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Tag Archives: The GFC

Morrison heading down the wrong path.

Watching Scott Morrison’s interview with Leigh Sales, on 7.30 Wednesday night I was hoping to hear something…anything that indicated that he possessed a better grasp of the economy than his predecessor. Sadly, all I heard was a lot of waffle, a collection of weasel words, the usual spin and a refusal to look at what is 50% of a balanced economy, i.e. revenues.

Raising taxes, he said, was code for increased spending. He did not agree that the economy has worsened despite Leigh Sales listing the comparison figures on unemployment, the exchange rate, GDP growth, the deficit and the debt, all of which clearly identified a worsening position since Labor left office.

He talked about getting people back to work, how good it was to see the participation rate rising. But there was nothing about job creation, where the jobs for 780,000 participants would come from or how the 156,000 job vacancies could be improved. There was no plan.

The Treasurer was already in denial about the comparative state of the economy and he was already looking away from where the real problems are, away from the point where he needs to begin his much anticipated restoration.

turn-300x168Prime Minister Malcolm Turnbull has made his first serious mistake. He has committed his government to continue with the failing austerity measures introduced by Joe Hockey in an attempt to bring the budget back to surplus.

If he is setting Morrison up for a gigantic fall and using that as a reason to change tack, to move away from this obsession for a budget surplus and embark upon a demand driven economic recovery via a stimulus, it isn’t going to happen soon.

Therein lies the problem.

The focus on government should not be on the deficits but on the prosperity and inclusion that full employment delivers. People are easily frightened by fairy tales of terrible consequences when new ideas are presented. That sense of fright is driven by a lack of education that leaves people unable to comprehend how the economy actually operates.

Deficit budgets will not bring about terrible consequences. Properly targeted, they will increase employment, tax revenue, drive demand for increases in production, higher wages and better living standards.

Neo-liberals magnify the fear of terrible consequences, by demonising what are otherwise sensible and viable explanations of economic matters. They know that by elevating these ideas into the domain of fear and taboo, they increase the probability that political acceptance of the ideas will not be forthcoming. That is what I suspect Morrison will do.

Morrison has demonstrated already he is no more up to the job than Joe Hockey. If he thinks we have a spending problem he is heading down the wrong path. We have a revenue problem clearly identified by excessive tax expenditures.

Morrison’s announced strategy advances the neo liberal ideological agenda: present simple “truths” guiding government fiscal policy and the public will accept it. Neo-liberals have vested interests in ensuring that the public does not understand the true options available to a government that issues its own currency.

neoThey present these simple “truths” by advancing a sequence of myths and metaphors that they know will resonate with the public and become the ‘reality’. Myths such as, “the country will go broke,” or “we simply can’t afford it,” or “we must live within our means.”

That last myth is the most dishonest of them all because it projects the image of a household economy which, in the case of a currency issuing government, is simply false.

Morrison acknowledges the level of Government spending has not fallen during the Coalition’s term in Government. “Expenditure as a percentage of GDP is over 26 per cent, which is where it was at the height of the GFC,” he said. “This is not something that we believe is sustainable.”

Government spending is as high now as it was during the height of the GFC and increasing. And so it should. In the June quarter, government spending was the only reason we avoided a quarter of negative growth. That fact alone should be ringing bells, but it isn’t.

Ideally expenditure as a percentage of GDP should be around 25%. But there are two ways to tackle that. One is to raise revenues, the other is to restrict outflows, which doesn’t necessarily mean spending.

In the current economic climate it seems no government has the courage to increase taxes. However, restricting outflows without cutting direct government spending can be achieved quite easily.

Tax concessions on capital gains, negative gearing, superannuation and mining subsidies are at obscene levels. They blatantly favour the wealthy. This is where Morrison needs to concentrate his efforts. If he fails to recognise this obvious area of savings he will be of no better value to the country than Joe Hockey.

That is why, for the economy to climb out of the mire, Malcolm Turnbull needs to reverse government fiscal policy. He can no longer rely on the RBA to restrict aggregate spending. Interest rates are now so low, going lower won’t work anymore.

scalesHe needs to rebalance the scales. Current tax expenditures weigh too heavily against tax revenues. Superannuation is not an economic driver any more than capital gains. Negative gearing inflates both the property and rental markets which in turn reduces disposable income.

Raising taxes is not a code for spending? As a confidence builder, it was not a great start from the new Treasurer.

 

Time to end Tony Abbott’s deceitful debt scare campaign

Let’s get real here and start talking facts. Cold hard incontrovertible facts.

I have already outlined the truth of the situation in, Facts speak for themselves, Australia still lucky country. Now to get into the details.

$44 billion worth of net assets were inherited by the Labor Government in 2007 from John Howard’s Liberal Government.

This is after a strong period of economic growth and private investment following the dot com crash, from 2002 to 2007. Not to mention, ever surging commodity prices and resources demand, mainly from a booming China.

$70 billion of government owned assets were sold off under by Treasurer Costello, most of them at bargain basement rates. Incidentally, as an aside, he now wants the Queensland Government to engage in such reckless practices.

This means the net assets on the books (63% of the overall cash generated from asset sales) were as a result of selling our assets, without a mandate, for much less than they would now be worth if they had been retained.

