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Tag Archives: budget lies

Maths is a marvellous thing

Like climbing mountains, maths is a marvelous thing. It is objective rather than a matter of opinion. It can’t be argued with. A fact is a fact.

But like many other powerful tools, maths can be used for evil in the hands of the unscrupulous.

Take our present government – please.

On a Liberal Party page called “The Prime Minister – securing Australia’s economic future” our fearless leader makes certain claims.

“When the Coalitions (sic) last left office, Australia had a $20 billion surplus and $50 billion in the bank but over six years, Labor squandered this and ran up five record deficits and a further $123 billion in projected deficits and gross debt headed towards $667 billion.”

Firstly, how many Coalitions do we have? There is the one with various forms of the National/Country party – are there other agreements I should know about?

Now, how about those numbers.

From the 06-07 Budget papers:

“Net debt, which reached zero in 2005-06, improved by $25.4 billion over the financial year to -$30.8 billion”.

From the 07-08 Budget papers:

“Over 2007‑08, the level of Australian Government net debt improved to reach ‑$42.9 billion by 30 June 2008”.

Labor won the election on November 24, 2007, so the Coalition left a net debt somewhere between -$30.8 and -$42.9 billion – not the $50 billion claimed by Mr Abbott.

In 2006-07, the Australian Government general government sector recorded an underlying cash surplus of $17.2 billion, not quite the $20 billion claimed but that could have been the case by the time of the election.

When Mr Abbott said we had $50 billion in the bank when these “Coalitions” left office he was speaking about net debt, albeit somewhat inaccurately. Gross debt is another matter. The Howard government never eliminated gross government, and never once since Federation has any government eliminated gross government debt. Nor should it and no government ever will. As at 30 June 2007, our gross debt was $58.284 billion.

In the first decade of the century, Australia struck it lucky. A voracious global appetite for commodities meant that we could sell unimaginable quantities of our mineral resources at unimaginable prices. The result was a windfall to our public coffers of at least $180 billion over and above long-term GDP growth trend over the six years from 2002 to 2008.

In 2001-02, a ton of exported thermal coal sold for around US$27. A ton of iron ore went for US$13. By 2008-09, these prices had reached US$131 and US$106, increases of fivefold and eight-fold respectively.

In 2001-02, we exported 90 million tons (mt) of thermal coal and 165 mt of iron ore. By 2008-09, these figures were 115 mt and 363 mt. Eight years into the decade, growth in exports of these two commodities alone were delivering an extra $49 billion in national income to Australia each year. The gold price increased by 600% from 2001 to 2011, while the value of our liquid natural gas exports almost doubled over the same period to $11.1 billion.

What Tony also fails to mention is that $61 billion of the reduction in net debt came from the sale of Publicly Traded Enterprises (PTEs) between 1993 and 2006.

Telstra $45.6 billion

Commonwealth Bank of Australia $6.8 billion

Airports $8.3 billion

Qantas $2.1 billion

Having a look at the profits of these companies (OK maybe not Qantas), one wonders whether we should have shown less haste in selling off our assets to reduce a debt that could have been paid off from the profits these companies make. We would also be able to afford a real NBN because we wouldn’t be paying Telstra billions for the privilege.

And it’s not like the Howard government stopped borrowing money. Even though they were raking money in from the mining boom and the sale of assets, including most of our gold reserve at rock bottom prices, the Howard government went to capital markets on no fewer than 400 occasions to borrow money.

Between March 1996 and November 2007, there were 135 lines of bonds that were taken to market in various bond tenders which were issued with a face value of $51 billion, while there were over 280 T-Note tenders with a face value of over $220 billion.

Indeed, in the three months before the November 2007 election, the Howard government went to the bond market on 8 separate occasions to borrow money with a series of bond tenders. Even during the election campaign, just 11 days from polling day, it borrowed an additional $300 million in bond tender number 236. In the final term of the Howard government, from October 2004 to November 2007, there were 43 bond tenders or times the government borrowed money. If we had tens of billions in the bank, why was he still borrowing right up until the death?

