Bill Shorten will claim today that the budget situation is not as bad as the government says, and will accuse them of “deception” according to the SMH. If he doesn’t spell out which promises Labor made before the last election he would jettison, then he is the one being “deceptive”.
As Chris Bowen reveals, Shorten’s claims rest on a hypothetical model with unrealistic assumptions that their government expenditure would increase 2% per annum in real terms, and taxation would remain at 23.6% of GDP.
We all know that Gonski and the NDIS were unfunded, so the model is worse than hypothetical, it is hypocritical. If the government were prepared to be this dishonest, then they too could just plug a couple of unrealistic parameters into a spreadsheet and claim similar things.
The only way the model could approach reality is if many of Labor’s promises were dumped.
Labor lost government because it just made things up. There is nothing to suggest that it’s penchant for fantasy has improved from a few months in opposition. The signs are, it could even take decades.
There is no doubt that revenues continue to shorten, and the pun was unintended.
A government, any government is only as good as the advice it receives and accepts.
As far as one can be aware, Bill Shorten has not made any appointment to treasury or finance dept. So can’t be held in any way shape or form, for their assumptions or predictions.
In fact, it is a mad hatters tea party nonsense, to assume he can.
Simply put, the problem for both sides of the political divide, is revenue shortfalls, when matched against pre-election promises.
Bill doesn’t have to back-flip on any promise; given, he doesn’t sit on treasury benches, and therefore, anything he does or doesn’t say, is largely commentary, or simply hypothetical.
That said, the way forward for either side, is via quite massive tax reform and even more massive simplification.
There ought to be two signs on every politicians desk, one, It’s the economy stupid; and two, keep it simple stupid! A third could be added, which should read, never ever introduce new legislation, without first repealing an old one!
The idea ought to be progress, not convoluted complexity!
For mine, one side or the other needs to propose long overdue tax reform and simplification, which would start by jettisoning the whole rotten scrambled egg mess of the tax system we have now, where the richest can avoid most or all their tax liabilities! And where , I believe, our only timidity personified response to that development, was to place a tax on the those who could least afford it; namely, the Granny killing GST! Quote unquote.
One recalls the quite vicious venomous verbose opposition to its creation/implementation, by all Labor Premiers and Treasurers. And now today, State premiers of all political persuasion, circle like vultures, raucously demanding greater shares.
Bring back the grants commission and the capitulation and cooperation it used to evoke!
A single unavoidable expenditure tax, collected via the banking system, and main frame computers, is the way forward.
Bank main frames already automatically collect various fees and charges!
Surely it would not be too difficult to reprogram to include collecting govt revenue, and transfer it electronically overnight, to treasury, almost as if it were just another bank!
Shorten can promise what he likes, given he is not required to back it with actual money or action. And in so doing, make the govt look small or petty.
Not that it needs much help!
The problem for both sides of govt, is revenue shortfall/structural deficit, and the longer they delay or prevaricate over essential tax reform, the worst the position or destiny of demography, will become for both side of the aisle!
If a 2% transfer tax, will replace all current revenue, (and many economist claim it will,) then surely a 4.8-5% expenditure tax would exceed it!
And according to my maths, by as much as one hundred billion per, courtesy of simply ending/closing all of the avenues, to current minimization or avoidance, which reportedly is the case for around 40% of our multinational guest corporations.
With Google and Apple? Just being the visible tip of a much larger tax avoidance iceberg!
Alan B. Goulding
Comment by Alan B. Goulding — March 26, 2014 @ 11:36 am
Alan, you say that Shorten can’t be held accountable for treasury’s “assumptions or predictions”, but you are wrong as he asked them to use particular assumptions. Those assumptions don’t measure reality, so the predictions are rubbish. As the acronym says GIGO “Garbage in, garbage out”.
Comment by Graham — March 26, 2014 @ 5:53 pm
An assumption underlies this article and the assumption is wrong.
A sovereign government (SG) can afford to buy anything for sale in exchange for the currency it controls. If its purchases are aimed to provide needed infrastructure and increase employment, particularly when underemployment is high as it is in Australia, then the expenditure will not cause inflation and the tax paid on new incomes and increased profits for other suppliers will largely offset the expenditure.
