Solving the real problems
We have a budget problem.
It’s not a budget emergency. Everyone agrees about that… at least, everyone who understands about national finance and economics, which is unfortunately only a minority of the voting public, and none of the current Coalition government to hear them tell it.
By current standards, by any measures you care to name, Australia is currently doing very well compared to every other nation in the G20. Taking all of the various factors together, it’s impossible to deny that Australia is in the best economic state in the world.
The justification for immediate, sweeping, deep cuts to government expenditure is looking pretty shaky.
With that said, it is prudent for us to realise that Australia does face some severe fiscal challenges in the coming decades. Some of these are the result of demographics. Some are historical, and some are being wilfully ignored or exacerbated by the Coalition government’s policies.
As many commentators have argued, the problem with Australia’s economy is not currently on the spending side of the ledger; despite the Coalition’s rhetoric of “profligate spending”, government expenditure increase was slower under Labor than the previous Howard government. Rather, the challenge is with the decline in revenue. This decline is not going to be fixed by a short-term “deficit levy”. The decline is driven by demographic change as the large baby-boomer demographic leaves the ranks of the taxpayers and is replaced by smaller cohorts of Generation Y and Z. Simply put, we’re an ageing population and that leads to declines in tax revenue. Revenue is further driven down by reductions in the terms of trade for coal, iron and other exports, as international economies both encounter financial headwinds of their own, and bring competing sources of these resources online. And depressed spending in the domestic market, particularly in big-ticket areas such as housing, has been driven by the “near-miss” that was the GFC. When the Australian population saves, there is less money in circulation for the government to take in tax.
The future is looking even more bleak. The already declining revenues from coal and fossil fuels, for so long a mainstay of the Australian economy, are likely to collapse with the increasing push towards renewables and international concern about climate disruption. The brand-new 2014 National Climate Assessment in the US is just the most recent in a long succession of dire reports to the world’s largest economy, and the boulder is slowly but inexorably starting its downhill roll. As climatic disasters continue to reinforce the immediacy of climate disruption, and as economies like America adopt increasingly stringent carbon-abatement policies, the demand for Australia’s coal and gas is likely to dry up. Many fossil fuel oligarchs are likely to go the wall, a fact that will not provoke a lot of tears, but it’s likely to take Australia’s budget position with it.
An ageing population is one with decreasing health, so just as people drop out of the workforce and stop contributing tax, they start requiring more medical attention and putting more weight onto the healthcare system as well as pensions. Multiple reports are clear that on the current trajectory, over the coming decades the share of government expenditure that social security and healthcare will encompass will increase substantially and unsustainably. Left unchecked, this is the budget emergency of tomorrow.
One final brick in the wall up against which is Australia, is the decline of the manufacturing industry. Whether it’s cars or fruit or sneakers, the past decade has seen a constant flow of manufacturing businesses, large and small, leaving Australia for sunnier climes. This is not driven by a lack of capability or resources, which Australia has in plentiful supply, but rather through things that Australians value, such as a decent working wage and appropriate employment conditions including leave and penalty rates. There is only so much that Australian governments can do to reduce administration costs and provide tax breaks to encourage businesses to set up here or remain, and so long as we live in a globalising world with logistics chains that can get goods to the shelves regardless of being produced in Geelong or Kuala Lumpur, all other things being equal companies have little incentive to stay. This contributes to a loss of manufacturing potential and an over-reliance on the mining and minerals sector, and puts Australia at even greater risk. The next two decades will be critical. Employment ministers like to talk up Australia’s other growth area of employment, the services sector, but there’s a limit to how many service jobs an economy can support if there’s nothing being actually manufactured.
To its credit, Labor is aware of the challenges ahead and had productive policies in place over their past two terms of government, and in their election policies in 2013, despite a growing populism and desperation in the face of Tony Abbott’s attacks. Unfortunately Labor has proven to be absolutely inept at message management and communication to the electorate, resulting in the Coalition defining the terms of discussion for every area of policy debate. This resulted, too often, in Labor watering down its message or arguing on the Coalition’s ground, rather than making the case for their own vision.
