Tag Archives: Economics

Politics & Government, Social Science and Society, Sundries

Beware of right wing revolutionaries calling themselves conservatives

May 5, 2014 John Davidson 13 Comments

Rob Burgess had an interesting post in the May 2 Business Spectator on the commision of audit. He discusses the competing, and very different ideological positions dividing the political right as well as pointing out that “Australia has more to lose from radical change than just about any country in the world.”
The competing ideological divisions within the right wing of Australian politics might be described as:

The revolutionary neo-liberal position that says that “the system is fundamentally flawed and needs fixing.” Their preferred fix are the radical steps required to remove the the restraints on our economy caused by the “dead hand of government.” Vs
The conservative liberal position that says we are actually doing quite well and we should limit our efforts to incremental change. They might say something like: “In this situation it doesn’t make sense to be risking our gains by making unnecessarily dramatic changes. If you like: “If it aint broke why fix it?””

There is a similar division on the left of politics between those who want radical change (Think the end of capitalism) and those who favour incremental improvements.

The key question here is whether the current state of the Australian economy really justifies the sort of radical fix advocated by the Audit Commission. A comparison between Australia and other developed countries might be a good start:

According to The Conversation, Commonwealth net debt “is about 11% of GDP, the third lowest in the OECD (the average is 50%), and low by historical standards” Not a crisis.
Rob Burgess provided the following:
- Combined federal, state and local tax rates ran at a bit over 30 per cent during the Howard years, dropping to about 27 per cent during the Rudd/Gillard years. (State taxes account for around 4 per cent of GDP, and local taxes (rates) hover around 1 per cent of GDP.) By comparison, Singapore’s total tax-to-GDP ratio is around 14 per cent, the US 27 per cent, Switzerland 29 per cent, and Canada 32 per cent. Not a crisis but it would be interesting to know the reasons behind the low Singaporean rate. It is worth noting that people may actually be better off in a “high taxing” country if the high taxes mean that the state pays for services that other, lower taxing countries make people pay for themselves.
- In terms of GDP corrected for purchasing power parity (PPP) we rank 10th on the World Bank and IMF scales. We could do better. A key factor here is how expensive it is to rent/buy a house in Australia compared with places like the US or Spain where house prices were really hit by the GFC. In our case, the problem really took off when Peter Costello offered negative gearing to people who could afford to borrow money to buy investment properties. His first home buyer schemes also tended to push up the price of houses rather than help first home buyers. However, fixing home prices is no win territory. It is a bit challenging to please existing homeowners and new home buyers at the same time when it comes to prices.
- Australia does much better when we use the ‘human development index’, which factors in longevity (as a proxy for good health), educational attainment, gross national income and, in recent years, measures of inequality. On that scale we jostle for the number one spot with Norway. Not 6th or 10th. Number one. Definitely not a crisis.
- Best news of all is that last year’s Credit Suisse survey showed Australia having the highest median wealth per adult citizen of any nation. Definitely not a crisis although inflated home prices may have helped a bit here.

Conclusion: Australia’s alleged budget crisis is either the product of a fevered imagination or a deliberate attempt by neo-liberals to justify the imposition of their questionable ideas.

None of this mean that there aren’t many things in Australia that would benefit from radical change. However, the case for these radical changes should be justified by fact based, logical conversations about the specific issues. Definitely not based on ideological assertions about the dead hand of governments or private is best.

Politics & Government, Social Science and Society

Elites rule

May 1, 2014 Brian 11 Comments

The USA can no longer be considered a democracy, according to a Princeton University study. Researchers Martin Gilens and Benjamin I. Page argue that America’s political system is effectively an oligarchy, where wealthy elites wield most power.

Using data drawn from over 1,800 different policy initiatives from 1981 to 2002, the two conclude that rich, well-connected individuals on the political scene now steer the direction of the country, regardless of or even against the will of the majority of voters

They say:

“The central point that emerges from our research is that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy,” they write, “while mass-based interest groups and average citizens have little or no independent influence.”