The Coalition’s claims that an SG budget is the same as a householder, a company or even an Australian State budget is simply nonsense and probably a lie known to many of the Coalition’s leaders.
See Dr Stephanie Kelton’s talk and accompanying slides as presented to the Field Institute in Canada.
They are at; http://www.fields.utoronto.ca/video-archive/2013/11/221-2524
Comment by John Turner — March 27, 2014 @ 10:16 am
John, can you stop polluting our discussions with your eccentric views of economics. The fact that few academics may agree with some of your views does not make them right. And accusing people who believe that debt has to be repaid of being liars is just beyond the pale.
And in any event, Bill Shorten doesn’t follow your economic cult, so he must explain in conventional terms how he would meet the targets he has set.
The targets that he has set explicitly reject permanent deficit budgeting.
Please stop trying to divert every debate and stay on topic.
Comment by Graham — March 27, 2014 @ 11:12 am
Graham, sorry mate, I didn’t know that treasury worked for the opposition. Surely the Government decides what economic paradigms, will win out, as the model relied on for budget purposes etc? And you are right, GIGO!
However, the best reality, and one that can be relied on, is money in money out.
This is how I did, and I dare say you manage business.
Currently, we have an insane situation, where tax receipts need to be held for up to a year, and then reconciled, before they become available to consolidated revenue. This can mean at times, operating capital needs to be borrowed?
We’d all likely go bankrupt if we ran our businesses this way, and indeed, paid commercial interest on the borrowing!
In emergencies/natural disasters and the like, various depts run out of cash money and need to use the credit card, before a bill to enact an acquisition, makes new funds available?
It’s an antiquated and enormously complex system, that as you rightly say, is subject to some clever accounting, spending the same money twice, (usually on the same promised project) spending it before it’s reconciled; and or, routing money through several agencies/robbing Peter to pay Paul, at least on paper? GIGO!
Just to make the numbers look better than they are?
If however, the money, the only money that came in as part and parcel of an unavoidable expenditure tax; transferred overnight and electronically!
None of this errant nonsense, too clever by half, flawed accounting/thinking, would ever be necessary!
They’d know to the virtual minute, exactly what funds were available! And they’d be immediately available!
Meaning, and because there’d be no reconcilation delay before this money became available to consolidated revenue; in the first year this stand alone unavoidable system were introduced,, we’d virtually add around 400 billion of real money to the budget bottom line, enabling the govt to pay down all current debt and create a sizable and growing surplus!
A 4.8-5% expenditure tax, would grow with the economy and have an inbuilt surplus!
So we could get away from this nonsense, of having to pay a million a day, in debt service charges, simply because neither side of the political divide, seems to be able to live inside the current budget. And that million a day, would likely, i.e., help to fund a reasonably generous NDIS!
The ATO is around 5,000 strong, and a system that allowed us to let that many people go, [well we would no longer need most of them, and they will not go into the night silently, but invent endless countless GIGO reasons for keeping them and the current complexity that alone keeps them employed,] would allow us to live within our current means, let alone one with a budget bottom line, 100 billion dollars PA or so, bigger.
A single stand alone expenditure tax, would allow most business to pocket the compliance costs, of around an averaged 7%, and return it to a greatly improved bottom line.
Moreover, there’d be less time needed pouring over ledgers, reconciling GST numbers, would be the first tax jettisoned, if I had my druthers.
The tax rate could be varied, up and or down, separately and simultaneously, region by region, as and when necessary, to alone control all inflation or stagnation.
Meaning, interest rates could come down to set and forget historical lows, and be held there, to turbocharge the non mining economy.
The foregone GST, could be replaced by a direct funding model, that funded autonomous health and education, and on a results; and or, a bench marked best practice formula.
Just this much reform, would reduce capital outlays, in health and education, by as much as 30%, which could be redirected to the coal face, as better pay scales, and more education resources? (Fibre to every school, free WiFi, and a laptop for every lap?
We need this or better reform, given the destiny of demography and the smaller and smaller revenue streams that await us, with fewer and fewer paying all our tax!
But only if we are mad enough to keep the current convoluted complexity, of a dogs breakfast, of a tax act, that allows the biggest corporations in the world, often with bigger budgets than many sovereign nations, to successfully avoid billions.