There are no simple or foolproof solutions to these problems; after all, Australia exists in competition with a myriad of other nation-states who would love nothing better than to see us fail if only to bolster their own chances of success. There are, however, strategies and approaches that can be taken to address the issues, and it is my belief that Labor, at least until the last year of its term of government, had decent and well-considered approaches to these oncoming difficulties. It was just a pity that they were not able to clearly explain their policies in terms of the problems and their intended solutions.
Take for example healthcare. Labor recognised the burgeoning costs of healthcare for an ageing population early on its first term. Kevin Rudd’s grand plan for a revised health compact with the States combined an increase in the role of the Federal government in return for more funding, a new method of costing hospital procedures to standardise and optimise costs and processes, and a range of measures intended to increase pre-clinical healthcare. Throughout its two terms, Labor instituted GP Super Clinics to relieve the pressure from hospital emergency departments and to improve chronic and preventative healthcare. These same super clinics are now under threat from Tony Abbott’s oncoming budget of scalpels.
Improving overall health via preventative care, relieving hospital pressures by increasing the availability and ubiquity of medical care and standardising and optimising costs would not, in and of themselves, solve the healthcare problems Australia faces into the future, but they are a determined approach and a good start. By contrast, the Coalition does not believe in centralisation or group operation, feeling that competition and the holy dollar give the best results. The Coalition does not believe in federal involvement in healthcare beyond what is necessary. The Coalition does not believe in providing government assistance to those in need of healthcare, preferring instead to encourage further involvement of private health in Australia’s healthcare system. This does not address the nation’s healthcare funding problem; it simply shifts the burden onto ordinary people.
Or you can look at manufacturing. Labor’s approach to Australia’s two-speed economy was best encapsulated by the MRRT (Minerals Resource Rent Tax) and its preceding RSPT (Resources Super Profit Tax). Labor intended to marginally increase the amount of tax revenue gained from those resources companies with unfeasibly large profits and pour the resulting funds into support and resources for businesses in other sectors of Australia’s economy. A true case of “all boats will rise”, Labor intended to lower the company tax rate across the board, a move that would have been particularly of benefit to small businesses and retailers across the country. The mining tax would not apply to resource businesses in their normal course of operations; no extra tax would be taken during investment and building of a mine, nor even during moderate production. But when a company got into windfall territory, rapidly depleting a source of minerals and making huge short-term profits, the government felt that the Australian economy should get an extra cut. The philosophical merits of placing an extra tax burden on companies that already paid taxes may be debated; the politics of imposing this ‘levy’, as we now know, turned exceptionally poisonous. (Incidentally, the RSPT and MRRT were intended to replace royalties, so all claims that ‘they already pay royalties to the States’ are furphies.) But it was an attempt, successful or not, to take the benefits of a short-term economic boom on the back of mining and use them to strengthen Australia’s performance in other areas of the economy.
Except that the Coalition and the resource oligarchs together conspired to corrupt the public discussion. The average Australian, by the time of the 2013 election, probably thought that the MRRT was going to push prospective mining projects out of Australia and cost thousands of jobs. The truth, of course, is that mining employs a mere fraction of the workforce (and far less than manufacturing and retail), that no companies have realistically been driven from our shores by a tax specifically intended only to be levied when a company was doing excellently, and that the mining companies had won a range of concessions about the methodology of valuing assets that depressed the overall take of the tax in any case. In a world environment where resource prices are declining and the Australian mining boom is largely over, the MRRT has been a disappointment in terms of revenue raised, and whilst it might have been more successful in the latter half of the 2010s as mining companies moved from building phases into full operation, the Coalition is very likely to be able to dismantle the MRRT before it reaches any kind of real success.
Taking even a decent amount of super profits tax from the big miners and using it to reduce operating costs for all businesses across the country would not, in and of itself, solve the problems facing Australia’s manufacturing sector. But it was a good start and a valid approach. The Coalition’s alternative approach of continuing to subsidise and promote Australia’s resource industries will have marginal short term benefits to revenue at the expense of Australia’s ability to transition away from resources into more sustainable and modern forms of production.
