Business & Consumerism
The apparent growth of our economy hides deeper problems. Australia isn’t ready for another global crash, writes Mike Dowson.
President Donald Trump will declare economic war on our biggest customer, wipe unprecedented amounts off global stock markets, usher in extraordinary financial instability, and risk turning the the world’s biggest economy into a basket case by pushing its national debt past 100 per cent of GDP.
The Turnbull government has yet to explain why we need tax reform. Meanwhile, Labor is strangely coherent on tax policies.
Search giant Google has announced a new company structure and a new name that will cut in half the time it takes its accountants to fill out taxation forms.
“We’re all about speed. So we figured by making our name the same as our taxation status, we’ll have more time to focus on other things,” a spokesperson for the company said.
Google last year paid an estimated $5 million tax in Singapore, on the $2 billion revenue it earned in Australia.
The announcement of the new structure was made on social media platform Google+ in April, with the news quickly spreading to other channels today.
Abbott says we’re on the right path, but the numbers paint a different picture. Such exaggerated claims have eaten away at the public’s trust.
Here’s what’s missing: trust. Not just between Abbott and his backbenchers, but also between Abbott and us. If anything, the leadership contest has made things worse.
As Abbott brought forward the timing of the leadership vote on Sunday, his supporter and finance minister Mathias Cormann told the ABC the economy was “heading in the right direction”. He wanted “to build on the achievements we made in 2014”.
Without trust we lack confidence. We are neither spending nor investing what we should.
Take a moment to consider the achievements and the direction in which things are heading. That year began with a quarterly rate of economic growth of 1 per cent. After the budget, it slid to 0.5 per cent, and then to 0.3 per cent. It’s falling, rather than rising. The direction is down. (Ignore the through-the-year figures Cormann quoted. They make the budget look good by including the very strong economic growth that preceded it.)
Illustration: Andrew Dyson
Illustration: Andrew Dyson
The Reserve Bank made its view about economic growth clear on Tuesday. Here’s what it said when it cut rates an hour or two before its governor briefed Cormann and others in cabinet: “In Australia the available information suggests that growth is continuing at a below-trend pace, with domestic demand growth overall quite weak.”
It’s weak and it’s bleak. It isn’t heading “in the right direction”.
Looking ahead, the Reserve Bank expects growth to remain “a little below trend for somewhat longer, and the rate of unemployment peak a little higher, than earlier expected.” Unemployment has climbed from a quarterly rate of 5.3 per cent at the end of 2012 to 5.8 per cent at the end of 2013 to 6.2 per cent at the end of 2014. We get the first figures for 2015 on Thursday.
Unemployment is worse than it was at the peak of the global financial crisis. The Reserve Bank expects it to get worse still.
Hockey and Cormann will tell you that while unemployment is growing, employment is too. But it’s not, really. The number of hours worked per month grew barely at all throughout 2014. More people may have been employed at the end of the year than the start but on average they’ve been working less, some shifting to part-time work and others to fewer hours of full-time work. Disturbingly, the Reserve Bank says the number of hours worked per month has scarcely changed since December 2011 despite three years of population growth.
None of these facts would surprise anyone in business or anyone looking for a job. What would surprise them would be to hear from the team at the top that things are “heading in the right direction”. It would make them think they were being lied to.
When trust vanishes, it’s awfully hard to restore. That’s because it vanishes slowly. Joe Hockey’s first budget was far worse than it seemed on the night in part because he didn’t tell us the truth about it on the night. The usual calculations showing the households that won or lost were missing. The Treasury had prepared them as usual, but the Treasurer withheld them.
And he made up stuff. He said Treasury had told him that fuel excise was “a progressive tax”. It hadn’t. He said the poorest Australians “either don’t have cars or actually don’t drive very far in many cases,” something many of them know to be untrue. Petrol takes up a much bigger share of a low-income budgets than high-income budgets.
He said his own wealthy electorate of North Sydney had “one of the highest bulk-billing rates in Australia”. It had one of the very lowest in all of Sydney. He said “higher income households pay half their income in tax”. They pay nothing like half. Even those on $200,000 pay just 36 per cent. Back from his holidays this January, he revived the claim and went further saying typical Australians pay nearly half their income in tax.
“When Australians spend the first six months of the year working for the government with tax rates nearly 50c in the dollar it is a disincentive. You’re working July, August, September, October, November, December just for the government and then you start working for yourself and your own household income after that for another six months, he said.
But Australia’s tax-to-GDP ratio is about 30 per cent, including all taxes, state and federal. It simply can’t be the case that typical Australians pay nearly half their income in tax. They don’t.
And exaggerated claims have eaten away at trust. Hockey said Australia was on track to run out of money to pay for its health, welfare and education systems. The figures put forward by his then health minister suggested otherwise. In ten years the cost of Medicare had climbed 124 per cent, the cost of the Pharmaceutical Benefits Scheme 90 per cent and the cost of public hospitals 83 per cent. But Australia’s gross domestic product – the money we would use to pay for these things – climbed 94 per cent.
The government tells us it’s concerned about future generations, but won’t release the Treasury’s intergenerational report. It tells us it wants a discussion about tax, but won’t release the tax discussion paper finalised late last year.
Without trust we lack confidence. We are neither spending nor investing what we should. Business and consumer confidence has been sliding since September.
Specific businesses are at a standstill. Universities don’t know what fees they will be allowed to charge, students enrolling don’t know what fees they will eventually be asked to pay, doctors don’t know what will happen to their incomes, big businesses don’t know whether they will be hit with the 1.5 per cent paid parental leave levy and what it will be used for.
If they applied themselves, Abbott and his ministers could methodically work through each of these issues. But they wouldn’t be trusted.
The government itself has become an impediment to economic growth. It had the ability to make a fresh start. On Monday it didn’t take it.
Peter Martin is economics editor of The Age. Twitter: @1petermartin
Tony Abbott’s tenure as Prime Minister is all but over. The division within the Liberal Party’s parliamentary ranks is clear, with 39 of its MPs yesterday voting in favour of a leadership spill. It is true that 61 voted against, but at least 32 and as many as 41 of those votes were ministers, parliamentary secretaries and party whips who Mr Abbott says were bound by the party’s convention to close ranks behind the leader.
