Australian Budget 2011. Little compendium of the various schools of analysis.
{ this is NOT a post, but a little compendium of links and quotes }
If you wanted to get a quick update on the various schools of analysis after the release of the Australian Labor Government 2011 Federal Budget here are some short extracts and links to pieces representatives of the major camps in the commentariat. The *other* camp obviously being the Liberal opposition yet to release its response (that’s how the Westminster system works with a Shadow Cabinet ’shadowing’… the Cabinet.).
This compendium comes from notes I quickly took while doing a media review. It might turn into a more elaborate analysis if you see other pieces that should be listed here… Please feel free to drop a comment.
First, a piece that stood out in asking “What is the typical Australian’s income?”
Matt Cowgill: Doing it tough, far from a typical Australian income (ABC Drum)
Matt Cowgill is an Australian trade unionist who blogs at We are all dead and is on Twitter @MattCowgill.
He debunked the myth that the Government is practicing unconscionable ‘class warfare’ by reducing the benefits paid to families with incomes above $150 000 a year. Contrary to what has been written $150 000 a year is not an ‘average’ Aussie income.
“a childless couple would need a disposable income of $54,000 a year to enjoy a median standard of living. Each child adds $10,800 to this figure.”
“In fact, 98 per cent of taxpayers have incomes below $180,000. Mr Gray, the man in the Daily Telegraph’s story, earns $150,000, which would put him in the top 3 per cent of taxpayers by income (or at least it would’ve in 08-09).”
They saluted this budget:
These commentators are usually satisfied that their predictions materialised. They believed that the budget was “not going to be that harsh”, contrary to the tough rhetoric on welfare made by the PM (eg at the Sydney Institute). They also remind us that a left-wing budget was clearly not to be expected.
Grogsgamut: And then there it was: pretty much budget as expected (ABC Drum)
“It was a fairly typical Labor budget – ie not a left-wing, Ben Chifley budget, but a Hawke-Keating budget. And given anyone under 50 never got to vote in a Labor government earlier than the Hawke one, I think we can stop looking to the 1950s to frame what is a Labor budget.”
Ben Eltham: A Strong Budget, But Will It Bounce? (New Matilda)
“A modest deficit, a range of spending cuts, and some strong policy initiatives add up to a solid budget”
Ross Gittins: “Deep cuts may inoculate against future pain” (The Age)
“Julia Gillard and her government may be suckers, but they deserve an even break. Every budget contains things to criticise but, overall, this one is good. We were warned it would be tough and it is – especially on the better-off.
It could have been more excruciating – economists are hard to please when it comes to inflicting pain – but it’s tougher and more courageous than all but the first of the 12 budgets the now-sainted Peter Costello delivered.
Whatever the voters’ immediate reaction, I suspect in time there will be a grudging recognition that Gillard has guts.”
A little bit in the middle… with some criticism.
Ian McAuley A Mostly Harmless Budget (New Matilda) is actually a little critical (it’s all in the “mostly” confirmed NM Editor @Catri). Some good soundbites on Public Finance and historical background (for which I am a sucker).
“the Treasurer did give some hints of a return to traditional Labor principles in Tuesday’s budget. In making some cuts to “middle class welfare”, it is mildly redistributive, and it takes a few steps toward economic reform in terms of getting more people into the workforce. It breaks a little from economic policy of recent years.”
“One of the developments of the last 30 years, as the Australian economy has opened up to competition, has been for disparities between rich and poor to widen. The dominant policy approach, seldom articulated, has been to use government transfer payments (social security) and tax concessions to overcome some of these disparities, and to keep the middle class committed to economic reform. Contrary to popular views, governments of neoliberal persuasion have tended to be more committed to welfare payments than left-leaning governments, not because they are more compassionate, but rather because they have to maintain some minimal degree of social cohesion. That is why around 15 per cent of household income is now in the form of welfare payments from government, and a third of the population receives some form of Centrelink payment. In times past, social security was much more directed, because those who had work had relatively well-paid work.”
These modest cuts in middle class welfare are changes which all but those with a superhuman capacity for rationalising unearned privilege would support. Shadow Treasurer Hockey, obviously with a brief to criticise the Government for becoming dangerously redistributive, has been struggling to defend family tax benefits for households with $150,000 incomes.
The first constraint is an obsession with bringing the cash balance back to balance by 2012-13. It’s an imperative without any economic basis, particularly in a country without significant debt.
What counts is not the level of public debt, but rather the use to which it is put.
In Australia’s case our debt obsession has meant that we have avoided investing in productive assets, particularly surface transport and environmental restoration. We are too concerned with fiscal deficits and too unconcerned with our infrastructure deficits, as if our national balance sheet has only one side, the debt side.
It has been a budget on the right track, but it hasn’t gone very far down that track. The Government seems to have been held back by its own failure to articulate its principles — how these relate to its own partisan traditions and how they differ from alternatives on offer.”
They think it could have been better:
This camp believes that some fundamental issues are not being addressed. More details in their informative pieces, but basically we are facing a new bubble, debt etc, which Labor government and Liberal opposition carbon-copies do not address.
Mark Bahnisch: Job, jobs, jobs the values of the Labor budget (ABC Drum)
“As Steve Keen wrote today, and as I emphasised last week, the massive levels of private debt incurred in the Howard years are still hanging over many heads. A lot of Australians still work fewer hours than they would like, and wages growth has been restrained. The essentials of life – things like food and rent and the mortgage – keep getting dearer, and all the hard work Julia Gillard likes to trumpet doesn’t seem to lead anywhere. Hence the invocation of the politics of downward envy.”
