment.

This is what Labor will be facing when it wins government in March or May next year. Not a pretty picture, but one which Labor has faced before.

Bill Shortens’s announcement of a plan to construct 250,000 new homes over ten years is exactly what is needed. It won’t do much to arrest falling house prices, but it will inject some much-needed activity to help offset the anticipated fall in employment.

What won’t help, is budget surpluses which starve the economy of money. How hard can it be to get this message across? How hard can it be to explain this to supposedly intelligent men and women, successfully?

The one saving factor is that neither Morrison or Frydenberg are likely to realise their overly ambitious forward budget estimates. No prime minister or treasurer over the last eleven years has been able to achieve that.

In all likelihood, the status quo will be preserved. And while a coalition in opposition will see this as Labor’s failure, this time, it will be their credibility that is well and truly discredited.

30 comments

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  1. Harry

    “What won’t help, is budget surpluses which starve the economy of money. How hard can it be to get this message across? How hard can it be to explain this to supposedly intelligent men and women, successfully?”

    Our politicians are either ideologically blind, to not understand that the state of the budget is irrelevant as an end in itself or they are beholden to the interests of the big banks who want to keep pushing debt on an already highly indebted nation. But though voters seem to realise they are being lied to or that the country is being run by ignorant fools, they still seem to buy into the balanced budget nonsense and that there is no alternative to austerity measures.

    A surplus is highly unlikely to eventuate. The economy is already showing signs of trouble ahead but the Coalition is trying to convince us that it will happen and that it is somehow vital that it happens so that the economic sky will not fall in. “A strong economy” is the utter bullshit they are spouting.

    Reality check: since Federation there have been budget deficits (injecting more money into the economy than is being taken out in taxes) for over 75% of the time. They are normal and almost always necessary to avoid business failures, rising unemployment.

    Arguably the budget deficits are too low!!

  2. Phil

    Bullshit doesn’t sell that well in this era of social media and instant feedback. Once it was the nightly TV news and the morning papers where the bullshit headlines were paraded and all the hapless ‘consumer’ could do was accept, deny or scream! Not so today.

    Twitter, Facebook, and independent media are all lit up like neon lights with instant negative responses to this surplus bullshit from Morrison.

    Budget surplus is looking more and more like the huge negative it has long been in real terms whilst the deceitful idiots in the Morrison government just lumber on to the cliff edge.

  3. helvityni

    Scomo and Josh are frequently baring their teeth (smiling ?), yesterday Mathias joined in…dear god/goddess give me strength…please.

  4. totaram

    Phil: I am so pleased to hear that, not being one that “does” social media. Until the pollies realise that the ordinary voters have cottoned on to the fraud of “budget surplus”, they won’t have the guts to come out and say it is indeed bullshit. Not only is it bullshit, but as Harry points out it is actually “bad” for the economy, in particular the common person.

    And before I forget, the final budget outcome is endogenous i.e. is determined internally by the various actors in the macro-economy, of which only one is the “treasurer”. So, any treasurer who claims they will “deliver a surplus” is either ignorant or lying (or both?). That includes Wayne Swan, Joe Hockey, Chris Bowen, and of course Josh Frydenberg, whose “surplus” is only projected on the basis of the usual heroic assumptions about what the rest of the actors will do.

  5. Stephegb

    Why is it that people do not understand that a surplus for the public (government) sector is a deficit for the private sector.

    It is not rocket science.

    A budget surplus can only be achieved by higher taxes or reduced government spending, because a budget surplus means more revenue than expenditure, revenue is taxes, which means that tax reciepts must be higher than spending. That has to mean less money in circulation and that means less money for the private sector to spend.

    Doesn’t the business world understand basic double entry accounting.

    What does the retailers think a reduction private money will mean to retail sales?

    Maybe the business people on Australia really do believe that money really does miraculously appear from the market. And not from government budget deficits!

    Has the BAC gone full tropo!

  6. totaram

    Stephegb: “Doesn’t the business world understand basic double entry accounting.”

    Not even our treasurers and shadow treasurers, you would think. Perhaps they do understand but are reluctant to go against the “accepted” group-think of “surplus = good , deficit = bad, because the government is like a household or a business”.
    A fundamental failure to distinguish between micro-economics and macro-economics – apparently a common error that is hugely encouraged by the powers that be since it allows them to shred the welfare state and bring in “small government”.

  7. Harry

    Stephegb: I think that most of the population does not understand the nature of money and where it comes from.

    Its from us inn’t ???

    We do not realise that the federal government has to spend it in existence before we can get our hands on it. And it has to keep the money creation going or the economy tanks.

