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Tag Archives: GDP

Morrison’s Dilemma

Within a comparatively short space of time, we are starting to see our new Treasurer’s ‘modus operandi’ toward economic reform.

Scott Morrison’s recent claim that eight out of ten income tax payers fund our total welfare payments, is a poor attempt at shock therapy, not well thought through and in that horrible world of political comparisons, a dumb way to get the community onside.

It would seem Scott Morrison only knows one way to approach a difficult problem and that is to fire off a broadside, see what it achieves and then begin the tough work of negotiation and compromise. On this occasion, using the old Joe Hockey style of placing his foot in his mouth, Morrison’s comment was not a good way to start.

Selecting individual elements of revenue raising to match a particular expense item is a lazy way to signal target areas where spending cuts might be on the agenda and is, in the overall analysis, quite useless. In this case Morrison uses the 2015-16 budget to compare spending estimates on welfare of $154 billion with personal income tax revenue estimates of $194 billion to fuel his broadside.

One would think any secondary school student could do something similar; cherry picking and coming up with what are totally useless comparisons.  One could use the company and resource rent revenue estimates of $71.2 billion and compare that with the estimated spending of $69.4 billion on health. But what relevance does that have?

It seems pretty clear from Morrison’s statement that he wants to find savings in welfare expenditure. Depicting the poor, long suffering taxpayer from Middle-Income Street, in Plain Town, as the one shouldering the welfare burden, might appeal to the lowest common denominator, but it ignores the reality.

All government revenues go into the Consolidated Revenue Fund. In some cases, specific revenues are raised for specific purposes such as the fuel excise being used for only for roads. But this is rare. Income tax revenues have no such specific purpose and to relate them directly to welfare payments, as if to say this is where your money is going, is wrong.

But what is Morrison really up to? He has earlier told us that we don’t have a revenue problem, only a spending problem. He bases this on the increasing ratio of spending to GDP compared with a  lower ratio of revenue to GDP. In doing so he is ignoring 50% of the problem. A higher revenue ratio would also reduce the spending ratio.

henryIf we accept former Treasury Secretary Ken Henry’s assessment that both revenue and spending should, over a given cycle, be 25% of GDP then it is clear both areas need to be addressed. Attacking spending in isolation will lead to a contraction in the cycle which, by a strange coincidence, is exactly what we are experiencing now.

But Liberal ideology limits Morrison’s choices. Raising taxes is anathema to their sense of justice and fair play. They would rather lower taxes, particularly for their corporate friends. They would rather strangle Union power, limit wage growth and cut back on welfare. It is the opposite of what they should be doing.

Higher wages means higher tax revenue, greater demand for goods and services, higher GDP which translates to a higher living standard for all. The one exception is that company margins are lower. So what? Additional demand compensates for that. The present Liberal ideology is framed with blinkers on, unable to see the bigger picture.

jobsThis is Scott Morrison’s dilemma. For as long as he maintains this blinkered approach to growing our economy, he will fail to capitalise on the power of demand side economics. And he will continue to preside over a seriously under-utilised workforce and lower than could be realised revenues.

Under Morrison’s management, deficit spending is destined to become the norm, not that there is anything wrong with that, provided it translates to higher employment. At the moment it is not.

 

Australia flying blind

Image sourced from www.wikiprogress.org

Image sourced from www.wikiprogress.org

In this article Warwick Smith reports why the decision by the Australian Bureau of Statistics to discontinue many programs including the Measures of Australia’s Progress due to budgetary demands, is an appalling development. Even though the ABS doesn’t have the public profile of the ABC and Medicare, its work is just as critical to the nation.

Measures of Australia’s Progress (MAP) is a ‘dashboard’ approach to measuring how well we are doing as a nation. Its development was an acknowledgement of the fact that the usual economic measures of progress are not enough on their own when it comes to understanding changes that affect well-being in Australia. MAP reports on a broad range of statistics from four categories; society, environment, economy and governance.

The Australian Bureau of Statistics (ABS) have just announced that they have been forced to discontinue MAP (along with a lot of other programs) due to insufficient funding (Budget cuts: how ASIC, the ABS and the ATO are turning off the lights, Peter Martin, The Sydney Morning Herald June 8 2014). It would be a huge loss if this program is not rescued from the dustbin.