In its last five years, the Howard government spent $250 billion, including $133 billion in new spending and $117 billion in tax cuts. Australians could be sitting on a $300 billion sovereign wealth fund to rival the oil-rich nation of Kuwait if we had banked the budget windfall of the now deflating mining boom.

Compared with gross debt, net debt is a better measure of a government’s overall indebtedness as it also captures the amount of debt owed to the government. Which begs the question as to why Hockey and Abbott use net debt when referring to Howard and gross debt (projected in ten years’ time no less) when referring to Labor?

For some historical perspective, gross Australian Government debt increased from around 40 per cent of GDP in 1939 to around 120 per cent of GDP in 1945. By 1974, it had declined to around 8 per cent of GDP.

Net debt reached 10.4 per cent of GDP in 1985-86. It took only three years (from 1986-87 to 1989-90) to reduce net debt by around 6 percentage points of GDP.

Ignoring the war years, net debt peaked at 18.1% of GDP in 1995-96. According to Mr Hockey’s own budget, gross debt in May 2014 was $319 billion and, in 2014-15, net debt for the Australian government is estimated to be $226 billion (13.9 percent of GDP) as opposed to the $667 billion bullshit.

Tony tells us that Labor ran up 5 record deficits. Whilst this may be true if you look at scary numbers with lots of zeroes after them, it is completely false if we talk percentages of GDP. For example, the deficit in 83-84 was 4.2% of GDP, as was the peak deficit in 2010 at the height of the stimulus spending. Since 2010 the deficit has been decreasing and was 1.2% of GDP in 2013.

Then there is Tony’s claim that Labor left “a further $123 billion in projected deficits and gross debt headed towards $667 billion”.

This claim is based on MYEFO which can only be described as a Coalition propaganda sheet rather than any sort of realistic fiscal outlook so I will treat that document with the ignore which it deserves and go back to PEFO which was an independent assessment of our fiscal outlook just before the change of government, based on Labor policies.

According to PEFO, the cumulative underlying cash balance (total deficit) over the forward estimates was $54.6 billion with a surplus in 2016-17. Mr Hockey’s budget shows a cumulative deficit over the same period of $107.4 billion – a deterioration of $53 billion in 9 months, with no surplus predicted over the forward estimates.

Mr Abbott then goes on to say:

“Our plan will strengthen the economy, create jobs and reduce Labor’s debt by almost $300 billion. We need to take action now or an even greater burden will fall on our kids’ generation. Now, the Labor Party is desperately trying to scare people by spreading untruths about the Budget. For example, they won’t tell you that funding for schools and hospitals increases each and every year under our Budget. And that the rate of the pension will continue to go up twice a year, every year.”

By Mr Hockey’s own words, the debt is projected to rise to $226 billion in the next financial year – reduce Labor’s debt by $300 billion? I don’t think so.

And speaking of our kids, how about the danger you are placing them in, both physical and fiscal, by taking no action on climate change.

And what the Coalition won’t tell you is about the myriad of cuts to health and education and pensions. Yes, there will be increases on current funding each year but they will be much smaller than previously agreed to and many programs and concessions have been cut. They also do not take into account population increase which necessitates yearly increases in funding regardless of any reforms.

Joe Hockey said “Of the 17 top surveyed IMF countries, Labor left us with the fastest growth in spending of anyone in the world … and they left us with the third highest growth in debt of anyone in the top 17”. This is true if you look at percentage increases but if you spent $10 last week and then $20 this week, that represents a 100% increase, so these figures mean nothing without context.

Saul Eslake, chief economist at Bank of America Merrill Lynch, says Mr Hockey’s comments “represent only a partial summary of what the IMF actually says in this section of it its report”. He says Mr Hockey omits one important conclusion, “namely that Australia would still have the second-lowest general government net debt as a per cent of GDP among the countries shown by 2018”.