This phenomenon has been a long term trend, at least from 1980, with no difference depending whether Democrats or Republicans were in power. The phenomenon is therefore part of the natural order of things, hard to perceive let alone change.

Ordinary folk also have wins, but only when the elites agree.

Questions raised include why, how do you define ‘elite’ and is the American experience replicated here?

As to why, I can only point to two factors. Firstly, the lobbying industry is alive and well. Big Pharma are said to have more lobbyists on Capitol Hill than there are politicians.

Secondly, I recall in reading about trade matters some 10 years ago that very few Democrat senators were not dependent on business support to finance their campaigns.

In this interview author Martin Gilens identifies the role money plays in the political system and the lack of mass organizations that represent and facilitate the voice of ordinary citizens. Interestingly they found that

policies adopted during presidential election years in particular are more consistent with public preferences than policies adopted in other years of the electoral cycle.

As to defining elites, I would have been interested in the policy preferences of the top one or two percent, who are the real elites in my book. This exchange was enlightening:

Would you say the government is most responsive to income earners at the top 10 percent, the top 1 percent or the top 0.1 percent?

This is a great question and it’s not one we can answer with the data that we used in the study. Because we really don’t have good info about what the top 1 percent or 10 percent want or what issues they’re engaged with. As you can imagine, this is not really a group that’s eager to talk with researchers.

John Davidson drew to my attention this post by Matt Cowgill. Defining the elite by income is no simple matter.

First we have perceptions of income versus reality:

Some 83% of people think they’re in the middle four deciles of the income distribution, whereas by definition only 40% can be. It seems most of us think we are middle class. The rich especially have little idea of how privileged they are.

Cowgill leads us through the complexities of analysing wage and income distribution. Of most interest was this table which takes into account household circumstances:

In terms of straight taxable income the top 10% cut in at about $105,000. If we are to do similar research to the Princeton study in Australia, I’d suggest targeting senior executives, I’m guessing in the range of $200,000 plus. They are likely to sit in the top 5% of incomes. They are also likely to reflect the views of the top 2% whose views Gilens found to be unknowable.

If government is to be accountable to the electors, then the Princeton research suggests that universal franchise is a necessary but not a sufficient condition for democracy. We need to think carefully about how democracy works, lest we be left with the form rather than the substance.

Politics & Government, Social Science and Society

Hockey’s morality play

April 29, 2014 Brian 25 Comments

Joe Hockey has mightily offended Bernard Keane by making his austerity a moral issue, evoking a trenchant critique. The shorter Keane is that if you turn budgeting into a moral issue you are held to a higher standard. On this basis Hockey comes out as a prize hypocrite.

More of Keane later, first let’s wrangle some numbers.

I’ve made a table of the 15 major expenditure items identified by the National Commission of Audit as causing concern over the long term, omitting the eight years of 2015-16 to 2013-24 for convenience. The intervening data does tell some stories. For example, after growth spurts both Schools and the NDIS settle to much flatter growth in the out-years. The table was reprinted in the AFR.

To me the most important numbers are the two in the bottom right. When all is said and done total Commonwealth payments would grow by 0.2% of GDP over 10 years. In today’s dollars that’s about $3 billion dollars. Sounds a lot, but in a $400 billion budget it’s a rounding error.

Hockey is trying to achieve two main goals. (Here I’m drawing mainly from Phillip Coorey, but also Laura Tingle in the AFR.)

First, he is aiming at a small surplus in 2019-20 and a surplus of one per cent of GDP by 2023-24. Economists and others can argue about timing and quantum but this aim seems to me fair enough.

Secondly, Hockey wants to shrink expenditure as a proportion of GDP. This is ideological, not moral.

Hockey claims that if he takes his hands off the wheel expenditure will grow by 3.75% per annum, reaching 26.5% of GDP by 2023-4. From memory, I think that’s roughly where it was under Howard and Costello.

The CIA’s world Factbook has a country comparison of tax and other revenues as a proportion of GDP. Obviously they use a particular definition (probably includes GST) since Australia comes in at 33.2%. By contrast we have Canada at 37.7%, New Zealand at 38.5%, the UK at 40.4%, then follow the Europeans up to the Scandinavians at above 50%. If Australia’s share was lifted to Canada’s the government would have an extra $55 billion available.