In short form, the numbers indicate that about 60 per cent of Liberal backbenchers have no confidence in Mr Abbott’s ability to lead their party or this nation. That is a dire result. It will foster internal disruption and general uncertainty about the government’s direction, none of which is desirable at the best of times, let alone in the midst of preparations for a crucial budget.
Speculation about the leadership will persist as long as Mr Abbott remains, and that will enfeeble decision-making within the government and prove detrimental to business confidence. With Australia’s economic outlook weakening, and the government still unable to pass some of its budget measures from last year, the last thing the Coalition needed was more of the same.
Indeed, the last thing Australia needs is another 18 months, potentially, of the kind of dispiriting, inconsistent leadership that Mr Abbott has exhibited. His effort to recast the office of the Prime Minister as an elevated, independent branch of Parliament is arrogant and misguided. It is evident in the way he has made unilateral decisions about government policy without bothering to consult senior ministers, and it is evident in his twisted interpretation of the voting system. “We think,” he said yesterday (using the royal “we”), “that when you elect a government, when you elect a prime minister, you deserve to keep that government and that prime minister until you have a chance to change your mind.”
No, Mr Abbott, the people of Australia do not and never have voted directly for a prime minister. Australia does not have a presidential style of government. Leadership is vested by the party. You are in the Prime Minister’s office only by grace of your colleagues, a great many of whom, it is clear, are far from happy. Their discontent reflects that of their constituents; the polls indicate that if an election were held now the Coalition would be trounced.
Mr Abbott reportedly was shocked by the threat to his leadership, which only underscores how cocooned he has become. He apparently does not believe that he has a problem with the electorate. He is blithely carrying on with tired pleadings for unity among his MPs, and with empty expressions to voters that “we are not the Labor Party”. Yet, by casting the Liberals in terms of something it is not, Mr Abbott only underscores how hollow is his party’s policy platform. This is what The Age warned about in September 2013 just before the election; the Coalition’s “plan” for the nation was never fully formed, it was framed around three-word slogans and lacked substance.
Almost halfway through the term, and the Coalition’s narrative is still deficient. The position is redeemable, but only with a change of leader. Mr Abbott has squandered the trust of voters and many of his Coalition colleagues. His decision to pull the party room meeting forward by a day might have been intended to demonstrate unity before Parliament began sitting this week, but it looked panicked.
Worse was Mr Abbott’s political ploy in offering a South Australian senator the assurance that, contrary to what Treasurer Joe Hockey said late last year, Australian companies would get a chance to bid for a multibillion-dollar contract to build submarines.
There is deep-seated disappointment with this government. Mr Abbott has fumbled too many chances. His leadership is unsustainable and it is inevitable that Liberal MPs will need to resolve this by dumping him.
The end-of-year reflections by Prime Minister Tony Abbott and Treasurer Joe Hockey were a reminder of the federal government’s surprisingly poor year. The measure has been the government’s perilous position in the polls. The surprising elements of the year that have generated these poor polls have been broken promises, breaches of trust and unfair budget measures. These elements have been multiplied by so-called marketing and communications failures. Too many of these elements recall the equivalent failures of the outgoing Gillard government. This is a new government that has patently not learned from recent history.
A good dose of humility and repentance would have served the government well at year’s end. But Abbott and Hockey did not choose to go there. Instead, under the guise of sweeping away the barnacles on the ship of state, Abbott did nothing of the kind. He gave notice that he would tweak his paid parental leave scheme but provided no details and precious little humility.
He replaced the $7 Medicare co-payment with a cut of $5 in the Medicare rebate. This makes little difference but Abbott dared to claim it would make a good policy better. Hockey, for his part, when asked whether he had made any mistakes during the year, admitted only to failures in marketing his policies and gave no evidence that he had learned any lessons about the more important mistakes in the content of those budget measures. The government missed the chance to begin 2015 with a cleaner slate.
If the failure of the government to learn from history has been a surprise, 2014 has also been a welcome, stable year in federal politics. The four main elected leaders, Prime Minister, Deputy Prime Minister and Nationals leader Warren Truss, Labor leader Bill Shorten and Greens leader Christine Milne all held their positions, despite whispers about the performance of all four. However, among unelected leaders, Governor-General Quentin Bryce has been replaced by General Peter Cosgrove and NSW Governor Marie Bashir by General David Hurley.
The federal parliament has also remained in unwelcome focus as the government struggles to pass its legislation. In 2013 the focus was on the Gillard minority government. Legislation did pass but extraordinary attention was still devoted to Rob Oakeshott, Tony Windsor, Andrew Wilkie, Adam Bandt, and Peter Slipper among others in the House of Representatives and the Greens in the Senate.
They are all now pretty much forgotten but they have been replaced in the public imagination by the antics of Clive Palmer and the Speaker, Bronwyn Bishop, in the House and the eight cross-bench senators, six of them new. Jacquie Lambie, erstwhile Palmer United Party member, stands out, but each of them has attracted some attention. John Madigan and Lambie have left their respective parties, while Nick Xenophon has started a new one. Bob Day and David Leyonhjelm have their own party labels, but behave as though they are independents.
At a deeper societal level, 2014 has been a year full of massive threats and social failures. The recent killing of the hostages in Martin Place came on top of the global threat of Islamic State, which has involved not just the commitment of Australian forces but a significant number of Australian citizens joining IS to fight in Syria and Iraq. The threats have also involved the dual Malaysian Airways tragedies with the loss of hundreds of lives, including those of about 30 Australians. There has also been a threat of a different kind, the Ebola virus in Africa, which Australians have played a part in fighting.
As dreadful as these international threats have been, the internal social failures revealed during the year should rank even higher among our concerns. Revelations by Royal Commissions and other enquiries have revealed a society riven by endemic corruption and institutional sexual abuse. Too often we fail to stand back to take in all these social failures as a whole. The enquiries have included the Royal Commission into Institutional Child Sexual Abuse, the New South Wales Independent Commission against Corruption, the Royal Commission into Trade Union Corruption, the various enquiries into sexual harassment and abuse in the armed forces and the Royal Commission into home insulation.