In its generally upbeat assessment of Australia’s economic position, the IMF says “gross debt is expected to peak at around 32 percent of GDP in 2015 and is among the lowest in advanced nations”.

Elsewhere, in the fund’s recommendations for Australia’s fiscal policy, it says “Australia’s modest public debt gives the authorities scope to delay their planned return to surpluses in the event of a sharp deterioration in the economic outlook”.

There is only one side of politics trying to scare people by spreading untruths. Maths doesn’t lie.

 

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“The visionary lies to himself, the liar only to others.”

The Charter of Budget Honesty was introduced to stop incoming governments from claiming the previous government lied about the true state of the nation’s finances. The heads of the Treasury and the Finance Department are required to put out their own set of numbers, the Pre-Election Fiscal Outlook (PEFO), during the election campaign. This gives a neutral baseline against which we can assess the new government’s figures. PEFO is the only set of Budget forecasts that truly belong to the bureaucrats – all other documents (like the Budget) are issued by ministers.

The outlook in PEFO was remarkably close to the figures in the Economic Statement issued by Chris Bowen and Penny Wong just before the election was called. The public servants in PEFO projected the Budget balance out for a decade. They found that the Budget was on track, before the election, to return to surplus in 2016-17 and keep improving from there, eventually hitting a surplus of about 1% of GDP by 2023 with net debt approaching zero.

Despite the Charter and the neutral numbers in PEFO, Joe Hockey still played the Budget black hole card. The new government’s mini-Budget (MYEFO) contained dramatically bigger deficits than the bureaucrats’ PEFO projections, with no surpluses in sight.

The line Hockey has been pushing is that not only did Labor hide the level of deficits in the current budget cycle, but that it left a series of hidden spending commitments in the unpublished years beyond forward estimates.

“From 2017-18, payments are projected to increase substantially (a real increase of almost 6 per cent in just one year) because Labor back-ended expenditure in a number of key areas and hid it from the public.”

Strange…this member of the public was able to find all those figures without the aid of any staff. In fact PEFO specifically says “Specific program estimates are included across the ten years for DisabilityCare Australia, the National Plan for School Improvement, and the Nation Building 2 and Nation Building 3 programs.”

Labor in fact revealed the funding for the National Disability Insurance Scheme in the budget last May, with new spending broken down out to 2019.

“The Australian Government will provide $19.3 billion over seven years from 2012-13 to roll out DisabilityCare Australia across the country. This brings the Australian Government’s total new investment in DisabilityCare Australia to $14.3 billion over the period.

The Australian Government will provide funding of $11.7 billion to DisabilityCare Australia in 2019‑20, the first year after full national rollout. This represents 53 per cent of the $22.2 billion total cost of running DisabilityCare Australia, with the States and Territories providing the remaining funding.”

This was to be funded by the increase to the Medicare levy.

Likewise the spending for the Gonski reforms was spelled out in detail as was its funding.

“The Budget provides an additional $9.8 billion over six years from 2014‑15 for new needs-based school funding arrangements.

To ensure that the National Plan for School Improvement will be fully funded, the Government has needed to make tough decisions — redirecting savings from higher education, self-education tax deductions and business taxation; and better targeting family payments.

In addition, a range of national partnerships for education will be ceased (or not renewed) and funding will be redirected to the National Plan for School Improvement. As well as helping pay for this historic reform, these saving decisions will also will help improve the position of the budget in the next few years.”

Labor copped a lot of flack for its proposed cuts to university funding, which were really a smaller increase rather than an actual cut. The reason they are opposing these savings now is because they made the cuts to fund education reforms, not to spend on roads.

Hockey also bemoaned supposed hidden funding increases to foreign aid and defence.

“The fact is Labor’s left us with a massive forecast increase in foreign aid, a massive increase in defence – for example in one year, there’s meant to be a real increase in defence spending of 13 per cent, a 66 per cent increase in foreign aid.”