On the front of climate disruption, an emissions trading scheme is widely regarded by environmentalists and economists alike to be the best approach to the problem. Labor’s ETS has its detractors, but in this as in so many other areas of Labor policy, the message has been lost in the noise. It is certainly fair to say that even were an ETS to reduce the nation’s carbon footprint to zero it would make minimal impact on the world’s climate. It is definitely true that trading schemes have been gamed in some jurisdictions, that corruption can ensue, and that some people are liable to make a lot of money. It is even fair to say that during the short life of Australia’s ETS, there has been little to no measurable impact on the country’s climate. These objections ignore the bigger picture: that participating in an effective carbon trading scheme would assist Australia to meet its climate commitments and would position Australia to participate in global carbon trading markets without fear of sanctions and tariffs; that the revenues raised from the carbon trading scheme would be ploughed back into successful research and development programs in renewable energy and other carbon-abatement technologies, thus increasing the country’s export markets, renewable energy business and employment, and technological expertise; and that by leading the way for the world, we improved Australia’s standing and encouraged other nations to improve their carbon footprints as well.
By contrast, the Coalition does not appear to believe in climate change/disruption. They are seeking to dismantle a market mechanism to address this global problem, in the process removing Australia’s ability to participate in growing international carbon markets and making us a pariah amongst other nations. They have already dissolved bodies whose remit was to provide impartial and scientific advice on this issue, and are seeking to remove the revenue-generating successful Clean Energy Finance Corporation. In place of these approaches the Coalition is promoting its fig-leaf policy of Direct Action, which has been definitively shown to be incapable of meeting Australia’s stated environment goals, let alone the significantly increased goals that would be required to keep Australia on an even footing with other nations.
Labor’s ETS would not, in and of itself, save the planet from anthropogenic global warming, but it’s the ideal and almost universally respected approach, with many benefits for Australia’s economy and environment, at minimal cost. The best that can be said for the Coalition’s approach is that Direct Action might possibly be of some benefit, but it’s certainly neither the most effective nor efficient method.
On all three of these confronting issues, Labor had successful or worthy policy approaches. Whatever can be said about Labor’s ability to deliver on its policies (either through poor planning or the incapability of the public service), and putting aside the well-publicised leadership contentions, Labor’s main weakness was its inability to get across the message of its approach to these problems. On all three of these issues, judging by policies taken to the election and recent media speculation, our current Coalition government would appear to be taking Australia in exactly the wrong direction. With the Coalition’s first budget mere days away, we will soon see if the government has any valid approaches to these issues beyond the slash-and-burn approach already adopted, but the signs are not looking promising when Tony Abbott and his team will not even be honest about the problems we face. This insistence on a “budget emergency” is a farce and the Coalition’s determined intent to preserve the status quo is not the way to head off the economic emergency that is really oncoming. But of course politics is cyclical, and it’s likely that Labor will be in power by the time these problems become too big to ignore.
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27 comments
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OzFenric
Return to home pageWhy is it so hard for Labor to clearly explain their goals.
I agree with Oz that this lost them the last election .Sadly they have not improved much,if at all.
I HATED Abbotts 3 word negative slogans but this put the cretins back in power.
Perhaps a few3.4 or 5 word positive slogans from Labor will cut through to the voting public who seem to have the attention span of a flea..
Sorry Australia,but anyone who voted for the present mob did not put much thought into analysing the political situations.
Come on Labor do SOMETHING about beefing up your communication skills.
The decline is driven by demographic change as the large baby-boomer demographic leaves the ranks of the taxpayers and is replaced by smaller cohorts of Generation Y and Z.
Could have fooled me……… youth unemployment rate is at record highs…
Why is it so hard for Labor to clearly explain their goals.
Wrong question………. why is it so hard for Labor to differentiate itself from the LNP?
Solving the real problems begins by identifying them first…..
The REAL problems in my opinion are:
out of control population growth
out of control private debt growth
Australia running out of oil before 2020
Australia’s trade deficit blowing out as a result of us having to import 100% of our oil/liquid fuels soon
What to do as Climate Change bites us on the arse and seriously impacts our food production and water supplies
And last but not least, how to deal with Limits to Growth, already happening right now….
Both LNP and ALP have their heads in the sand with these…….. and worse, they have NO IDEA how to deal with them.