These revelations, to which could be added some damaging activities by financial institutions, of widespread individual and institutional failure, corruption and crime have rocked Australian society during the year but perhaps not to the extent that they should have, because most of our most reputable and respected institutions have deservedly been called to account.
As the year draws to a close, it has contained so many political issues that finding a top 10 is next to impossible. I have already mentioned child sex abuse and sexual harassment in institutions, corruption in public life, the dynamics of the new Senate, the failure of the government to pass so much of its Budget and the Malaysian Airlines tragedies.
To those five I would add the stopping of the asylum seeker and refugee boats, the compromised abolition of the carbon tax, the rise to prominence of Foreign Affairs minister Julie Bishop, associated with major free-trade deals, the G-20 and Vladimir Putin, and the beginning of the commemoration of the centenary of World War I, highlighting the military in Australian society. Finally there have been a range of cuts: cuts in support to the motor vehicle industry, cuts to the public service and hence to Canberra, effective cuts in defence force pay and cuts to the Australian Broadcasting Corporation.
These 10 issues should make us pause over the Christmas-New Year period. We will see most of them again in 2015.
John Warhurst is an emeritus professor of political science at the Australian National University.
Treasurer Joe Hockey will slash foreign aid and reveal a massive blowout in this year’s deficit when he hands down his mid-year budget update today.
The ABC’s AM program understands the aid budget will be reduced to Howard-era levels and more than $3 billion will be cut over the next four years.
The cuts in today’s Mid-Year Economic and Fiscal Outlook (MYEFO) come on top of a $7.6 billion cut to the aid budget in May.
Some of the money will be redirected to fund new spending decisions, such as a $630 million boost to national security and the deployment of troops to the Middle East.
This year’s budget deficit, which was forecast to be $29.8 billion in May, is now set to exceed $40 billion as “global headwinds” continue to batter the Australian economy.
“We remain on a believable and responsible path to surplus, but we will get there slightly less quickly than we would have liked,” Finance Minister Mathias Cormann said.
Shadow Treasurer Chris Bowen has criticised the cut to foreign aid.
“They just treat our foreign aid, our overseas development, as their ATM,” he told Radio National.
“It is just their cut of first resort on every occasion.”
Senator Cormann told AM Senate compromises and delays, as well as falling commodity prices, would hit the budget hard over the next four years.
“There’s been a significant drop in revenue on the back of a sharp fall in terms of trade and also on the back of wages growth being lower than expected,” Senator Cormann said.
“We are not going to chase down the fall in revenue.
“There’s been a decision to participate in efforts in Iraq … and then finally there’s been some decisions in the Senate where there have been either delays or outcomes of various negotiated arrangements where there was a cost to the budget from that as well,” he said.
But Labor argued that any measures held up in the Senate are still on the budget books and therefore cannot be counted towards the ballooning deficit figure.
Government sources said the MYEFO contains the steepest fall in the nation’s terms of trade in more than 50 years.
Any hope coalition MPs had of a return to surplus before 2017-18 has now been abandoned.
Budget shows ‘Hockey’s hypocrisy’, Opposition says
But “economic headwinds” also plagued former Labor treasurer Wayne Swan, and in Opposition Mr Hockey had little sympathy.
Last year, he said: “Old Swanny likes to blame everyone else.”
“The trouble is he gets his numbers wrong in the first place and again if you were a company director you would go to jail.”
Labor’s finance spokesman Tony Burke said the budget update shows the Treasurer is a “complete hypocrite”.
“If Peter Costello could deal with an Asian financial crisis, if Wayne Swan could deal with the Global Financial Crisis then surely Joe Hockey should be able to deal with commodity prices,” Mr Burke said.
But Senator Cormann insisted the Abbott Government’s situation was “quite different”.
“[Last year] Labor was saying we were deliberately taking a too pessimistic view to make the numbers look worse than what they were and of course as it turns out we weren’t aggressive enough in downgrading the revenue assumptions that we inherited from Labor,” he said.
“Furthermore, when revenue was starting to fall under the previous Labor Government they decided to ramp up expenditure further to unsustainable levels whereas we are making the difficult but necessary decisions to get spending under control.”
New data points to falling consumer confidence in the Australian economy, with almost a third of Australians rating it as poor, up from 25 per cent in September.
The quarterly Choice Consumer Pulse Report comes on the back of last week’s Westpac-Melbourne Institute survey of consumer sentiment, which put consumer confidence at a three-year low, with unemployment also rising slightly.
The Government is poised to release its Mid-Year Economic and Fiscal Outlook (MYEFO) on Monday.
The Choice survey of more than 1,000 Australians shows electricity remains the top household cost of living concern, followed by the cost of food, groceries and fuel.
“What’s concerning about these figures is they come on the back of declining business confidence and declining consumer confidence figures,” Choice chief executive Alan Kirkland told the ABC.
“We’re seeing a really consistent picture of pessimism about the state of the economy but also what people’s expenditure patterns are likely to be and that’s heading into a peak period.
“So that’s got to be of concern to the retail sector.”
The survey shows 71 per cent of Australians cut spending on entertainment in the past 12 months, while 67 per cent had cut spending on clothing.
Cuts to spending on holidays increased from 58 per cent to 66 per cent, while anxiety over university of fees was at 87 per cent.
“I think what we’re seeing is that consumer sentiment at the moment is extremely reactive to what’s happening in the broader debate,” Mr Kirkland said.
“So when we see debate in Parliament about spending cuts that raises consumer concern and when we see broader economic debate about concern about unemployment and income, that has an impact on the way people perceive the economy is likely to perform in the next little while.”
Last week, Westpac was describing a sharp deterioration in consumer confidence this month as “disturbing”.
The Westpac-Melbourne Institute Index fell 5.7 per cent in December to a level of 91.1.
Recent Australian Bureau of Statistics gross domestic product data showed the economy expanded just 0.3 per cent in the September quarter and only 2.7 per cent over the year to September 30.
Coalition to cull 175 government agencies on Monday, according to reports, in addition to 76 closed down following budget
The finance minister, Mathias Cormann, has confirmed there will be job losses across the public service amid reports the Coalition will axe 175 government agencies on Monday.