    We pay our taxes so that the government can have money in its coffers and spend the taxes we have had to give it, don’t we?. Currently there is a lot of money flowing into these mythical coffers. Deficits are bad because supposedly the government is not living with its means (ie tax receipts). That “shortfall” is “covered by borrowing” and the resulting “debt” has been growing and will result in some sort of economic and social disaster. Its yet to happen of course and the boy who cried wolf is brought to mind

    The so called “debt clock in the US (I think there is now a OZ equivalent) counts up the steadily accumulation of debt. The US debt clock has been ticking for generations and so far the sky has not fallen in. To counter the propaganda, which is regularly reinforced by politicans and bank economists, one just has to ask them why Japan which has a debt/gdp ratio of over 220% is not a basket case. It might not be growing strongly but unemployment and living standards are good and interest rates are low.

    Alan Greenspan, the former Central Banker of the US Federal Reserve said in a moment of honesty that the US government could never go broke. We are the same.

  8. Judith

    If 2019 turns out to be as shaky as it feels right now, and the ALP wins the next election, scomo & fry will be shouting “we promised you a rose garden” from the mountain tops!

  9. David Bruce

    Perhaps when economies were on the Gold Standard, it may have been a good idea to limit government size and spending, encourage the private sector and only focus on essential services like water and energy.

    Now the private sector is itching to invest in AI, automation, robotics and 5G control networks.If these fools in government persist in their surplus policies, the private sector will have to go overseas for investment money. Unless we have a strong government with relevant policies and investment plans, I can see Australia taken over by Adani-like corporations and the rest of the population reduced to serfs, with no jobs, no future and no guns.

  10. Barry Thompson.

    It would be hard to find two bigger, loudmouthed, lying, bombastic bastards than those two.

  11. Henry Rodrigues

    The media, led by the disreputable flock of liars from Murdoch’s stable, will trumpet the so-called budget surplus until the elections, ignoring the reality that, as StephenGB points out, that means that the economy is starved by the same amount. As usual, none of the other ‘fair minded’ reporters will dare to contradict that. But the giveaway is the looks on these two scoundrels’ faces as they bare their teeth in a practiced grin for the cameras.

  12. Matters Not

    Re:

    A budget surplus can only be achieved by higher taxes or reduced government spending

    … less money for the private sector to spend.

    So what’s the explanation for the predicted surplus in this financial year? Is it because the Chinese et al purchased more minerals, at a higher price than forecast – thus adding significantly to Federal coffers? And if that’s the case what part of the Australian private sector is therefore suffering? Further, should we hand this windfall back (to avoid a surplus) and if so which individuals, companies, shareholders et al should be so rewarded? Local or foreign?

    Or is it the case that things might be a bit more complicated than you suggest?

    Be interested in your response – or any other person’s thoughts.

  13. New England Cocky

    It’s time ….. for the Liarbral Notional$ misgovernment to be dispatched to the Opposition benches for eternity.

  14. Keitha Granville

    They are doing their level best to fill the mass of the public into thinking they have arrested the debt and deficit disaster, when in fact that is another set of figures altogether. I can guarantee that most ordinary folk do not grasp this, and believe that the massive Labour debt has gone, when in fact it has doubled .
    The only reason we survived the GFC last time was spending, and it is the only way for us to survive the next. If this mob get back in charge we are doomed.

  15. John Kelly

    Matters Not, the bulk of the windfall in revenue has come from an expanding employment resulting from a surge of infrastructure projects and also from higher than expected corporate tax receipts. It has not been from external trade. The projected surplus is for 2019-20, not this financial year. Based on previous LNP estimates, I would not be overly confident of them achieving it.

  16. Rossleigh

    Gee, John Kelly, next you’ll be asking us to doubt the idea that power prices will come down once we build one of those cheap, clean coal-fired power plants…

  17. Matters Not

    Thanks John. It’s school holidays and am on ‘babysitting’ duties so not across the detail But I did note:

    A surge in tax revenue, largely from the company sector, on top of an improvement in the prices for key Australian exports has delivered a windfall gain

    https://www.smh.com.au/business/the-economy/dramatic-reduction-in-federal-budget-deficit-sets-up-pre-election-war-chest-20181216-p50mk3.html

    Seems to me that the point is still worthy of consideration – what should be done with a surplus that comes from external sources? Or it simply irrelevant in the whole scheme of things? I note also the rather healthy financial situation of some Nordic countries because of oil income.

    What does MMT have to say about such (export) windfalls? Clearly there’s revenue/wealth earned and so on – so where should it be ‘stored’?

  18. John Kelly

    Matters Not, Once a surplus is “achieved” it is written off, regardless of where it comes from. There is nothing to be done with it. It is not money in the bank to be spent at a later date. A currency issuing government does not need money in the bank to spend. A surplus simply claws back previous spending.

  19. Peter F

    MN, In the way this ‘government’ think, the surplus gives them the right to ‘spend’ it on tax cuts. It is all fiddling the books.

    Deficits are not bad.Apparently we have had deficits for 75% of the years since Federation, including the time of the construction of the Snowy Hydro Scheme. In other words, the Government collected less than they spent, putting funds into circulation which helped Australia grow. As long as the money is spent wisely a deficit is good.

