Earn, Learn or Burn
First and foremost, there is no budget crisis. ABC Factcheck cleared that up for us. Joe Hockey effectively doubled the debt predictions from the Pre-Election Economic and Fiscal Outlook to the Mid Year Economic And Fiscal Outlook, which came out in December. I won't go in to detail, but Hockey changed economic assumptions that effectively resulted in a 'doubling' of projected debt levels. These involved less than favourable growth predictions, leading to a reduction in tax receipts. Hockey also took a dimmer view on the mining boom, changing parameters around it's expectant softening, leading to a further reduction in growth in the economy. Essentially, the PEFO, which is widely regarded as the more accurate document, states that, with Labor's previous economic measures and spending, we would return to surplus in 2023. That's 6 years after the Coalition's new benchmark. However, it is far from the all sweeping statement that our debt was spiralling out of control, and would grow at an unsustainable rate. In fact, that isn't true at all.
Now is debt bad? No, not at all. The Government can borrow money at around 5% interest. This is an extremely generous loan, and considering the myriad of places it can inject that money in to, the benefits are more than just fiscal in nature. Generally, for a country to have low debt can be considered an economic marker for stagnant growth. Whilst it may feel preferable and more comfortable to not be in debt, the fact is Australia's levels of debt are miniscule when compared with the rest of the OECD nations. In terms of as a proportion of our GDP (Gross Domestic Product), we have the third lowest level. The third.. Our debt levels are incredibly low, and even with Labor's spending measures over the past few years, we are in an extremely enviable economic position.
So, is it the right time to make changes? Yes and no. The economy could quite comfortably continue on its merry way in the current state of affairs. Our revenue levels are perfectly good, our economic growth is sitting close enough to 3%, which is generally regarded as an excellent number, and our unemployment figures, whilst slightly high, are hovering and not getting any higher. Predictions of 6.25% are greatly inflated, and a ceiling of around 5.8% seems much more likely. Joe has placed his cards on the table, and the first place he has seen a red flag is the mining boom. He sees a fall of 4% in investment in buysiness investment, and 5.5% by 2015. Overall this is seen as an area that will shrink our economy, although by no means the recession that would truly warrant these cuts.
Economically, the budget is extremely hit and miss. On the one hand, Hockey has been extremely prudent in ensuring that the axe fell swiftly, yet he is allowing the carcass to bleed out. The change in pension age will not negatively impact on the economy in the foreseeable future, except for what will most likely be a slight reduction in consumer spending in the very short term. The changes to tertiary education are not due to come in until 2016, and thus will have little to no impact upon the economy until that point. The giant cuts to health will play out over a 4 year period, and the Debt Levy, the controversial 2% tax increase on those earning over $180,000 will only last three years, so by the time the other measures begin to effect the economy, the rich will begin to flood the market with money again, propping up growth.
The reduction in company tax, whilst admittedly unfortunately timed, is an excellent idea. It will make Australia a more attractive place to do business, and the thinking is that by reducing this tax it free's up money for corporations to invest and expand their enterprise in our country, and may even entice others to cross the oceans and settle here. It's exactly the kind of microeconomic reform required to promote this country as a safe and financially favourable place to do business, especially with our relatively low interest rates. This will have a very positive impact upon our economic growth.
I will now address the economic downfalls, and then the social ones. Firstly, for a Government who bleated imperiously that unemployment would fall under them, and that they would create thousands of new jobs, this budget is hardly inspiring. Investment is kept to a worrying minimum, with the $11.6bn in infrastructure made available the only real area where job growth has been addressed. This is unlikely to impact at all on the overall unemployment figure. Furthermore, 16,500 public sector jobs will be cut in the next 3 years. This poses its own problem. How does the Government propose to fund all the redundancy payments they will need to make? This article blatantly shows that Abbott seems to believe most will leave their jobs of their own free will, with a shortfall of half a billion dollars occurring. This is a hole that will have to be filled somehow, as it seems unlikely that every single one of those 16,500 will leave willingly without payment.