The treasurer, Joe Hockey, will release the mid-year economic and fiscal outlook (Myefo) on Monday, and economists say it could reveal a deficit for 2014-15 of more than $35bn.
The hit list of 175 agencies is in addition to the 76 closed down following the budget, according to reports. The total of 251 abolished bodies will save $539.5m over four years, News Corp Australia has said.
Cormann, confirmed there would be job cuts and would not rule out forced redundancies.
“We inherited a bloated public service from our predecessors,” Cormann told Sky News on Saturday. “If you reduce the number of government bodies, there will be an impact on jobs across the public service.
“What we will see is that as a result of our reform efforts so far, that the size of the public service will be back down to the same level as what it was in 2007, 2008. We think that’s appropriate.
“The goal is to ensure that the government is as big as it needs to be but as small as it can be.”
On Friday Hockey said the government faced the twin “headwinds” of iron ore prices falling to about $60 a tonne and a Senate blocking billions of dollars in budget savings.
This meant the deficit would be higher than in the May budget, when the forecast was for a $29.8bn shortfall, but the size of the rise would be “better than expected”, he said.
Hockey said the cuts would not have an impact on the economy.
Cormann said cutting government jobs would provide some of those savings. “Part of our effort to repair the budget is to ensure that the administration and the operations of government are as efficient and as effective as possible.”
The agencies to be cut include the Australian government solicitor, with some of its staff transferred to the Attorney-General’s Department, News Corp reported.
It said the departments of health and education were named as two of the priorities for further work on streamlining the bureaucracy.
The abolition of 175 agencies would further damage the Australian economy at a time when it was already stalling, the opposition leader said.
“I think the federal government is in danger of stifling the confidence of hundreds if not thousands of jobs,” Bill Shorten told reporters in Brisbane on Saturday.
“Australia’s at a crossroads. We are narrowly reliant on our mineral sales globally to sustain Australia – the price of our minerals is falling.
“The last thing Australia needs now if we want to have growth in the future … is for Tony Abbott to be killing jobs and killing confidence.”
Shorten urged the prime minister to use Monday’s Myefo to drop its “unfair measures”, including changes to university fees and cuts to pensions.
He rejected Cormann’s reasoning that the government had inherited a bloated public service.
“They’ve been in government for nearly 500 days now. When will Tony Abbott stop blaming everyone else and start accepting responsibility?”
The Federal Government is planning to axe another 175 agencies in a bid to save more than half a billion dollars over four years.
Finance Minister Mathias Cormann is set to make the announcement as part of the Government’s budget update on Monday.
Among those agencies set to be abolished are the Diabetes Advisory Group, Anzac Centenary Public Fund Board and the Local Government Ministers Forum.
Other agencies including the Australian Government Solicitor and the Australian Sports Anti-Doping Authority Advisory Group will be merged into Government departments.
Senator Cormann said the Government wants to streamline agencies and avoid duplication.
“The goal is to ensure the Government is as big as it needs to be but as small as it can be,” he told Sky News.
“We believe that we inherited a bloated public service from our predecessors and part of our effort to repair the budget is to ensure that the administration and the operations of government are as efficient and as effective as possible so that they deliver the best possible services to people across Australia, at the lowest possible cost.
“A lot of these bodies are responsible for similar areas of responsibility. There’s a lot of overlap, a lot of duplication… what we’ve set out to do is, wherever possible, ensure these functions are streamlined.”
The Coalition has already axed 76 government bodies since coming to office last year.
Opposition Leader Bill Shorten criticised the proposal saying now was not the time for the Government to be cutting jobs.
“The Finance Minister’s talking gobbledegook… it’s a cliche masquerading as an economic policy,” he said.
“All the smart economists around the world say that when you have an economy that’s in danger of contracting, it’s not the role of government to speed up the contraction.”
The proposed scrapping of agencies comes after Treasurer Joe Hockey revealed the budget deficit would be worse than the Government had previously forecast when it releases the Mid-Year Economic and Fiscal Outlook (MYEFO) on Monday.
Mr Hockey said the drop in iron ore prices and others factors such as Labor blocking spending cuts would ensure the budget did not return to surplus in 2018 as previously forecasted.
He said more cuts would be announced next week.
“They’re modest savings overall because our expenditure is very modest,” Mr Hockey said.
“New spending – we’re offsetting with new savings.
“The savings we’re announcing are not going to have a negative impact on the Australian economy.”
Last May’s budget forecast a $30 billion deficit this financial year, and the Treasurer said that figure would now be much worse.
Government will wear ‘political embarrassment’
Merrill Lynch Australia chief economist Saul Eslake said he expected the deficit to have increased by about $5 billion or more.
“There’s no doubt given the faster than expected decline in commodity prices and the slower than expected wages growth compared with what was forecast in May, that the deficit will be bigger than had previously been forecast,” Mr Eslake said.
He said the Government was unlikely to make any significant changes like tax hikes.
“Given that the economy is weaker than expected to have additional discretionary fiscal measures that is spending cuts or tax increases would only serve to weaken the economy at an inappropriate time,” he said.
“So the Government’s going to have to wear the political embarrassment of the deficit being bigger than it had forecast and taking longer to return to surplus than it had previously promised.
“Compared with the alternative of raising taxes again or cutting spending which would adversely affect the economy, I think they’re making the right choice.”
Mr Eslake said the Treasurer’s May forecasts were not conservative enough and iron ore prices had fallen considerably more than the Government and other experts had expected.
“When the budget was brought down, the iron ore price was something like US$120 a tonne and the Treasury had forecasted it would be around $90 a tonne in the current quarter that was lower than most people were forecasting at the time,” he said.
“I don’t think it’s there to be critical of the Government’s … numbers, you can make judgements about whether the measures the Government was proposing to correct the budgetary situation were the best that could have been chosen but that’s a separate argument altogether.”
The Australian economy is heading down a slippery slope. Successive data released by the Australian Bureau of Statistics this week is all pointing in the same direction. Last week the national accounts figures showed national growth below trend at 0.3% for the September quarter, and annual growth at 2.7%.