The reason we tend to use economic growth (GDP growth) as a measure of progress is, at least in part, because it’s supposed to be a proxy for well-being. The more money people have the more choices they have and the better off they are – that’s the rhetoric. It’s true that increases in income make a big difference to the well-being of very poor people. However, as you go up the income scale, increases in income have a diminishing impact on well-being.

As I’ve written elsewhere, GDP growth is of extremely limited value if you want to know about national movements in many things that really matter to people’s lives such as relationships with family and friends, community, health, environment, trust in government, job security and effective services and infrastructure like transport and communication. MAP collects data and produces reports on most of the things in that list.

Things that increase GDP can have a negative impact on our well-being. Natural disasters can increase GDP due to the cleanup and reconstruction efforts. Shipping iron ore overseas adds to GDP despite the fact that it’s actually a public asset sale and depletes our stocks.

Sometimes, providing the things people want and need has a negative impact on economic growth (like preserving a forest that miners want to bulldoze). While this is acknowledged in various pieces of legislation, like environmental protection laws, workplace safety laws etc., we have no framework for making these judgment calls in any systematic way. We should be moving towards having meaningful calculators of well-being that can be assessed alongside economic benefit in order to better inform our decision making. Cost-benefit analyses of public policy should calculate the net impact on well-being with financial costs and benefits being just one set of inputs.

If we are using GDP as a measure of progress because it is a proxy for well-being and we know it’s a flawed proxy, then it would be better to measure things that have a more direct impact on well-being. This is what MAP is trying to do.

If meaningful calculations were done, wealthy countries would often find that sacrificing some economic growth for improvements in other areas that directly improve well-being is often worthwhile.

However, in order to make these calculations and to reach this level of policy enlightenment, we need to have the data.

This is why the cuts announced by the ABS are particularly devastating even though most people would never have heard of the programs being cut. The continued collection and reporting of these measures is vitally important if we are to find a notion of progress other than the endless mouse wheel of greater and greater consumption and greater and greater environmental destruction.

The alternative is to leave intact the status quo where money is our measure and where the things we really care about are steamrolled beneath the endless drive for economic growth.

Those of you who care about where this country is heading should be up in arms about this. The ABS might not have the public profile of Medicare, the ABC or Australia Post but it’s just as important – in some ways more important. Without reporting and commentary on how our nation is doing across a broad range of indicators, we truly are flying blind and are required to put a great deal of trust in our political leaders. Trust that I’m afraid they do not deserve.

Warwick Smith is a research economist at the University of Melbourne. He blogs at reconstructingeconomics.com and tweets @wjss44.

Why the bloody hell are you doing this?

tourismTo those who find the title offensive, I apologise.  I got my inspiration from the former chief executive of Tourism Australia, Scott Morrison, who asked the rest of the world: ‘Where the bloody hell are you?’

According to a government paper released in July 2013, Tourism’s Contribution to the Australian Economy, the tourism industry employs 908,434 persons or 7.9% of total Australian employment (Direct – 531,900 persons, Indirect – 376,534 persons). Mining, by comparison, employs 2.4% of the workforce with this figure set to drop.

In 2011-12, tourism’s contribution to Australia’s GDP was $87.3 billion or 5.9% of total GDP (Direct GDP – $41.0 billion, Indirect GDP – $46.2 billion). In the same year, mining contributed 9.6% of GDP.

In the long term, total tourism GDP rose at an average annual rate of 4.6 per cent between 1997–98 and 2011–12 and it is continuing to grow with short-term visitor arrivals to Australia forecast to grow to 7.0 million in 2014–15. Inbound expenditure is forecast to grow on average 3.5 per cent per annum and reach $39 billion by 2022–23.

In summary, tourism is a big employer and a growing industry which makes a substantial contribution to our economy. Unlike mining, the majority of the profits from this industry remain in Australia. Unlike manufacturing, it doesn’t move operations offshore to save money (unless you count Qantas). Whole communities are built around tourism which does not all of a sudden decide to close like factories or mines do.

So how is the Abbott government protecting this most important industry?