And in so doing, place an exponentially expanding burden on ordinary, taxpaying mums and dads Australians/small business!
There is a structural deficit, that needs to be addressed with alacrity/urgency!
And yes, those with skin in the current complexity, can be guaranteed to howl like wounded bulls, or trot out/invent the most ridiculous risible reasons for not introducing real reform!
i.e., we already have a consumption tax, the GST; or, we can’t undo the current complexity, and start all over from scratch etc/etc.
Someone needs to tell these experts, who invariably know all the reasons something can’t be done, is that can’t died in a cornfield over a century ago!
Look mate, we had no difficulty, letting go of our footwear and textile industries; and 60,000 jobs, on sound economic reasons! The, I believe, non productive, parasitical tax industry, with far fewer employees, should be treated no differently!?
Cheers, Alan B. Goulding.
Comment by Alan B. Goulding — March 27, 2014 @ 11:22 am
Suitable manipulations of the monetary tools available to government and financial institutions in Australia might be helpful. However the underlying truth is that since the destruction of monetary controls through de-regulation of those controls in the 70s and 80s Australia has been at a disadvantage in the global economic playing field. Global corporate traders have freely exploited the comparative advantage of buying cheap in cheap labour countries and selling dear in the richer countries. We no longer produce our own wealth.
Our markets are dominated by imported product. With our internal cost structure we can no longer compete.
On the one hand our governments are complicit in allowing the exploitation of our natural resources at great benefit to private overseas enterprises and on the other hand overseas domination of our market place. It seems to me that clever people present complex and detailed analysis of our economy but without ever addressing the simple fact that we are being bled to death by powerful external corporate control of both our imports and exports and therefore our economic wellbeing. Where do we go from here, our populace is ignorant of the situation, our government reeks of hypocrisy and meanwhile the people remain obedient to the status quo.
Denis L white
Comment by Denis L White — March 27, 2014 @ 8:23 pm
John, some European nations, thought much as you seem to, and financed their critical economic recurrent spending, with derivatives. [Cash plucked from thin air!]
The outcome for them, the houses of financial cards came tumbling down, with the first economic ill wind, the GFC!
There are all sorts of financial theories, and one needs to understand, a theory is something still unproven, however persausive!
Should a theory ever be proved, it ceases to be theory, but becomes fact.
We cannot borrow our way to prosperity, if we make the same mistake, too many make, use the borrowings to fund recurrent spending.
Yes sure, a govt can write itself a blank cheque, but that money must be invested in income producing infrastructure, which then offsets the outlays, and can be cancelled out as a debt, by the asset, being entered on the credit side of the national ledger, as something of equal or greater value, than the original debt!
However, too many make the mistake of believing this money can come from general revenue, rather than off budget, as an investment!
In which case, investment rules and cost benefit analysis, must be applied, given, service fees, may need to be garnered, in order to service and draw down debt!
Too many think it is nothing to have to find a million a day, just too service a debt. [Interestingly, the NBN, is already, reportedly earning the national economy, or GNP, more money than that being earned by the mining industry.]
However, if we have to borrow this same debt servicing money, we simply compound our current problems!
Sure, one can make a case for a govt stepping up, and increasing its activity, when private enterprise is in the economic doldrums!
But that spending must be very selectively targeted, and spent on income earning infrastructure, rather than pink batts, and school halls!
None of which actually returns actual income to the budget, or provides enough income to service the money borrowed for their installation/creation.
Some think, that we did not need to invest in income earning infrastructure, but just get the money into the economy rapidly.
Well, we can do that anyway, with a cash splash for the least well off, all of who, have little other option, than reinsert in the stalled economy, as new discretionary economy boosting spending!
We would have got a much bigger bang for our buck, if we’d simply spent the pink batts and school hall money, on low rent accommodation.
Builders and Tradies, would still have had plenty of extra work thrown their way, after a proper tender process had been activated?
Arguably, low rent accommodation, creates a cash flow, which grows with time, along with the capital value of the assets; and therefore, can offset any and all outlays, over time!