A growth rate of 3% is necessary just to maintain the existing workforce. Therefore, it was no surprise that Thursday’s employment figures for November showed a further increase in unemployment of 0.1% to 6.3%. Worse still was the finer detail. There were only 1800 new full time jobs created and 40,800 part time jobs. The creation of only1800 full time jobs in November is a damning indictment of the government’s fiscal policy.
It means the underutilisation rate, i.e. the total of unemployed and underemployed, has reached 15%. In body count terms that is a total of 1,848,100 people either not working or working reduced hours. That figure by any measure is a crisis. It is a clear indication that the government’s economic policy is a failure and shows that Joe Hockey’s austerity economics is taking precedence over the need to tackle unemployment.
The government in its infinite stupidity still thinks it needs to cut spending. The lunacy of this thinking can be demonstrated quite simply. To continue trying to reduce the fiscal deficit while industry is in the doldrums will lead to depressed output, a continued reduction in the national income which in turn will cause a reduction in demand; in short, a never ending downward spiral.
This will lead to further unemployment and less tax revenue, which means the fiscal deficit will continue to rise anyway. Little wonder then that the Consumer Sentiment Index also released this week shows further decline and is now down to the same levels experienced during the GFC.
Why is this not obvious to Joe Hockey?
The index was 105 index points in December 2013 and today it is 91.1 points, a slide of 14% in one year. In fact this decline started with the end of Kevin Rudd’s fiscal stimulus. These figures may not mean much to the average man or woman in the street who still has a job, but they are a sure-fire indicator that worse is to come. That should make those who are employed, either full or part time, feel very nervous.
In the words of Bill Mitchell, Professor of Economics at the University of Newcastle, New South Wales, “The Government should abandon their ideological obsession with supply-side punishment regimes and realise that the unemployed cannot search for jobs that are not there.” The government’s policy settings are all wrong and they will continue to worsen unless a well planned and executed stimulus is put in play.
If Joe Hockey cannot see what is coming, he should not be in the job. The present policy of fiscal austerity is counter to the OECD working paper released December 9, 2014, entitled – Trends in Income Inequality and its Impact on Economic Growth – by Federico Cingano. The paper’s major findings were that the gap between rich and poor was at its highest level in 30 years, that income inequality and underinvestment in education were the major contributors to this gap and that promoting skills and learning across families and youth was paramount in arresting job decline and promoting growth.
As Bill Mitchell says, “We need a government to get involved in providing public services and infrastructure particularly to low income groups.” The current neo liberal philosophy of supply side economics is a proven failure and by pursuing it our government is taking us down a slippery slope to economic disaster.
And what is our government doing at the moment? They are trying to stifle youth education and engage in austerity economics in a vain effort to return to surplus. This is madness. We need a job creation program now, one that is backed up by skills training in areas that will increase production to meet demand.
If we continue with Hockey’s austerity program, by this time next year unemployment will likely be close to 7%, revenues will have further declined and welfare payments increased to such an extent that the deficit will break through $50 billion. It is already $34 billion compared with the May budget estimate of $29 billion.
There is no joy in saying those figures will be the end of the Abbott government. The misery of those who will be unemployed and underemployed, part of a sub-class of Australians, the legacy of a failed economic policy, will be more than enough for an incoming government to deal with. To avoid a looming catastrophe we need a job creation program now or we travel down the road to perdition in more ways than one.
But don’t take my word for it. Read Bill Mitchell’s most recent blog.
Sen. Bernie Sanders
The American people must make a fundamental decision. Do we continue the 40-year decline of our middle class and the growing gap between the very rich and everyone else, or do we fight for a progressive economic agenda that creates jobs, raises wages, protects the environment and provides health care for all? Are we prepared to take on the enormous economic and political power of the billionaire class, or do we continue to slide into economic and political oligarchy? These are the most important questions of our time, and how we answer them will determine the future of our country.
The long-term deterioration of the middle class, accelerated by the Wall Street crash of 2008, has not been pretty. Today, we have more wealth and income inequality than any major country on earth. We have one of the highest childhood poverty rates and we are the only country in the industrialized world which does not guarantee health care for all. We once led the world in terms of the percentage of our people who graduated college, but we are now in 12th place. Our infrastructure, once the envy of the world, is collapsing.
Real unemployment today is not 5.8 percent, it is 11.5 percent if we include those who have given up looking for work or who are working part time when they want to work full time. Youth unemployment is 18.6 percent and African-American youth unemployment is 32.6 percent.
Today, millions of Americans are working longer hours for lower wages. In inflation-adjusted dollars, the median male worker earned $783 less last year than he made 41 years ago. The median woman worker made $1,337 less last year than she earned in 2007. Since 1999, the median middle-class family has seen its income go down by almost $5,000 after adjusting for inflation, now earning less than it did 25 years ago.
The American people must demand that Congress and the White House start protecting the interests of working families, not just wealthy campaign contributors. We need federal legislation to put the unemployed back to work, to raise wages and make certain that all Americans have the health care and education they need for healthy and productive lives.
As Vermont’s senator, here are 12 initiatives that I will be fighting for which can restore America’s middle class.
1. We need a major investment to rebuild our crumbling infrastructure: roads, bridges, water systems, waste water plants, airports, railroads and schools. It has been estimated that the cost of the Bush-Cheney Iraq War, a war we should never have waged, will total $3 trillion by the time the last veteran receives needed care. A $1 trillion investment in infrastructure could create 13 million decent paying jobs and make this country more efficient and productive. We need to invest in infrastructure, not more war.
2. The United States must lead the world in reversing climate change and make certain that this planet is habitable for our children and grandchildren. We must transform our energy system away from fossil fuels and into energy efficiency and sustainable energies. Millions of homes and buildings need to be weatherized, our transportation system needs to be energy efficient and we need to greatly accelerate the progress we are already seeing in wind, solar, geothermal, biomass and other forms of sustainable energy. Transforming our energy system will not only protect the environment, it will create good paying jobs.
3. We need to develop new economic models to increase job creation and productivity. Instead of giving huge tax breaks to corporations which ship our jobs to China and other low-wage countries, we need to provide assistance to workers who want to purchase their own businesses by establishing worker-owned cooperatives. Study after study shows that when workers have an ownership stake in the businesses they work for, productivity goes up, absenteeism goes down and employees are much more satisfied with their jobs.