Now, the main argument I hear in favour of the cuts to welfare, the medicare co payment and the tax on motorists is that these people have been living off the system too long, expecting something for nothing, and if we continue to support them our economy will shrink to the size of a bodybuilders testicle as our welfare bill grows exponentially. Umm.. No. Not quite. In fact, the doom and gloom Commission of Audit, which would have us all living in tents and eating gruel, actually provides figures that show that yes, government expenditure will grow at a rate of 3.7% per year above the level of inflation, but that spending on the Disability Support Pension will only grow 2.8%, Newstart 1.1% and family tax benefit B, a huge blow, will actually FALL, even without any budget cut backs. Information here. So essentially, Joe is taking money from the neediest, and the neediest are not even going to be a significant burden on the economy moving forward. Paid parental leave, 14% per year, and hospitals, 11.7% per year, are the two biggest costs to the government. Rather than addressing this, a scare campaign has been drummed up to lay the blame for our debt on the sick and the unemployed, two groups who have little to no say over their situation. Paid Parental Leave? Ha. Let's increase it! Makes perfect fiscal sense!
We've already discussed why the measures may not have an impact on economic growth, but lets look at why they probably will. Firstly, the Family Tax Benefit B Threshold will be capped, and stay at home mums will essentially lose over $4000 a year if their partner earns more than $100k. Now you may say that's fair enough, but consider this. Effectively a stay at home mum earns zero, so the family income is now $50k a year. They may have 2 or 3 children, who need food, clothes, school supplies, books etc. All of a sudden, 4 grand is taken immediately from leisure and entertainment. No more weekly movies. No more Easter Show. No more trips in to the city for dinner. That's money being taken OUT of the economy, and not being reinvested by the Government. Unemployment benefits not paid to those under 30 for the first six months of their tenure. That's a tiny saving for the Government with a huge economic cost. All of a sudden they can't go out on a Friday night and spend their money at the local pub. They can't go and spend their money on a rock concert. All of this shrinks the economy. The cuts in Public Sector jobs creates uncertainty and a loss of consumer confidence, as does the increase in fuel excise, and the abhorent $7 medicare co payment. These funds that are being saved are not being reinvested in the economy. Understand that now. $11.9bn in infrastructure is a drop in the ocean, and in line with the meekest of financial committments. The $20bn medical research fund is just a fund. It will be spent in the future, but not now. These savings are almost solely going towards repaying our loan sharks, who are charging us an incredibly generous interest rate, and honestly could care less whether we pay them back tomorrow or next decade. Don't sit there and say 'well I don't want my tax dollars funding a $16bn interest repayment every year', because all this cutting and taxing is effectively doing is just that. When we return to surplus, what happens then? The Government can not indiscriminantly tax forever. Money will eventually need to be spent, and we will fall back in to debt. That is the natural cycle and it is perfectly acceptable and preferable.
Oh dear. Now we come to the social aspect. I will be brief but blunt.
Scenario 1. You're a stay at home mum, already slugged 4 grand from the tax benefit b reduction. Both your kids contract the flu, so you jet down to the local GP for a check up. $14. The GP thinks something more sinister might be at play, so he orders a chest X-Ray and blood tests. $28. You need to go back to the GP to get the results. $14. In the space of 5 days you've just spent $56 on medical costs. That is some serious coin. Forget 2 middy's of beer, that's half a weekly shop out the door. All of a sudden you're shuffling credit cards and falling further in to debt.
Scenario 2. You're 23 years old, you've just finished your apprenticeship at a tiny landscaping firm, and they can't afford to keep you on at your increased wages. So you are let go. But no-one is hiring. You go down your local McDonalds but they won't hire a 23 year old when they can hire a 15 year old for a portion of your wage bill. So you front up to Centrelink cause quite frankly, earning 12 bucks an hour for 4 years your savings account isn't healthy. Sorry mate, we can't pay you for another 6 months. But here is a phone and a list of companies, start cold calling. No-one is hiring, because everyone is scared the economy is about to contract cause Hockey slashed and burned it. Honestly, what the hell do you do in that situation? You can't afford rent cause you have no money, I mean no money. You need to eat, to sleep, to find shelter.. This is a very real possibility!
Scenario 3. You've just graduated high school, and you're dream is to do an economics degree at UNSW. You're in luck! Your ATAR is well above the range required and you are accepted. But hang on.. Due to the high demand of this course you are now required to pay over $100k for your course, provided you don't fail anything (a bit IF for me). So you decide you can't afford that and look for a job. But no-one is hiring someone with no experience, so you go to Centrelink. Ha.