Almost every other benefit from the mining boom was squandered, as there was abysmal investment in education, health, infrastructure and productivity over 11 ½ years of Coalition rule.

The IMF (International Monetary Fund) recently stated Howard was the most profligate Australian Prime Minister in history. If you take issue with that statement, talk to the experts.

Howard was defeated when there were very few signs of the credit crunch and GFC in evidence.

Since Labor came to power in late 2007, there has been $160 billion in tax receipt write-downs as a result of a weaker global economy.

Between 2004 to 2007 the Howard Government saw $334 billion of upward revisions yet still under invested in crucial sectors and sold off public assets.

Every developed nation entered recession . . .  except for Australia that is.

Image courtesy of the Australian Labor Party

Image courtesy of the Australian Labor Party

Australia took decisive action to stem the impacts of the GFC on jobs and economic growth. The economy is now at trend growth and 926,000 jobs have been created since the GFC. An outstanding result no matter how you slice it.

This meant stimulating the economy with a significant stimulus package of around $52 billion (3% of GDP in today’s terms). A response that was heralded as a model targeted and effective response by the IMF, OECD and World Bank. The OECD praised the package stating it would save 200,000 jobs.

World experts such as Nobel Prize laureate Professor Joseph Stiglitz also said the stimulus “served Australia well“.

Without this stimulus, as the world was sinking into a crisis, growth in Australia would have stalled and unemployment would have spiked above 8% leading to a prolonged period of economic hardship for many Australians.

Australia chose to support jobs and growth and to maintain levels of spending in order to support services for the Australian people.

To maintain surpluses over the GFC period – as some in the Coalition seem to suggest Labor should have done – would have been irresponsible.

The Liberal Party's attempt at a counter graphic with no mention of the context of the GFC or that $150B is close to the amount tax receipts have dropped off.

The Liberal Party’s attempt at a counter graphic with no mention of the context of the GFC or that $150B is close to the amount tax receipts have dropped off.

It would have led to the requirement to unleash austerity on all Australians at the worst possible time in the last 80 or so years since the Great Depression.

Cuts would  have been in the realm of $32 billion a year over the last five years. That is 2% of GDP annually, in today’s terms.

This kind of program would have put Campbell Newman to shame and led to further hurt in the Australian community.

The other major contributor to our debt position is the $37.5 billion investment in the NBN. Broadband was an area Howard neglected for his entire term in office.

He didn’t understand that this expenditure is an investment in our future; an asset, not an expense. It will create jobs and growth.

Tony Abbott admits he doesn’t understand broadband either:

The remainder of our gross debt is about $50.5 billion over five years. This is equal to 0.6% of GDP each year in today’s terms.

The numbers sound big, but in the context of our almost $1.6T trillion economy, they are small. The Coalition try to take interest payments and debt out of the wider context because they are large by historical standards. However, to do this without reference to the wider economy, the global scenario and the GFC is just plain deceptive.

They know it too.

I ask you to look at how much debt you personally carry on credit cards and in car and home loans. I can tell you right now it will be more than 10% of your household income (on a net basis). In fact, private debt is a much greater issue than public debt.

Respected economist Stephen Koukoulas called out the scare campaign recently in an e-mail to Labor members and supporters.

Australia has a AAA credit rating from all three major ratings agencies. If we were in such a bad fiscal state we would not only not be one of only seven countries with that honour but we wouldn’t be the only one with a Stable rating from all three. Under Howard and Costello’s so called “Golden Age” this was never achieved and to do it during such turmoil must be acknowledged.

Another graphic showing the growth in the Australian economy compared to others. Now at somewhere in the range of 15% since the GFC. (Courtesy of Independent Australia).

Another graphic showing the growth in the Australian economy compared to others. Now at somewhere in the range of 15% since the GFC. (Courtesy of Independent Australia).

This was only recently reinforced by Fitch when they affirmed their AAA rating for our economy.

A point only further underlined by Dun and Bradstreet’s recent release entitled Australian economy ranked among world’s safest, in which it says:

Solid GDP growth, relative to other developed economies, contributes to Australia’s status as one of the world’s safest trade destinations. Likewise, the nation’s unemployment rate is low, and its annual average inflation remains within the Reserve Bank’s target band. Terms of trade at historical highs and solid commodity prices have also helped Australia avoid much of the turbulence experienced within other advanced economies.

It continues:

Australia’s relative economic strength, which is supported by the country’s mining boom, and its comparatively limited exposure to European markets are key reasons for the nation’s ranking as one of the most attractive trade and investment destinations globally.

This is the reality Tony Abbott and the Coalition want hidden from view. However just because you repeat it, getting louder and louder each time, doesn’t make it true.

Abbott’s deceptions and flat out lies on the economy are even more mind blowing when one considers he was a Rhodes scholar at Oxford and studied, of all things, economics at the University of Sydney during which he commenced his much fabled entry into student politics.

Former Treasurer Peter Costello has himself, in private conversations, been reported as calling the man that wants be our Prime Minister an “economic illiterate.”

Time we got real.

This government has to invest in your future, your jobs and your country.

The alternative is too horrible to contemplate.

Just ask Queenslanders.

(NB: This article rounds our gross debt up to $300B. So in fact our position is currently actually better than presented).

This article was first published on Independent Australia.

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