4. Union workers who are able to collectively bargain for higher wages and benefits earn substantially more than non-union workers. Today, corporate opposition to union organizing makes it extremely difficult for workers to join a union. We need legislation which makes it clear that when a majority of workers sign cards in support of a union, they can form a union.
5. The current federal minimum wage of $7.25 an hour is a starvation wage. We need to raise the minimum wage to a living wage. No one in this country who works 40 hours a week should live in poverty.
6. Women workers today earn 78 percent of what their male counterparts make. We need pay equity in our country—equal pay for equal work.
7. Since 2001 we have lost more than 60,000 factories in this country, and more than 4.9 million decent-paying manufacturing jobs. We must end our disastrous trade policies (NAFTA, CAFTA, PNTR with China, etc.) which enable corporate America to shut down plants in this country and move to China and other low-wage countries. We need to end the race to the bottom and develop trade policies which demand that American corporations create jobs here, and not abroad.
8. In today’s highly competitive global economy, millions of Americans are unable to afford the higher education they need in order to get good-paying jobs. Further, with both parents now often at work, most working-class families can’t locate the high-quality and affordable child care they need for their kids. Quality education in America, from child care to higher education, must be affordable for all. Without a high-quality and affordable educational system, we will be unable to compete globally and our standard of living will continue to decline.
9. The function of banking is to facilitate the flow of capital into productive and job-creating activities. Financial institutions cannot be an island unto themselves, standing as huge profit centers outside of the real economy. Today, six huge Wall Street financial institutions have assets equivalent to 61 percent of our gross domestic product – over $9.8 trillion. These institutions underwrite more than half the mortgages in this country and more than two-thirds of the credit cards. The greed, recklessness and illegal behavior of major Wall Street firms plunged this country into the worst financial crisis since the 1930s. They are too powerful to be reformed. They must be broken up.
10. The United States must join the rest of the industrialized world and recognize that health care is a right of all, and not a privilege. Despite the fact that more than 40 million Americans have no health insurance, we spend almost twice as much per capita on health care as any other nation. We need to establish a Medicare-for-all, single-payer system.
11. Millions of seniors live in poverty and we have the highest rate of childhood poverty of any major country. We must strengthen the social safety net, not weaken it. Instead of cutting Social Security, Medicare, Medicaid and nutrition programs, we should be expanding these programs.
12. At a time of massive wealth and income inequality, we need a progressive tax system in this country which is based on ability to pay. It is not acceptable that major profitable corporations have paid nothing in federal income taxes, and that corporate CEOs in this country often enjoy an effective tax rate which is lower than their secretaries. It is absurd that we lose over $100 billion a year in revenue because corporations and the wealthy stash their cash in offshore tax havens around the world. The time is long overdue for real tax reform.
The shortly to be released Mid-Year Economic and Fiscal Outlook (MYEFO) for 2014/15 is expected to tell us what we already knew. There is a blowout in the current budgeted deficit from $29 billion to $34 billion. By any measure one could have seen that coming as far back as June 2014.
Furthermore, budget deficits projected in the forward estimates through to 2017/18 will be exceeded as well. Again, no surprise there. Reduced revenues, largely in the mining sector, and a host of other miscalculations have led us to this point which means the much sought after surpluses that the present government so desperately yearns for, will not be happening.
Is anyone surprised? If they are, they shouldn’t be.
What it means in very simple terms is that the government is spending more money than it is taking in. Well so what? With the private sector not spending what they were expected to, the government should be spending more. That’s how our economy should work. But don’t tell Joe Hockey or Mathias Cormann that. They think government should spend less and tax less all the time.
In a perfect world they might be right but the economies of the world haven’t been perfect for 100 years. And they are not going to start now. Joe Hockey is a captive of neo-liberal economic philosophy proffered by conservative think tanks and business lobby groups that thrive on surpluses.
Why? Because continued surpluses mean continued unemployment at a level sufficiently high enough to control wages growth. Joe Hockey’s austerity budget will only serve to redirect national income away from working families and increase the income of the already wealthy in our society through company profits, higher share prices, imputation dividends and so on.
Surpluses undermine economic growth when they are achieved by austerity measures which is what Hockey et al, are trying to impose. That is the backward, twisted nature of neo liberal economics. All they are going to achieve is a reduction in domestic spending power.
When people don’t spend, business slows and unemployment and underemployment grows. It’s not rocket science. MYEFO will likely show that the combined unemployment and underemployment rate is now at 15% and rising. That is not a signal to try and achieve a surplus.
If our most important trading partner, China, continues to slow down its growth rate, Hockey will continue his austerity policy which will mean even slower growth, or no growth for us, leading to recession, increased unemployment and underemployment. How stupid is that?
The Australian public have been deceived. They have continually been led down the garden path by politicians and media economists giving the wrong advice. The metaphors of doom have been allowed to overshadow responsible reporting with crisis headlines like: ‘budget emergency’, ‘alarm bells are ringing’, ‘budget black hole’, ‘burdening our grandchildren’, ‘mushrooming budget deficit’, ‘unsustainable spending’, ‘spending like drunken sailors’ and a dozen others I could mention.
But no one seems willing to give the credit where it is due.
In 2008 the world faced the mother of all economic meltdowns all of which was due to the excessive greed and the most irresponsible actions piloted by sections the wealth sector. What did our government do under Kevin Rudd’s leadership? It ‘spent like drunken sailors’.
And what was the result? We were the only OECD country not to fall into recession. Our GDP increased, employment held steady and we were the envy of a world that is still struggling with the aftermath of that meltdown today.
And who opposed Kevin Rudd’s stimulus measures? The present government. And what is their solution today? Austerity. What fools!
What should we be doing?
In the words of Bill Mitchell, Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the University of Newcastle, NSW, Australia, we should, “Get back to doing what governments are elected to do and that is advance public welfare and stand against the vested interests that seek to unfairly gain income and advantage at the expense of the masses.
Contrast these words with what you are going to hear from Joe Hockey, Mathias Cormann other government members over the next week or so when MYEFO is released. Then go and bang your head against a brick wall.