  20. Max Gross

    All I see is a dying LNP government laying waste to all around it, looting the treasury, sabotaging the future, setting mines, time bombs and tiger pits for the inevitable incoming ALP government who will, as fickle swinging voters always do, be inevitably crucified, thus ushering back the same old rorting rooting LNP!!! It’s a feckin’ perpetual motion machine!

  21. Roswell

    Spot on, Max. Agree with you 100%.

    Labor – in my opinion – should say zilch about delivering a surplus. If they can’t do it – assuming they win government – then the Liberals and the Murdoch media will go to town on them.

    And out come the age-old mantras: “Labor can’t manage the economy”; “Labor = big spenders”, and so on.

    They scream it loud enough, the public buy it, then its back on the hampster wheel.

  22. EHurst

    Matters Not, an external injection of funds from exports does have an impact on the required level of government deficit/surplus, but not for the reason you seem to think. John is right: surpluses don’t represent “money in the bank” to be stored away for a rainy day. The federal government is the sovereign issuer of the currency and hence has no need to save. It’s not the taxation of the export income that is relevant here, but the net injection of funds from it into the overall economy. The extra funds means the amount of money needed from the government to bring aggregate spending up to full capacity is less, so if the export income is large enough, government surpluses MAY be warranted to avoid inflation. That is the position Norway is in with its massive income from oil exports. However we are nowhere near that position here in Australia. We generally have current account deficits, which means that government deficits are required to fill aggregate spending capacity. The private sector’s desire to net save is another factor. At the moment we have extremely high levels of household debt, which means spending is curtailed due to people needing to pay down debt. So this is another factor requiring governments to increase deficit spending to fill the gap.

  23. EHurst

    Roswell, Labor should say zilch about it because it is a very bad idea. It would be nice if they could actually explain to people that deficits are normal for Australia and that they are nothing to be feared. In fact they are helpful to the economy and to Australians’ well being if spent wisely.

  24. Roswell

    Exactly, E. You’ve said it for me. 👍

  25. totaram

    Ehurst: Labor does not have the “guts” to say that. Only when they find that ordinary people have begun to understand this, will they finally come around to it. They are not leaders but “led” by focus groups and opinion polls, which by the way have never asked the questions in the right “frame”. So it is up to us for the moment.

  26. Peter F

    @ttr .Last time Labor tried to do something worthwhile (MRRT and price on pollution) abbott and murdoch destroyed them , not because they were bad ideas, but purely for their own selfish ends.

  27. Matters Not

    EHurst, my interest in this thread stems from the claim:

    A budget surplus can only be achieved by higher taxes or reduced government spending

    I questioned that (simplistic) claim. You now seem to agree – at least at a hypothetical level:

    if the export income is large enough, government surpluses MAY be warranted

    I then theorised – Clearly there’s –

    revenue/wealth earned and so on – so where should it be ‘stored’?

    In response:

    surpluses don’t represent “money in the bank” to be stored away for a rainy day.

    Never said it did! But perhaps we should draw a conceptual distinction between ‘money’ and ‘wealth’? Wealthy Norway for example, with 15% of GDP flowing from oil and gas revenues is able to provide free university education up to and including PhDs – not only for its citizens but also foreign nationals. Seems to me that’s an excellent example of ‘wealth’ stored.

    Any thoughts?

  28. Andreas Bimba

    The best indicator of whether national government deficits or surpluses are at the right level is if unemployment and underemployment are less than 2% (only people transitioning between jobs) and inflation is low, also less than 2%.

    Our federal government is heading towards a surplus because of spending austerity, increased tax revenues especially from mining companies using up their construction phase deductions and increased employment largely arising from state government infrastructure spending.

    As unemployment and underemployment are still high our federal government should be increasing spending or cutting taxes so that we remain in deficit and indeed the deficit should be considerably larger than it has been at any point during the term of this government.

    The best way for wealth to be grown and stored is through having a dynamic and environmentally sustainable economy with full employment, excellent government services across the board, excellent infrastructure, no poverty, minimal inequality, all problem areas being intelligently addressed and human well being prioritised.

  29. EHurst

    Matters Not – what Andreas said. You are confusing wealth with money. This may surprise you – but exports actually REDUCE the wealth of a country. Exports entail trading away real resources which could have been used domestically. The fact that Norway has been “storing” the surpluses in a sovereign “wealth” fund is simply a sleight of hand with accounting. It does not represent any increase in the government’s ability to spend on future public goods such as health and education. And the fact that Norway does have high levels of public spending on these things is more a reflection of its government ideology than anything else. You see the same features in other Scandinavian countries which do not have the same level of trade surpluses or a sovereign wealth fund. Australia is a wealthy country and could also “afford” to spend on public goods like free higher education if it had governments of a different ideological leaning. Our country is rich with productive and intellectual capacity, and resources which can be used domestically.

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