All I’m saying here is that lifting the share by a few percentage points is not self-evidently a crime against the people, immoral or even economically foolish.

The audit commission has assumed that tax receipts must remain limited to 24% of GDP, for reasons unknown.

Before the election Hockey was saying that he would take 1% off tax receipts as a proportion of GDP. He hasn’t nominated a percentage now that I know of, but he has deemed that growth in expenditure will be limited to 1.75% per annum. That’s harsh. Tingle says Labor’s aim, not always achieved, was for a 2% limit, also austere.

Again we are told this 1.75% limit is right, responsible and moral, without any supporting argument.

Labor’s plans

Wayne Swan, I understand, reduced outlays by a couple of percentage points of GDP. His problem was that revenues were a couple of percentage points shy of outlays. Still, Labor had a long-term plan back to the black. The following graph is from the Pre-Election Fiscal Outlook (PEFO) published under the charter of budget honesty before the last election. I displayed it in my ‘liars and clunkheads’ post back then.

I understand it involved allowing bracket creep. One has to ask why Hockey’s self-imposed austerity path is supposed to be superior.

Hewson on tax concessions

One way of fixing the budget would be to allow bracket creep, ruled out by the audit commission and Hockey.

Another way, suggested by John Hewson, would be to take a look at tax concessions, especially in superannuation.

A startling fact is that the percentage of retired folk receiving at least a part pension is projected to remain at 80%. Hewson says that superannuation policy robs the poor in favour of the rich, and in amounts that matter. He calculates super tax concessions at around $44 billion, roughly the same as the aged pension but growing faster.

Tax concessions overall are around $120 billion rising to $150 billion by 2016/17. Today’s AFR identifies some of the budget sacred cows, leading with $15 billion in protecting the family home from capital gains, $13 billion in not broadening the GST. Tightening the age pension means test to include the family home would save $7 billion.

By contrast the mooted ‘deficit levy’ would only yield hundreds of millions even if implemented widely. It’s small change. Such a move must be regarded a political rather than economic.

Keane’s critique

Keane asked Hockey what he was going to tell his granchildren about what he did to prevent global warming. They will pay.

Why were Labor’s efforts to reign in middle class welfare either not commented on or termed “class warfare” or “the politics of envy”?

Why did the LNP fight tooth an nail cutting back the private healthcare rebate to high-income earners?

In November, Hockey abandoned Labor’s plan to reduce the extravagant tax concessions enjoyed by superannuants earning over $100,000 a year, costing billions. He also restored a fringe benefits tax rort, an actual rort, for novated leases, again worth billions.

Hockey wants to cut carbon pricing and the mining tax.

Hockey is talking to us about the “moral imperative” of fiscal discipline while handing billions to large companies, wealthy retirees and tax rorters.

One minute Hockey is complaining about

a “massive increase” in defence spending beyond forward estimates and that it was a budget boobytrap, a fiscal “tsunami coming across the water” created by Labor.

The next minute he’s committing billions to F-35s which “wouldn’t cost anything” because it’s already in the budget.

Then of course there is the rolled gold parental leave scheme.

Keane reckons Hockey has cut revenue by about $15 billion. He would have increased spending by a similar amount. Then he complains about a budget mess and dresses up his austerity program as a moral crusade.

By the way here’s Labor’s Budget debt in context:

I think we’ve been short of revenue since Rudd matched Howard’s tax cuts in the 2007 election campaign. There’s nothing broken about the budget that a steady hand, a mature review of priorities and a gradual return to revenue levels prevailing under the Howard government would not fix, together with a modernisation of the whole tax regime. Time to look seriously at Ken Henry’s review.

Elsewhere, Peter Martin has some tips.

Update:

In the Weekend AFR Phillip Coorey in an article The budget crunch is John Howard’s baby too reckons the budget problems date back that far. Apart from generous handouts to middle Australia in the previous years, Howard/Costello promised a $31.5 billion tax cuts in the May 2007 budget. One day into the election campaign he added a promise of $34 billions worth of further tax cuts (we’re talking four-year budget cycles). Rudd matched him, in addition to his own spending plans. The half-year budget update did find an extra $59 billion worth of revenue.