It’s not rocket science.
A new report highlights one of Australia’s greatest economic challenges: convincing employers to take on young people to replace retiring baby boomers.
The latest AMP NATSEM (National Centre for Social and Economic Modelling) report focuses on the labour market and the demographic challenges it faces.
Australia still performs fairly well on overall measures of labour market health – it is in the top third of OECD countries for low unemployment and has almost 53 per cent of the population employed, compared to an average of less than half.
However, Australia’s youth unemployment rate of 27.2 per cent is the highest since the 1990s, up from a low of 16.6 per cent just before the global financial crisis in 2008.
The proportion of young people (15-19) looking for work who cannot find it is now almost 4.5 times the general unemployment rate, only just off record highs.
Young people are almost three times as likely to work part time compared to those aged over 20, with more than three-quarters of those working doing so part time.
While that largely reflects the need to balance work and study for many young people, NATSEM’s Professor Robert Tanton said the high rate of joblessness and part-time work reflects the difficulties young people encounter in the current labour market.
“Young people are facing difficulties gaining employment due to changes in technology, tougher economic conditions and increasing requirements for qualifications, while older people are retiring and taking skills, experience and knowledge with them,” he said.
The report warns that Australia could be left with a shortage of skilled, experienced workers in a range of occupations unless employers start taking on younger staff to replace retiring baby boomers.
However, employment growth has been slow over recent years as many businesses wait to see a durable improvement in economic conditions and consumer confidence before investing in new equipment and staff.
Economists are refuting the three big picture claims made by the government: 1) We have a budget emergency 2) We have a debt crisis and 3) The carbon tax was ruining the economy
There’s a joke about economists: if you ask five economists the same question you’ll get six different answers. Granted, it’s not a very good joke, but it’s a fair call. Ours is a complex field, and a growing number of economists are acknowledging that the theory sitting behind mainstream economics is mostly rubbish. As a result, it’s very difficult to find consensus on real world events.
But that’s where Abbott and Hockey have achieved what many thought impossible: a true consensus. Unfortunately for the coalition government, the consensus is entirely against them. The Abbott government’s agenda has been driven by three major claims, all of them economic in nature. Let’s see how economists view these three themes:
1) There is a budget emergency
Number of economists who agree: zero
2) The federal government has a debt crisis
Number of economists who agree: zero
3) Carbon pricing is an economic wrecking ball
Number of economists who agree: zero
The above represents a very slight exaggeration. You can find people with some economics qualifications who agree with the government but, without exception, they either work for the Coalition or for some entity with ideological motives (like the IPA or News Corp).
While most would agree that there are serious structural problems with the budget, none would call it an emergency. Chris Richardson, economist and partner at Deloitte Access Economics, said:
We don’t need a surplus tomorrow, we don’t even necessarily need it in five years’ time. I’m more than happy with us getting back to sustainable fiscal finances over the long term. The politics would tend to suggest moving earlier rather than later but on the economics there’s no rush.
Saul Eslake, chief economist at Bank of America Merrill Lynch, said that to call the Australian debt situation a crisis was “to abuse the English language.”
Similarly, Nobel prize winning US economist Joseph Stiglitz used terms such as “absurd”, “crazy” and “a crime” to describe some of Hockey’s budget measures, and dismissed the perceived debt and deficit problems, noting that any Australian who worries about debt “must be out of their mind.” Richard Holden, professor of economics at the Australian School of Business, put it this way: “First, Australia does not have a debt crisis. Or, to put it another way, Australia does not have a debt crisis.”
It doesn’t stop here. The Age recently conducted its annual economics survey of 25 prominent economists. They select economists from a broad range of backgrounds across the spectrum of economics and their views vary widely on almost all issues. None of them agreed with the government on any of the above three topics.
This unique consensus among economists makes it clear that the entire government agenda is based on false premises. How has this exposure affected the Coalition’s agenda or their messaging? Not at all. Not one bit. Not one iota. Let’s be clear about this. We know they’re not being honest about their real motives for policy. They know we know, too. They don’t care.
As I’ve explained previously, the Abbott and Hockey budget, if fully implemented, would have taken us a long way towards the free market social and economic model of the US, and away from the social democracy model of much of Europe. But the question remains as to why they would do this. Who benefits from a US style free market system where government minimises its involvement?
The answer of course is the wealthy and those who already wield power. The greatest beneficiaries of Abbott and Hockey’s policies are their largest financial backers, including the financial industry, the mining and energy industries, gambling interests and real estate companies.
For all the talk about this being the most ideologically driven government in living memory, the reality is something much simpler and more familiar. This government is simply delivering to big money what big money wants.
One of the clearest examples of this is the winding back of the Labor government’s Future of Financial Advice (FoFA) reforms. We know that many financial advisors have been preying on their clients. They make use of clients’ lack of understanding of complex investing and other financial options to direct them to financial products that are not in their interest, but rather in the interests of the advisor. This has been costing consumers huge sums of money, which primarily flow into the hands of the banks.
Labor’s reforms were aimed at making such conflicts of interest for advisors illegal in order to address this complex problem. The Coalition have wound back Labor’s changes and have provided not one defensible reason for doing so. Compliance costs and red tape have actually increased, so that cannot be used as the excuse. Meanwhile, we allow the banks to continue to profit from ripping off their customers.
The same is at play when you examine climate policy. You can’t find an independent economist who thinks the government’s “direct action” plan for tackling climate change is more efficient or effective than a carbon tax or trading scheme. Who likes direct action? The polluters of course. Instead of paying to pollute, they get paid not to pollute. Here’s the real con: one argument we are given is that the carbon tax was too big a burden on consumers. Who’s going to pay the polluters to reduce pollution? The government. Where do they get the money? From all of us. Consumers pay anyway.
The clarity of these examples reveals the sad reality of this government. They are not ideologues, they are just puppets dancing to the tune of those pulling their strings.