Particularly, if we had a system, that allowed our best and most reliable tenants, to purchase their homes, once there were reliable signs of economic recovery, thereby transferring any and all debt burdens!
I am not arguing against the stimulus, just its rushed and less well thought through application?
Cheers, Alan B. Goulding.
Comment by Alan B. Goulding — March 27, 2014 @ 8:49 pm
Alan,
The problem with what you call European nations is that, not being currency issuing countries, they are in effect vassal states. They cannot issue their own currency and instead use the Euro. Therefore they cannot create balances is domestic sellers accounts to pay for goods the government has purchased. They are therefore at the mercy of foreign holders of the Euro, particularly if they run a trade deficit. Because the $Aus is valued by foreign reserve banks some sixty of those reserve banks have accepted payment for some of Australia’s imports in our dollars. Australia virtually get such imports in exchange for nothing other than key strokes.
If you log on to neweconomicperspectives.org you will find the MMT Primer as a link on the top of the page. Chapter 16, to which you can link, covers the situation of the non-sovereign Euro states succinctly.
When I make a comment on OLO I had better start drawing attention to the particular sources of my information.
Every comment I have made today has been based on the work of University of Missouri, Kansas City (UMKC) and several other professors.
I don’t disagree that spending must (I prefer should) be very selectively targeted. You do not understand the stimulant program adopted by the gang of four in 2008.
The cash handout was a prompt response to falling demand and all that expenditure worked its way through the market becoming other people income and profit in a sequence which terminates with all the “handout” ending up as savings. Even then, it had a wealth effect that people were more willing to spend their subsequent income because those saving reduced excessive debt built up in the period of Howard’s balance budget era. The school hall/library expenditure had a similar effect because it stimulated demand for building materials and building labour and ultimately flowed through to savings in a similar manner to the cash ‘hand out”.
The insulation even had an additional benefit; it saved people money on their fuel bills. In fact I have heard claims that those private fuel saving will far outweigh the government expenditure in just a few years. All of this argument is based on the MMT Primer and my reading in economics over fifty years.
re; We would have got a much bigger bang for our buck, if we’d simply spent the pink batts and school hall money, on low rent accommodation.
That is quite wrong for the reasons given above and because a response that included building low cost housing would have been too slow a response.
I suspect that the our sovereign government, in Labor Party hands, would love local councils to have shovel ready projects which the SG could fund in a recession. Of course state governments would hate to be denied their access to the buckets of cash. What state governments filched out of the school program still had a stimulus effect but it was not quite as beneficial.
Comment by John Turner — March 28, 2014 @ 7:23 am
John, your argument that European nations can’t run a individual deficit, because they’re limited by the euro, proves you are the one who lacks understanding.
And tantamount to claiming the states can’t run individual deficit budgets, because they are linked to the dollar?
In fact, Italy, and quite a few others, got around their problems with the euro, with the creation of derivatives, which basically allowed them to cook the books, and make their budgetary position look far better than it actually was!
Only to see the financial house of cards come tumbling down with the onset of the GFC.
A socialist Greece, on the other hand, took European generosity and massively overspent it.
Meaning, for every public servant needed, they employed four, and their railway, is the biggest white elephant ever created.
I mean, it would have cost Greek rail far less, if it’d simply abandoned it’s rail lines, and paid taxi fares, to moved it’s extremely small fare paying passenger base around the country, for free. And fairly typical or representative, I believe, of socialist incompetence, and or, make work mindset and to hell with the budget!
Yes, you’re right, following a period of unprecedented prosperity, the 60′ and 70’s was a turning point, where the gold standard, and our most sensible regulations, were abandoned, on the false premise, that a nation can create as much money as it likes, and private enterprise is always best!
The same argument applies equally, to the emperor’s new clothes, he can have as many of those as he wants, given endless credit!
I have pink batts, and can tell you they work just fine at trapping heat, particularly during heatwaves, which then compelled me to run air conditioners day and night.
Luckily, I also have a roof covered in solar panels, given the energy bill, would have been through the roof.
Given we abandoned the gold standard, Money is supposed to represent so many units of energy, but rarely if ever does.
Many economists, are calling for a return of the gold standard, given it much more effectively regulates the creation of money!