No-one foresaw the GFC and the end of the salad days.

Also Chris Bowen has an article pointing out that scrapping the low income superannuation contribution (LISC) and deferring the increase in the superannuation guarantee will take $55 billion out of our national savings pool over the next 7 years. These policies, he says, were designed to reduce the numbers of middle and low income earners requiring pension support in the future. Do this rather than lift the retirement age, he says.

Bowen’s comment received specific support from Tony Shepherd, chair of the audit commission.

See also John Davidson’s post, plus Richard Holden on why Australia does not have a debt crisis.

Update – posts on Budget 2014:

On a mission to upset everyone

Budget explainer

A crisis in trust

Shredding the fig leaf

Poll anger or a shift in the tectonic plates?

To GST or not to GST
Cap super, says Richard Denniss

Resolving the budget ‘crisis’

Hockey’s debt and deficit mess

Politics & Government, Social Science and Society

If a tree falls in the forest…

December 19, 2013 Brian 13 Comments

…does anybody hear?

Unless you’ve been living under a rock in the past few days you will have heard/seen Joe Hockey say that the budget is in terrible shape and he’ll have to clean up Labor’s mess. You see it’s all Labor’s fault.

Chris Bowen has been saying that $20 billion of the $17 billion budget deterioration since Labor’s pre-election statement is due to Hockey’s own decisions, that Hockey is setting us up for swingeing cuts in the budget in May next year.

I think the $20 billion is across the forward estimates (four years) and the $17 billion is just this year – it’s confusing.

Anyway, the AFR provided this helpful graph, which was sourced from Treasury, but I can’t find there:

Laura Tingle says the budget has been mugged by the deteriorating economy as well as alarming spending blowouts. There is a need, she says, not to “crunch a soft economy facing a continuing decline in national income, yet in the medium term there is a need to profoundly re-engineer the budget – and voters’ expectations.”

Yet there is so far a complete lack of what she calls “fiscal rules” to measure Hockey’s performance. There are no yardsticks or performance indicators. The future is completely open. We await the National Commission of Audit and the Government response with some trepidation.

Bruce Cockburn’s song If a tree falls sees vast swathes of forest felled. Yet single trees falling also go unnoticed. What’s happened in Queensland in the last couple of years foreshadows what we can expect. Ben Eltham’s report on the massive cuts to small and medium arts organisations in Queensland, for example, warns of worrying reverberations through the entire national arts sector. Cuts of that kind may not impinge directly on my experience, but I feel the life blood is being sucked out of the place. Yet the Newman government are now telling us how worthwhile the whole exercise has been. They are very proud of themselves. Continue reading If a tree falls in the forest… →

Social Science and Society

Hockey’s Graincorp decision

December 2, 2013 Brian 18 Comments

Terry at Saturday Salon has raised the issue of Treaurer Hockey’s decision to disallow the US company Archer Daniels Midland’s (ADM) A$3.4 billion 100% takeover bid for the Australian company GrainCorp. As Terry said, Judith Sloan went ballistic, Bernard Keane and Glenn Dyer were scathing at Crikey, as was Geoff Kitney at the AFR.

For a straightforward account of what happened, try Michelle Grattan at The Conversation. She does call GrainCorp an agri-giant, although it’s not a large company in Australian terms, may just rate as a ‘mid-cap’. In American terms it’s a tiddler. Nevertheless it would have been ADM’s biggest acquisition to date. ADM is worth about $US27 billion. Graincorp after the post-bid price fall in now worth about $A2 billion.

Must reads, I think are Laura Tingle’s article and Hockey’s statement.

There are at least three reasons why the bid was rejected.

First, there is a lack of competition in the eastern seaboard grain handling market. Graincorp owns 7 out of 10 terminals and handles some 85% of the grain. From Grattan:

“Many industry participants, particularly growers in eastern Australia, have expressed concern that the proposed acquisition could reduce competition and impede growers’ ability to access the grain storage, logistics and distribution network,” he [Hockey] said

Given the transition to a more competitive network was still emerging, “now is not the right time for a 100% foreign acquisition of this key Australian business.”