The increase in foreign aid was also in the budget papers - it was actually a reduction on previously proposed spending, with the government’s Millennium Development Goal commitment to lifting foreign aid to 0.5% of gross national income put back another year to 2017. The government spelt out its planned increase in foreign aid up to and including 2017-18.

As Crikey pointed out in April,

“Labor invited the Prime Minister to spell out the government’s MDG policy, which he duly did: aid is to reach 0.5% of GNI when the budget returns to surplus. Which raises the question of why, in Hockey’s Mid-Year Economic and Fiscal Outlook in December, Hockey left Labor’s MDG aid funding increase intact, in defiance of the government’s own policy. The answer, of course, was that it would inflate the budget deficit for 2017 and beyond.”

And on defence, the budget tells us that defence spending for the 2014-15 financial year will rise by $2.3 billion to $29.3 billion, a real increase of 6.1%, with a commitment to building defence spending to two percent of GDP within a decade. So it seems that wasn’t a nasty surprise either.

Interestingly, the Labor budget also said “Government has chosen not to offset the hit to revenue in the near term, as it would come at significant cost to jobs and growth.”

In a budget press release, Joe Hockey said

“While the former Government left Australians with $123 billion of deficits and no path back to surplus, our budget repair efforts have meant that deficits in our first four years are now projected to be $60 billion, with a surplus of well over one per cent of GDP projected by 2024-25.”

Ummmm, according to Treasury and Finance, Labor policies would have got us to surplus in 2016-17 with a surplus of 1% of GDP by 2023.

Hockey goes on to say

“Gross government debt is now forecast to be $389 billion in 2023-24, compared with the $667 billion left behind by the former Government. This reduction in projected debt of nearly $300 billion also assumes that we provide future tax relief to address bracket creep.”

I am not sure why he keeps talking about gross debt, I assume because it is a bigger number, but he really should look at the government’s own website which says

“The August 2013 Pre-Election Economic and Fiscal Outlook (PEFO) estimated that net debt would rise to 11.7% of GDP in 2013–14 and peak in 2014–15 at 13.0% of GDP. These levels of net debt are not unprecedented in Australia. Between 1970–71 and 2011–12, net debt level as a percentage of GDP exceeded 10.0% ten times (mainly in the 1990s)..…compared with other advanced economies, Australia’s net debt levels are comparatively low, and have been for some time.

The PEFO projected a return to surplus of 0.1% in 2015–16.

Although Australia’s fiscal balance fell to a low in the context of the GFC, its structural budget balance is reasonable compared to other advanced economies.”

When Hockey says that Labor left us with a debt of $667 billion, he is quoting a figure from his own MYEFO document which included his decisions to cut revenue from the mining tax, the carbon tax, the 15% tax on superannuation income over $100,000 a year, and the Fringe Benefits Tax rort on novated leases.

It also included his inexplicable decision to hand $8.8 billion of borrowed money to the Reserve Bank. The sale of Medibank Private - a $4-5 billion contribution to the budget - will be spent on roads because Abbott wants to be an “infrastructure prime minister”, when it could cut the budget deficit or the debt. That could be $13-14 billion off the deficit and debt right there - or an interest saving of more than half-a-billion dollars a year. Scrap the company tax decrease, scrap the Paid Parental Leave scheme, close a few corporate tax loopholes and tax concessions for the wealthy and we would be well on the way to addressing the challenges of the future.

So what it boils down to is that Hockey confected a large future debt to justify ripping the heart out of our most vulnerable so he can say he is being “responsible” by getting the young, the sick, the unemployed, the elderly, the disabled, the single parents, and anyone else who doesn’t have a voice, to pay for his claim that he might improve his own fictional bottom line in ten years’ time.

In the mean time we will give up the Gonski reforms, the real NBN, all action on climate change, environmental safeguards, research, renewable energy, hospital funding, universal healthcare, the ABC…all while sending a large percentage of the population into poverty.

The carbon tax doesn’t sound so bad now, does it?

“I’m not upset that you lied to me, I’m upset that from now on I can’t believe you.”

― Friedrich Nietzsche

 

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