Mikestasse, I understand that Australia’s population growth is currently primarily driven by immigration; our fertility rate is below replacement. Population growth is a huge problem for the world as a whole but in Australia it’s largely one of choice, and it’s driven by the demographic gap: successive government feel that in order to bolster the younger, tax-paying generations they need to import them, in order to support the growing proportion of support-requiring older generations. Modern economies are pyramid schemes, and without a growing younger demographic at the bottom of the pyramid the ageing demographic above can’t be supported. But according to my understanding Australia is not importing enough younger people (yet) to support its revenue needs into the future. It’s arguable whether the pyramid scheme of economic growth is a good thing – you and I would tend to think not, the Coalition and Labor both apparently think it is – but population growth in Australia is not out of control. It’s very deliberate.
And importing younger people is not enough. As you’ve pointed out, you need the jobs and infrastructure to support them. The other issues of the economy are making that much harder; like I said, the major growth industry of Australia, mining, doesn’t employ many people.
I agree about climate change and its impact on food security, but there’s only so much you can cover in one article.
This morning I hear that Tony is likely to raise the fuel excise from 38.1c/litre. I wonder if he is going to raise it for the mining industry who pay 6c/litre. One thing is certain, if you raise the price of fuel we will get a flowon effect putting all prices up. It will have as big if not bigger impact than the carbon tax. It also places the burden once again on those that can least afford it. We want unemployed people to travel 2 hours from home to get a job – how will they afford the transport? I could be wrong, maybe he IS talking about increasing the share that the miners pay – that would be the obvious way to go but I ain’t holding my breath.
Well here’s my answer
“the government was also seriously considering changes to the rebate paid to farmers and miners for the off-road use of diesel, but after fierce lobbying from both sectors it is understood to have dropped the idea.”
http://www.theguardian.com/world/2014/may/07/drivers-excise-hit-cabinet-searches-budget-savings
But… but… but… DOLE BLUDGERS!!!!
Every day is a new horror
“The Commission of Audit report advocates changing the legislative basis for CSIRO into a Financial Management and Accountability Act 1997 body, bringing it under direct control of the Industry Ministry and removing the current ‘at arm’s length’ distance from Government.
“Scientific integrity at CSIRO could be threatened if a situation develops where politicians have the power of ‘picking winners’ when it comes to research and could open the door to political interference in the work of scientists.”
They have also recommended “Listing CSIRO’s $1.5 billion property portfolio as part of a central register with a divestment agenda”. I suppose if we have no scientists keeping the research facilities is pointless.
OzFenric…….. in a post oil era, Australia can probably only support 10 million people. Hence my assertion population growth is out of control…….
Labor is up against a very, very hostile press, 70% of which is controlled by the Left’s archenemy, Rupert Murdoch, a host of rabid, right wing shock-jocks, Gina Rinehart and an apparently sick and insane Liberal Party, drunk on power and hubris.
Labor has to take the gloves off, there is no doubt about that, for the good of this nation’s future.
mikestasse,
Do I take it from your comment that you see no future in renewable energy?
Mikestasse: “in a post oil era, Australia can probably only support 10 million people. Hence my assertion population growth is out of control”
Based on what figures? With renewable energy sources, our current population may be very sustainable, it might not. I don’t know. I am only guessing.
Population growth is not out of control. It is entirely appropriate to a worldview where there will always be plenty of oil and no restrictions on its use, which is still the paradigm Australia’s politicians operate in. If you take the “post-oil” idea out of contention, the need for a growing younger demographic becomes paramount. When peak oil is taken into account, we’re left with the unpalatable and politically unacceptable conclusion that our current society is unsustainable, but you’ll never get a politician to agree to that.
Peak oil is important but possibly not so much in terms of energy generation. Oil is at the base of much of our civilisation – specifically, via plastic, a material which is one of the three or four main materials we use for building, packaging and artificing. It’s not entirely indispensible, however, as we are already moving towards more sustainable forms of building/packaging material and this will continue. As others have mentioned, there are alternatives to oil for our energy needs; none, perhaps, as cost-effective at present, but with the cost of oil ever increasing and the price of solar/wind/other renewables continually dropping, we are close to achieving parity. As I’ve said before, the question is not whether we can replace oil with other energy sources; the question is whether we can get the required technologies developed before we run out of usable oil resources. If we do not, the learning curve is going to be a hell of a lot more painful.