Secondly,

A “further significant consideration” was that the proposal had attracted a high level of concern from stakeholders and the broader community.

Allowing the bid to proceed “could risk undermining public support for the foreign investment regime and ongoing foreign investment more generally”.

Thirdly, and down-pedalled somewhat, there were issues about ADM’s motivation and longer-term priorities and its record of providing service in its home market, in other words, questions of character. The sweetener of $200 million for additional investment and promised price caps for handling fees was too late to be persuasive. In any case there was no guarantee that farmers would not pay in the long run. Continue reading Hockey’s Graincorp decision →

Climate Policy & Planning, Politics & Government, Social Science and Society

European ETS

April 22, 2013 Brian 38 Comments

Last week when the European Parliament voted down a proposal to prop up the EU Emissions Trading System’s languishing carbon price by postponing the sale of 900 million emission allowances until the back-end of this decade the price fell to below AU$4. There are obvious concerns about the legislated linking of the Australian carbon price to the EU scheme in mid-2015. Treasury had forecast an EU price of at least $29 in 2015.

Radio National’s PM program had a roundup of political commentary. Julia Gillard on the 7.30 Report was very clear. The legislation was there, it was hard enough to get through the parliament in the first place and we’d have to work with it.

Big business, quick off the mark, was suggesting that link with the EU should occur earlier, so they could buy permits while they were cheap.

Ross Garnaut said, don’t panic, the ETS is only one measure and targets may tighten by impacting on the price: Continue reading European ETS →

Climate Action, Climate Science, Social Science and Society

Climate clippings 58

December 16, 2011 Brian 66 Comments

Methane worries

A team of Russian research scientists have been surveying the seabed of the East Siberian Arctic Shelf off northern Russia for nearly 20 years.

In an exclusive interview with The Independent, Igor Semiletov, of the Far Eastern branch of the Russian Academy of Sciences, said that he has never before witnessed the scale and force of the methane being released from beneath the Arctic seabed.

“Earlier we found torch-like structures like this but they were only tens of metres in diameter. This is the first time that we’ve found continuous, powerful and impressive seeping structures, more than 1,000 metres in diameter. It’s amazing,” Dr Semiletov said. “I was most impressed by the sheer scale and high density of the plumes. Over a relatively small area we found more than 100, but over a wider area there should be thousands of them.”

I realise this has been linked to three times in the previous thread, but it’s important and not everyone reads the comments threads.

A separate study has found that the methane stored in permafrost is three times larger than earlier estimates. It could release 1.7-5.2 times more carbon than previously thought, depending how rapidly the world warms.

In a cautionary note here, James Hansen reckons we are forcing the system 20,000 times faster than commonly happened through natural caused in the past 50 million years. Continue reading Climate clippings 58 →

Climate Action, Climate Policy & Planning, Climate Science, Life, Social Science and Society

Climate clippings 50

October 23, 2011 Brian 71 Comments

This is serious!

First we were told that rising temperatures would make it difficult to grow tea in
Uganda and in Kenya, then it was going to become too hot for chocolate. Now Starbucks is warning that climate change will threaten the world supply of coffee.

This story has gone viral, but I liked this neat post. Obama should indeed do something. What Al Gore said. Continue reading Climate clippings 50 →

Climate Action, Climate Policy & Planning, Climate Science, Social Science and Society

Climate clippings 30

June 10, 2011 Brian 57 Comments

East Antarctic ice sheet sits on rivers and lakes

The Science Show reported on a new survey of East Antarctica published in nature.

probably something like the Northern Territory area was actually below 500 metres below sea level, and if you look at the deepest bits, something like the size of Tasmania was more than one kilometre deep.

The implication is that at some stage the sheet will melt faster than previously thought.

The lakes are formed through thermal heat from below.

Climate Plus

Tag Archives: Economics

Climate change, sustainability, plus sundry other stuff