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Tag Archives: Peter Martin

Morrison’s Approaching Waterloo

It may be early days but Joe Hockey’s second and final attempt to bring down a credible budget appears to be unravelling already. Even on the night of his budget speech in May it was clear that his growth projections were far too optimistic.

It makes one wonder if the whole budget process was one started first by establishing a bottom line and then working backwards, fudging the figures necessary to substantiate it.

Is that how they eventually arrived at a growth estimate of 2.75%? Perhaps it was a case that if it sounded unattainable, to hell with it, that’s what it was going to be.

And then they made it 3.50% all the way out to 2019/20?

rbaThe Reserve Bank announced on Friday it was downgrading its growth estimate to 2.25% for the current fiscal year. Surprise, surprise! If correct, that has the potential to blow out the deficit by a further $11 billion.

Not that we should be concerned about deficits. It’s the ability to manage them that should have us concerned; particularly when our current treasurer thinks we only have a spending problem.

The fact is, deficit spending is what we need right now, but it has to be targeted. It has to be value adding, creating employment and making a positive contribution to our GDP.

The current deficit projections cannot be attributed to anything positive because they are essentially caused by over-optimistic estimates, not excessive spending. While revenue for the first three months of the May budget is on track, giving Scott Morrison some breathing space, it is based on reduced earnings that are likely to continue declining.

Peter Martin in ‘The Age’ says, “The charts in the budget that predict a return to surplus by 2019-20 were built around an assumption of fast economic growth of 3.5 per cent in the five years to 2021-22.

That growth estimate is simply unreasonable and based more on hope than insight. That means revenue projections over that same period cannot be achieved without significant tax increases. Realistically, a surplus is not on the horizon any time soon.

How long Morrison will continue to kid himself about his perceived revenue/spending problem remains to be seen but sooner or later he will have to face the reality of a slower China and a population not growing as fast as expected.

gstHe has also stated that any increase in the GST would not be used to boost the overall tax intake. How could it not, unless it is all given away in compensation. If that’s the case, why bother increasing it?

Thus far, Morrison has given no indication that he understands how to manage a national economy any better than Joe Hockey. I have no doubt Malcolm Turnbull has a better idea but he is hamstrung by a neo-classical mindset that suffocates his extreme right wing colleagues.

This situation, therefore, foreshadows a difficult time for both men. Sooner or later, unless some Chinese miracle occurs, there’s going to be a clash of ideologies, a seismic shift that will see one of them emerge triumphant, while the other goes the way of Joe Hockey.

If it’s Morrison that survives, the economy and by extension, the Australian people, will be the big losers. However, the spin merchants within the Liberal Party will camouflage it such that it is not likely to be apparent until after the next election.

tppWithout a radical change in strategies along the lines that Italy and Canada are starting to entertain, we will continue in decline for some time yet.

And we should not expect Andrew Robb’s Trans Pacific Partnership (TTP) to come to the rescue either. The news from Hilary Clinton is not good. It is unlikely that, in its present form, it will achieve the 85% GDP target of member nations it needs, for approval.

I suspect Scott Morrison is about to meet his Waterloo.

 

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 atreconstructingeconomics.comand tweets @wjss44.

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