More of an issue is peak resources in a host of other areas, e.g. trace metals that form the basis of our technological society. For plenty of information on this topic visit Mike’s blog. 🙂
Joseph Benedict Hokiedonian,other wise known as Joe Hockey
Is out there today lying again, the word promise being flown around again
“we did not promise anything”
is now the Liarbels rhetoric
Well knock me over with a feather
Geee I must have a severe case of memory loss
because.they ran their whole campaign on promises and broken promises
Tony is supposedly the messiah on promises
OMG give me strength LOL
They really are a pack of out of date old men
I believe Karma will come back and hit them fair in the back of the head
They cant keep beating voters over the head, and then tell us we will thank them
The liberals are so delusional,
and abusers of the people, in the likes I have never seen before…
There are two key problem, I think, or perhaps three. Either Tony Abbott’s govt does not understand economics (which I doubt) or it is totally subject to Tony Abbott’s bias towards big business (which is more likely).
More importantly, Bill Shorten does not know how to be a Leader of the Opposition. I gave him some advice back in February. It boiled down to always pick up on errors and always respond.
What I didn’t say was take some lessons on how to present yourself so that people do not go and find another beer (coffee, snack) every time you appear on visual media.
Labor definitely had and probably has “successful or worthy policy approaches”.
It’s just that nobody knows what they are.
Peter,
I agree about Bill Shorten. He is about as inspiring as a dishrag. I know he wants to present a measured “we will co-operate unlike you guys” approach but it’s not working. I also wonder whether he has the ticker to say we got it wrong about asylum seekers and fighter jets and income tax cuts and watering down the MRRT – is he too tainted by his factional manouevering? He also seems to be distancing himself from the unions which is a huge mistake in my opinion. Change the preselection process by all means to avoid another Bullock debacle, and open up membership to people who are not a member of a union, but the Labor Party is meant to be the working people’s party and the unions are the collective voice for working people. If there are corrupt individuals, weed them out, they in no way compare to the corruption from our politicians. You can’t win people over using Liberal tactics like off-shore processing for asylum seekers, and wandering around saying “You lied”. I am sick to death of “he said she said” politics.
When Hockey says the debt is $667 billion point out that is HIS debt under HIS policies. PEFO showed us the debt and deficit predictions under Labor policies. MYEFO shows them under Coalition policies. Why have they never pointed that out?
When Hockey says that our 65-84 age bracket will quadruple by 2050 making the pension unsustainable why don’t they call BS – the ABS high estimate is 2.5 times growth. When Dutton says healthcare is unsustainable why not have advice from the experts ready to counter that argument. We have accountants making health choices for us – it’s crazy. Ask the experts how we should prioritise health spending. If we introduced voluntary euthanasia we would save a fortune and give terminally ill people some peace of mind.
If Shorten can’t come up with any ideas and is just going to give his doe-eyed disappointed speech every day then get rid of him and find an orator with some fire in their belly!
It is my highly educated opinion (after fifteen years of almost daily delving into this) that renewable energy will NOT support business as usual.
As I explained to my young Wwoofer the other day as we drove to Gympie and back for a ute load of firewood, it would take the 3.5kW of PVs on my roof an entire week of average generation (sun rain winter and summer…) to generate the amount of energy we consumed on just that trip (~70km return) in the form of petrol……..
And our PVs generate six times as much electricity as we actually need I hasten to add. Not many households with solar come remotely close to this level of energy efficiency…
Industrial Agriculture produces the sort of food most people take for granted is always on supermarket shelves. 90% of all those food calories comes from FOSSIL FUELS. Solar power CANNOT make fertilisers. It’s impossible to power B Double Trucks with solar. Or combine harvesters, or ANY kind of harvester for that matter….
Check this chart out:
http://ingienous.com/the-challenge/energy/peak-oil/
Draw a vertical line anywhere on that chart, and the dark blue stuff is the energy you INVESTED to get the pale blue stuff. All the way up the slope of the Hubbert Curve, the ERoEI is very high…. starts at ~100:1, and by the peak (NOW) it’s down to 10:1. By 2020 it’s break even…….. you can’t even mine coal with that shitty oil….. you can’t mine Silicon, or Aluminium, or anything………
How are you going to make PVs (or wind turbines) if you can’t mine the stuff needed to make them?