Don't even get started on the lazy, careless cuts to foreign aid. This amounts to the harshest litmus test of a Government's social committment. Giving to those who don't ask, but who desperately need. Nope. Sorry guys, but Joe wants to get one up on Swann and return to surplus 6 years earlier, with no real economic benefit other than a piece of paper from the bank saying we own our economy until the next recession hits, which it inevitably will because we have shrunk our economy of our own accord. So no foreign aid for you. But hey, good luck with that whole lack of underground plumbing and no access to clean water thing. I hope you guys pull through.
It's absolutely sick. There is a small but determined group of individuals out there who believe that the majority of people recieving unemployment benefits and the disability support pension are somehow cheating the system, taking their money from their pockets and sitting on the ass watching re-runs of Friends all day. Well here's a newsflash that might burst your comfy bubble (that I wholly understand you worked your ass off to get, but that's not the point). Getting on Newstart is stupidly hard, and involves weeks of forms and interviews. Staying on it is even harder. You have to front up to an employment agency most days, and cold call companies. The first interview you get, you're obligated to attend and if you succeed, obligated to take the job. So you could be stacking shelves in Coles at $17 an hour. You could be mopping up vomit. It is not a glamorous lifestyle. People don't ride around in expensive cars, smoking and drinking away your tax dollars. People fucking need this money, they need it to buy food, water, electricity, and to pay for shelter. The Disability Support Pension is set up to help those who CAN NOT WORK. There will always be a small number of people who rort any system. That's life. Accept it and move on, don't take money out of the pockets of the needy.
Now, another criticism that has been levelled at us budget dissonants has been that we provide no solutions, only criticisms. Well, if you desperately want to get back to surplus quicker than 2023, here are my solutions.
Keep the debt levy, but increase it to 3%. This is a tiny portion of the income of those earning over $180k, and it will not effect their way of life in the slightest. It will increase our tax receipts, increase money coming in to the government, and decrease inflationary pressures and any pressure on economic growth, because it is unlikely that because I took an extra 3c from Joe Millionaire in Rose Bay he will forego his morning coffee.
Re-instate the mining tax. I am aware that the mining boom is slowly winding up, but that is part of the economic cycle. China's growth is still higher than the state of California, and they still demand our resources and will continue to do so. It is a relatively inelastic demand that we can exploit. Furthermore, mining magnates are making their trillions out of the country's natural resources. Our natural resources. Ensure that they earn enough to provide them with adequate return on their huge capital outlay, and then the rest should be filtered back through to us.
Re-instate the Carbon Tax. Julia Gillard's lie seems pretty tame in comparison now doesn't it? The Carbon Tax was actually handled well by them (unlike the mining tax) and has the dual benefits of reducing emissions as well as increasing tax receipts for the Government. The world economy is already heading down this path, so it is unlikely to provide a barrier for international investment. It appears the Government's opposition to it is purely ideological.
CUT SOME MONEY FROM THE BLOODY DEFENSE BUDGET!!! Why oh why does this go up every year? Honestly, do we need new fighter jets? Who in the world is going to attack or invade us? We are a gigantic country that would be impossible to overthrow. Our only real threat is from terrorism, and let's face it, 27 fighter jets are unlikely to help if someone decides to detonate a bomb on a Sydney train. Defense budgets are so overblown and bloated it is ridiculous.
Axe this stupid paid parental leave scheme. Yes, it is a lovely idea, and the only socially admirable thing the Government has managed to come up with, but it is fiscally irresponsible to take money from the poor and channel it in to money for the rich.
Increase the GST. Ok so there is a theory doing the rounds that Hockey knew this wouldn't get through the Senate, he knew the states would cry foul, and it would soften the blow when he announced an increase in the GST. That would be political stupidity. Increasing the GST makes total sense if you want to raise revenue. It will reduce inflationary pressure, and serves as the most fair tax because it is an indirect way of taxing according to income. If you're earning $18k a year and you buy a coffee, the extra few cents are not going to kill you. But if you buy a Grand Piano, the tax revenue will be huge, and the person buying it will be able to afford it. It's not particularly pleasant, but it is effective.
God. If you stuck with me through all of that you are a trooper. In short, the Government made some good calls, but a torrent of bad ones. If you voted for Tony and co on the back of their No Surprises catch cry then you are an idiot anyway. Sorry, but politicians lying is as common as herpes in a brothel. Gillard's lies look like tiny mistatements of facts when compared to these big daddy's. Either way, the budget makes little financial and social sense, and I guess our worst fears have been confirmed. Hopefully people remember this when, in year 3 of their term, they produce a budget that appeases all sides in order to soften sentiment going in to the election. I seriously doubt it though.