Even if that then prevented most inflation, another uncontrollable evil, [that strips the wealth of the many, and transfers it to the greedy few,] created by deregulation and extreme capitalism.
You say, most state govts didn’t have shovel ready projects ready?
So it was school halls and hell or high water.
Other options were available, like building income earning flood mitigating dams; or, quite massively increasing (doubling)the new home buyers grant, but limiting it to brand new, never before lived in dwellings.
Given wall to wall Canberra friendly labor governments, surely it wouldn’t have taken too long to find/create some shovel ready projects, given the amount of government owned land!
Low cost high rise housing housing could have been built alongside underutilized rail corridors, on resumed land.
[Don’t tell me state governments don’t or can’t resume land!] And if you like saving energy? Well, these brand new buildings could have been equipped, with Aussie invented, state of the art, solid state waste to energy creation units, which would have allowed the residents, to have access to virtually free energy, and free domestic hot water.
The addition of food scraps/wastage, would even created a salable energy surplus.
If the cash splash had come first, the then Rudd government would have bought itself some thinking time, and an ability, to ramp up pressure on the states, to get off their collective and oft times, corrupt bums, and find or create some shovel ready projects.
If that had been the case, our financial position would be so much better today, with these same projects contributing to government revenue, initially by around 3-5% per, and rising, over the forward estimates. And a much better position, than we have today.
It’s a fact that you need the trades and all manner of contractors to build low cost housing, and indeed, new start homes!
And it’s a fact, that many of them and their apprentices, are doing it tough right now!
And given the billions spent, could still be working for us, as rent money swells the pool, created for a low cost housing purpose initially.
In other words, we could have spent the surplus much more wisely, and then have it work on and on indefinitely.
We build around 150,000 dwellings per, when we need better than 200,000, just to keep up with population growth.
Meaning there is a valuable roll to be played by low cost public housing, always providing, we don’t design them as ghettos from the get go, but places, where some of the better off and commercial interest, wold also find attractive.
The pink batts and the school halls had an element of panic, and unseemly haste about them.
Sure, Ken Henry was right, inasmuch as it was necessary to get the stimulus money out there and circulating, however, and with the benefit of 20/20 hind sight,a more measured, more inclusive approach, may have seen a much wiser use of limited and still shrinking resources.
The way forward has to be very different, from those financial strategies/ unproven, untried, untested intellectual concepts/nonsense, which created the problems initially.
We’ve tried extreme capitalism, and the mad hatters socialism, or spending the wealth of generations as yet unborn!
What we haven’t tried and continue to reject on ideological grounds alone, is cooperative capitalism, which by the way, is still private enterprise, based on free markets.
It’s just not dog eat dog, enterprise, and a downward spiraling race, toward the lowest common denominator.
The problem with the lessons of history John, is that nobody learns the lessons of history.
Or indeed, the circumstance, and the false economic premises, that saw too much money in too few hands, which created the great depression, and one might successfully argue, The GFC!
Cheers, Alan B. Goulding.
Comment by Alan B. Goulding — March 28, 2014 @ 11:27 am
Alan,
Re; your argument that European nations can’t run a individual deficit, because they’re limited by the euro, proves you are the one who lacks understanding.
You proved my point. A non currency issuing government can run a deficit but when it does it runs the risk of collapsing as happened with Italy. Not one of those countries that are still being forced to run austerity programs have recovered for the GFC. Prompt action by our gang of four meant we never had a recession.
Australian states can run deficits but they have to worry about their credit rating and the extent of their borrowings. They also have a good chance that they will be bailed out by the Federal(sovereign) Government. That is what happens when there is a state emergency like the Queensland cyclone or the fires in Victoria. In the USA some Southern States receive $2 back for very dollar of federal taxes they pay. Some northern states get back about 60 cents. Yet the rednecks want smaller government. I again suggest you read the MMT primer.
In regard to your arguments about money I suggest that you read the three pages of Section 6 of Chapter 10 of Keynes’ General Theory. Keynes supports your idea of providing accommodation but my main arguments are that it was considered to be too slow and that housing is largely a local council matter. The SG here cannot directly fund local government.
Insulation slows the heat flow both into and out of your accommodation and with an air conditioner that must provide energy saving compared to an uninsulated situation.