Tony Abbott’s fair-weather allies got their wishes because they encountered little real opposition from social movements over the past six years. That has to change
Tony Abbott’s Australia could be an updated incarnation of the film Pleasantville. Instead of 1950s America, Abbottville is a sanitised, stable suburban and rural world based upon existing forms and levels of consumption and production. It is free of climate change concerns, “boat people”, political dissidents and unassimilated Indigenous Australians. Yet, unlike Pleasantville, Abbottville can’t always be pleasant. Sacrifices must be made by society, especially by workers and welfare recipients if the loyal business defenders of the realm are not to be undermined.
Abbottville is the logical conclusion of a disastrous policy framework first inaugurated in 1983 by Hawke and Keating. For thirty years, this policy framework has led to the marketisation and pricing of nearly all social activities. Abbott’s agenda is merely a sharp extension of policies pursued to a lesser or greater degree by both Coalition and ALP governments. There has never been a truly universal social welfare, health and education system that Abbott can tear apart.
From Fraser to Rudd and Gillard, a two-class health, education, housing, aged care and income retirement system has prevailed. Joe Hockey maintains the long established Australian policy of collecting 7% to 8% less revenue to GDP than average rates in OECD countries. This translates into a loss of approximately $105 to $120 billion additional revenue per annum that could comfortably fund a raft of urgently needed social policies while making our cities environmentally sustainable.
Looming over the Abbott government and Australian society is a genuine budget emergency rather than Hockey’s phoney “budget emergency”. The highly ideological 2014 budget completely ignores that carbon emissions are already so high that the global carbon budget for burning fossil fuels has almost run out and with it the possibility of preventing a dangerous two-degree-Celsius rise in the earth’s temperature. Unfortunately, our blinkered major political parties, business lobbies and media refuse to see the global carbon budget emergency because they are preoccupied with the self-interest of parochial budget figures.
As for Abbott’s “enemies”, they still adhere to obsolete organisational practices and policy agendas that are “one society or historical stage behind our current lived experiences”. For too long the peak environment, social welfare, labour movement, development aid and human rights bodies have got used to politely courting Labor governments and sympathetic Coalition politicians.
Apart from the occasional street march, many conduct their political lobbying as if they were in a university seminar. Dozens of detailed reports are regularly prepared by NGOs on endless social welfare, environmental and other topics. Government ministers consign most to these reports to the rubbish bin.
Crucially, Abbott’s “enemies” have failed to come to terms with the characteristics of the new global phase of capitalism: that capitalism and democracy are becoming increasingly incompatible and business wants to completely free itself from democratic regulation.
International investors in bonds and currencies, or those industries primarily geared to exports rather than domestic consumption (like the resources sector), have little vested interest in maintaining decent social welfare, education, health and public services.
In those domestic sectors of the market where competitive pressures are greatest, an increasing percentage of profits and market viability depends on favourable government policies such as reduced taxation, reduced regulation over labour costs, minimal consumer protection and fewer restrictions over services and the marketing of new financial products.
In contrast to weak resistance in Anglo-American countries, European and Latin American countries have witnessed an escalation of desperate forms of public resistance to austerity measures (riots, occupations, torching of luxury cars and homes of the rich, smashing expensive shops and hijacking food trucks), thus placing governments on notice that there is a limit to their toleration of austerity. Is this the future that awaits Australia?
The rise of the anti-big business, populist rightwing parties also simultaneously weakens both the mainstream leftwing and the corporate sector’s ability to shape policies.
Despite knowing from 2010-11 that Abbott was going to win, social movements succumbed to the same old ineffective politics. The Abbott government now privately derides and disparages them, thus leaving them with no plan B to fight back against the Coalition or to prepare strategic policies regardless of an Abbott or future alternative government.
Abbott’s contempt for climate science particularly renders existing practices of the Australian Conservation Foundation and other peak environment groups irrelevant. They are now belatedly turning to grass roots community activism but still have a long way to go. The same is even truer of the Australian Council of Social Services (Acoss). How they can maintain their alliance with the Business Council of Australia –formed in 2012 by Acoss CEO Cassandra Goldie and Tony Shepherd of the recent infamous National Audit – is beyond belief, after Acoss’s welfare constituents were savaged by Hockey and Shepherd.
How also to understand well-intentioned people like Tim Costello, Paris Aristotle or Robert Manne, who undermine their long moral commitment to the poor or asylum seekers by now advocating naïve and immoral policies? Does Costello think a broadened GST will restore foreign aid cuts and that a regressive tax is OK because, as he stated, poor people don’t eat much fresh food? What of Paris Aristotle and Robert Manne, who legitimised the offshore hellholes on Manus Island and Nauru, even though they oppose Scott Morrison’s harsh methods?
Certainly the labour movement has belatedly organised protests to combat Abbott. However, the real danger for the ACTU and ALP is that they will do a Beazley and think that they will be re-elected on Abbott’s unpopularity. A timid opposition front bench will have to be dragged kicking and screaming to any proposed increase in tax revenues, or to the abandonment of conservative climate change and social welfare policies.
Abbott’s “enemies” will have to formulate clear alternative revenue raising measures, not just by closing privileged entitlements, but by using a creative set of massive capital raisings (a minimum of $50bn per annum or less than 3% from the $1.9tn superannuation system) in the form of compulsory levies, social infrastructure bonds and the like, in return for continued favourable tax treatment.
There are numerous imaginative ideas of how to simultaneously fund and organise urban and regional community housing, social services and environmentally sustainable infrastructure without falling back on the old bureaucratic state and federal department processes. Building community alliances through the promise to deliver community designed social agendas is potentially the basis for a successful political strategy as well as a political necessity to combat climate change and dilapidated public services.
Abbott’s fair-weather allies put in their ambit claims precisely because there was little opposition from labour and social movements over the past six years. A new message of consistent public opposition and campaigning in strategic marginal parliamentary seats as well as outside prominent corporate and industry lobby headquarters is required.
New disruptive campaigns must be organised – such as ending the dominance of the IPA and rightwing commentators on the ABC and combatting their commercial media outlets. Regular protests could occur whenever Abbott and his ministers attend public functions. Abbott has taught his opposition a powerful lesson: quiescent, nice people come last. However, strong opposition is only half the answer, unless popular resistance has a set of socio-economic and environmental goals. This will require a major rethink of strategies and policies. The age of comfortableness is over.