Have a look at this presentation…
More embarrassment. License to kill. Who cares about those damn inconvenient war crimes.
http://www.theguardian.com/commentisfree/2014/may/08/australian-silence-on-human-rights-is-our-gift-to-sri-lanka
Shorten has to go there is absolutely no doubt about it. It’s like AIMN is in a world of coherent and well researched verifiable facts while Labor sits outside of the fold in some nebulous realm of self-doubt and directionless confusion. Swan’s Facebook page is informative but where are the loud voices declaring facts and figures. Don’t blame the media the responsibility sits squarely on the shoulder of Labor to find the necessary conduits for open expression. It’s like Labor is still shell shocked from the election continually running around with its head between its legs with muffled voice and unconvincing placidity. In a way I think they have been sidetracked by Abbott and the coalition acting as if they are still in election mode. The government are not playing ball so Labor is more than a little nonplussed by the LNP’s game play.
It’s past niceties and time to roll up the sleeves and get out the backbenches into their electorates pounding the governments lies. The ground swell must start with rank and file. Use the union machine to build support amongst its members and make party affiliates feel like they can do it, and do it now. Get articles into every supporters mail box expressing clear and precise facts headed by brief but punchy statements. Remember the basics of political activism for it is activism that is is required. Drop the suits boys and put on the overalls. Come back to the left and the working class. They are going to feel pain so turn the pain against the government. All of the pieces are in place what is required is absolute confidence that it can be done.
Act insecure, unsure of yourselves and people will just fade away. Be positive offer real solutions and honest criticism while returning to your moral foundations. Take a chance you have nothing to lose but everything to gain. Get some first class motivators on board and turn around the remnants of defeat into victory. One thing you can give Howard he never gave up and not matter how devious he has to be Abbott is the endless archetypal relentless bully.
The leader of the Labor party has to be single minded and unflappable. Shorten is not the man and time is slipping away. If you want to succeed Labor you must act now. Can’t they see that their future rests upon a fulcrum from which they can either attack and survive or surrender in hope of LNP failure. The latter is wimps game.
It’s not LABOR that needs to succeed…… it’s the people of Australia. And time is fast running out…..
mikastasse:
I don’t care who does it it needs to be done. In a two party system we have no choice. We all know that Labor leaves much to be desired however Abbott and his crew are sickening. We have to, by hook or by crook, turn back towards the left and convince Australians there is an alternative. You gotta play the game or you can forget it. You will get nothing by hoping. I am happy to see the Greens and independents get more seats however to get the balance of power they need Labor. Tis a game of thrones.
Stephen……. we DO have hoices. Like the unfortunately named Pirate Party. Have you even bothered to check out their policies? The candidate in the byelection for Rudd’s seat was mighty impressive I thought…
https://www.youtube.com/watch?v=6Yt7H2bFS5o
I should have said skip all the guff and move to ~ 8 minutes…..
We do not have the best economy in the world. We weathered the storm better than most of the G20 (aside from one other nation only one not go into recession) but our economy is structurally weak and as hollowed out as our politicians heads. We rode a tsunami of export growth and infrastructure spending emanating out of China. Mining and our debt fuelled fanaticism for housing has generated high GDP figures and other indicators that appear as good economic management. But they are not. Now that mining is winding up, in the next year or so we’ll see a big correction. And it is going to be a rude shock for many Australians sold on the idea we have the best economy in the world. We may not have a budget emergency right now, and Abbott’s austerity measures are premature, but we will have an emergency when the tide rolls back leaving behind smaller exports, decimated manufacturing sector, and thousands of jobless without the means of servicing their over leveraged mortgages.
Thanks Bob. That’s pretty much the gist of my article; that we are currently well situated (in terms of GDP, unemployment rate, resources, quality of life etc.) but that most or all of these factors are at risk if we don’t take immediate action to address the real problems. Unfortunately the Coalition’s current approach is worse than useless in respect to manufacturing, climate adaptation and amelioration, healthcare and social costs, and the country’s economy.Our problems go way deeper than government spending, and austerity measures won’t fix them, and have been proven elsewhere to be ineffective. I’m not saying that Labor had all the answers, but they appeared to be looking at the right questions.