According to Wikipedia

“Popular Australian destinations include the coastal cities of Sydney and Melbourne, as well as other high profile destinations including regional Queensland, the Gold Coast and the Great Barrier Reef, the world’s largest reef. Uluru and the Australian outback are other popular locations, as is Tasmanian wilderness. The unique Australian wildlife is also another significant point of interest in the country’s tourism.”

We are covering regional Queensland with mines. We are dumping dredge on the reef which will now become a highway for huge tankers. We are getting rid of World Heritage listing so we can log the Tasmanian forests. We are getting rid of marine parks so we can kill more marine life. And in the most foolhardy step of all, we are refusing to take action on climate change which will put all these national treasures at risk and make large parts of the country virtually uninhabitable.

Environment Minister Greg Hunt has said the closure of the Climate Change Authority was part of a push to reduce bureaucracy, and climate change advice could come from the federal environment department, CSIRO and Bureau of Meteorology.

He then promptly cut hundreds of jobs at the CSIRO in November

“The Federal Government says as many as 600 jobs will be cut at Australia’s pre-eminent science and research organisation.”

and hundreds more in March.

Hundreds more job cuts are looming at the CSIRO as the peak science body pushes through its biggest restructure in decades. The job cuts are on top of the ban on renewing the jobs of CSIRO’s temps and contractors, revealed by Fairfax last year, which has caused the group’s head count to fall from 6500 to fewer than 6100.”

The same thing happened at the Department of the Environment.

“About 480 public servants will lose their jobs at Environment, on top of 190 bureaucrats who have already gone, and hundreds of programs and activities will either be modified or axed in a sweeping restructure as the department tries to cope with dwindling funds and efficiency dividend cuts.”

The Bureau of Meteorology had its budget slashed by $13 million last year and now runs commercial ads on its website. Robert Crawford, a communications professor at University of Technology Sydney, said

”There could be a temptation to reduce funding, but you wouldn’t want them to become dependent on outside revenue because advertisers can always walk away.”

Bernie Fraser, Climate Change Authority chairman, said public servants did good work, but did not have the freedom and opportunity to deliver well-considered, independent advice in the manner of the authority, Reserve Bank or Productivity Commission.

”On a subject as complex as climate change, I would have thought every government – whatever its complexion – would want to get good independent advice. I find it a bit frustrating this opportunity … seems to be foreclosing a bit with the present government. I think that’s a disappointment.”

Tony Abbott continues to show his utter disregard for the environment and climate science. When addressing a timber industry dinner, despite Heritage Listing and dire warnings about deforestation, he said

We have quite enough national parks. We have quite enough locked up forests already. In fact, in an important respect, we have too much locked up forest. Getting that 74,000 hectares out of World Heritage Listing, … will be an important sign to you, to Tasmanians, to the world, that we support the timber industry.”

Despite the cuts we see elsewhere, Abbott found the money to set up a new Forestry Advisory Council to support the timber industry.

Now we hear that Parks Australia, which administers the six Commonwealth National Parks, including Kakadu, Uluru, Christmas Island, and Canberra’s National Botanic Gardens, as well as 58 marine reserves, will face funding cuts which will cause it to consider raising money by raising visitors’ fees, allowing more commercial tourist infrastructure – like hotels – to be built or even selling naming rights.

Also, the Hobart-based Australian Antarctic Division has had $100 million cut from its funding and will have to seek commercial sponsorship from private corporations for future research.

This government is hellbent on a short term grab for cash. Investors advise that there is a very small window for making a profit from coal – it is most definitely not an investment for the future. So what do we do? Approve massive new coal mines and port expansion on the reef. Renewable energy is a growing industry so what do we do? Wind back subsidies and review the renewable energy target and send investors scurrying. Selling profitable assets to build roads is a hugely retrograde step. Not only do we forego future revenue and leave the cupboard bare, the employment generated during construction is not ongoing, and does nothing to address the problem of pollution caused by an increasing number of cars clogging our cities. Obviously urban rail, public transport, bike lanes, high speed rail, and a second airport for Sydney are more pressing priorities.

We live in a beautiful country. Even if you are not willing to fight for it for purely aesthetic reasons, sacrificing everything for mining makes no economic sense. We are sacrificing tourism and manufacturing, our health and our home, all for a dying industry. This government might get to a surplus a couple of years earlier – so what? The cost of irreversible damage is far too high.

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