Comment by John Turner — March 28, 2014 @ 4:01 pm
John,
I’ve never argued in favor of austerity, just the opposite. And a cash splash, is as quick as it can possibly get, getting money into the economy, and indeed, into hands that generally, have no other choice but spend it.
The problem with ideologues from all sides of politics, is their ability to think inside a very limited circle of ideas, which in turn, limits the questions, and by definition the answers, and by implication, all the available choices. Pink batts, school halls?
I couldn’t and won’t defend the pink batts roll out, or the school halls debacle, that saw as much as 30% of that same money skimmed off by, I believe, corrupt or incompetent state authorities, who try to fix their messes, with the fire sale of income earning peoples’ assets?
Put ten economists in the same room and you’ll get thirty different opinions.
An ivy league study, followed 300 economists for 30 years.
Their findings included, the economists’ results were no better than a dart throwing monkey; and the greater their reputations/notoriety, the less accurate their prognostications!
Economics is hardly an exact science, but often it seems to me, conveniently ignores immutable law, like cause and effect.
I agree with Keynes, given his model, led to the best period of unprecedented prosperity; in our history, only to see it gradually wound back, over the years, by extreme right wing ideologues?
But to get back on topic, Snorten Shorten needs to say what he will cut, to balance the budget.
For mine, and limited to conventional wisdom, [which once included a flat earth, at the centre of the universe,] that has to be welfare for the rich, which has to include, the PM’s maternity leave.
We already have paid maternity leave!
What working women really need is affordable child care, and that care needs to be means tested, as does education and public health.
In which case, the PM’s levy on the richest top 3000 companies? Would likely pay for it?
It’s all very well to claim that the better off have earned their places, through their own endeavor, therefore, they shouldn’t be selectively disadvantaged.
I would contest that argument, by pointing out, the poor are those that all too often, have been selectively disadvantaged, and from birth.
I mean, until very recently, Black Americans, got all the menial jobs, and very second class education opportunities.
The situation and the divide in South Africa is even worse, and simply compounds generational poverty, and post code poverty traps.
No white South African would argue, that better off whites, should have unfettered access to public health or education.
If we were all treated equally before the law, or started the race for the better life, from an equal starting point, I might accept some of the par for the course, privileged class rhetoric.
As to the cuts, none would be necessary, or even desirable, if we just had leaders, with enough ticker, to introduce real tax reform, which simply eliminated all avoidance.
In which case, with load spread, the rest of us could get some real tax relief, and indeed, if it was simple enough, would end the need to shell out around 7% averaged, of the bottom line, in tax compliance costs, just to keep nonessential, complex rationalists, in completely unproductive work!
Insulation is just as capable of holding in heat as stopping it or keeping the cold out.
During the heatwave, it worked really well, keeping the heat in, particularly, overnight!
Your points about American rednecks wanting smaller government is well made.
However, real tax reform and simplification, plus the end of the farm bill, would get them just that; and, have our/their best mathematicians, engaged in far more productive work!
Alan B. Goulding.
Comment by Alan B. Goulding — March 28, 2014 @ 5:39 pm
In an economic first for me, I went very close to understanding what both John Turner and Alan B. Goulding are saying. Well, perhaps “very close” is a boast too far.
Rather than have you two guys going at each other, and just occasionally getting a touch personal, is there any way we can get you together as a team and into a situation where you can influence the way our leaders make economic decisions?
Btw, this does NOT urge your abandoning the exchange!
Comment by Glen Coulton — March 29, 2014 @ 3:13 pm
Influence the way our leaders think Glen?
Just getting most of them to think or produce a completely original idea, would be a useful first, always proving, one could tolerate the smell of burning emanating from previously unused cerebral circuits!? Boom boom.
As for John and I continuing our discussion, that would likely become an exercise in futility, given John seems welded to conventional economic (Cloudy with a chance of meatballs) thinking, which is what produced both the Great Depression, the GFC, and boom or bust economies/economic rationalism?
I think that the discussion should end here, with John and I, agreeing to disagree agreeably?
Cheers, Alan B.
Comment by Alan B. Goulding — March 31, 2014 @ 9:53 am