What Labor needs to do is to inspire some sort of hope for the future. Again, that’s hard to discern in the fiscal and political landscape of 2011. Julia Gillard’s Calvinist Nation represents a final farewell from Labor for any concern about the quality of work and of working lives. The tyranny of the boss and of the clock, working til you drop; not exactly inspirational, when you consider that there’s a lot more to the “dignity of work” than working for work’s sake.
“In the meantime, the last gasps of labourism are being belaboured – with a reduction of Labor values to “jobs, jobs, jobs” as if inequality on one hand, and the quality of jobs and lives on the other are ephemera. If Wayne Swan can really convince voters that the 2011 federal budget will see “national prosperity transforming more lives”, then that will be a job of work indeed.”
Steve Keen (from Debt Watch): No budget wonderland for housing (Business Spectator)
“Australia is once again proving itself to be the Land of the Tweedles. Though Labor and Liberal loudly proclaim their differences, on the key economic issues, they’re (pardon the pun) carbon-copies. Both agree that the federal budget should be returned to surplus. Both believe that the ‘global financial crisis’ (which Americans and most of the rest of the OECD call “The Great Recession”) is behind Australia, and the imperative now is to stop the growth in government debt. And both would leave untouched spending programs that make us worse off by promoting asset bubbles rather than serious investment. (…)
I apologise for complicating the debate here—Tweedle-dumming a problem is much more catharthic—but the indications are that this is not the time to be reducing government spending in either the US or Australia. The crisis was caused by accelerating debt—which gives the economy a boost—giving way to decelerating debt—which drives aggregate demand down.”
Bill Mitchell who tweets at @billy_blog and blogs at http://bilbo.economicoutlook.net/blog/ has posted 2 dense and informed pieces: Australian Federal Budget : more is not less and Time to end the deficits are bad/surpluses are good narrative.
He is the Research Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the University of Newcastle, NSW Australia. He researches on the Modern Monetary Theory (MMT). His blog was recommended by @AusMMT (aka @senexx )
Recommended readings. His main points are that the cuts in public spending combined with the harsh rules that are associated with this “management” (fines for failing “activity” tests etc) will not deliver the expectations.
His other point is how misleading it is to compare a national budget to a household account. “A budget deficit is essential for stable economic growth if the contribution of net exports (the difference between exports and imports) is not strong enough to sustain domestic demand and the private domestic sector is trying to save.”. Mitchell argues that the pursuit of a budget surplus is really a quest for a political trophy rather than a demonstration of good economic policy.
Australian Federal Budget – more is not less – http://bilbo.economicoutlook.net/blog/?p=14437
“I see the role of the government to provide leadership and to shape the opinions of the electorate through education and demonstration. The current political system in Australia (and elsewhere) has descended into a game of managing the 24 hour news cycle and responding on a daily basis to polling that is constantly being taken.”
“The question remains however as to whether the external sector will play a sufficiently large growth role to both allow the private domestic sector to continue to run down its overall levels of indebtedness and the Government to run a highly contractionary fiscal position.
The Government is banking on that.
The reality is that this Budget is framed at a time when the business cycle is still undermining the Government’s capacity to take in revenue.”
“This is the fourth budget that the Treasurer has delivered and is his worst. As the ABC Report – Swan makes jobs his budget mantra – notes the mantra was “Jobs, jobs, jobs” and he repeatedly claimed that this was a “back-to-work-budget”.
They plan to do this by cutting $A22 billion out of public spending while private spending is flat and business confidence is in decline (as per data we received yesterday).
So the combination of fiscal retrenchment and monetary tightening will worsen the imbalances that are already evident in the Australian economy. The mining export sector is booming but the train is leaving the rest of the economy behind at the station.
The neo-liberals are a one-trick pony in this respect. All the evidence suggests that churning the unemployed through a relentless stream of training exercises divorced from a paid work environment is not an effective use of public funds. All it has done is create a new private industry that “manages” the unemployed.
Combined with the harsh – read pernicious – rules that are associated with this “management” (fines for failing “activity” tests etc) and you have a policy framework that is a waste of public money.
The Government would have been far better off if it had announced broad job creation programs with essential on-the-job training opportunities embedded.
The Australian government keeps faith with its neo-liberal leanings and just goes into denial by assuming that we are full employment when unemployment is at 5 per cent and underemployment is over 7 per cent.
Time to end the deficits are bad/surpluses are good narrative – http://bilbo.economicoutlook.net/blog/?p=14448
“the public debate has to be re-framed to recognise that a fundamental change in mentality is required on behalf of policy makers. Deficits will more often be required than not.”
Demystifying a federal budget is not easy. We too often frame the budget in terms of our own household accounts. Economists and commentators continually urge us to do so. But the federal government is not a super-household. It issues the currency we use and so does not have a problem “financing” its spending despite all the scaremongering about the government running out of money.
A budget deficit is essential for stable economic growth if the contribution of net exports (the difference between exports and imports) is not strong enough to sustain domestic demand and the private domestic sector is trying to save. We are in that situation at present.
A surplus takes purchasing power away from the private spenders and could only be justified if the economy was growing so strongly that it had reached its growth potential. We would know we were at that point if there were very low levels of unemployment (not 5 per cent), zero underemployment (not 7 per cent) and rising inflation driven by wage pressures.
None of those signals are observable at present. The slight rise in inflation in recent months is due to external influences which are unrelated to the strength of the domestic economy.
Many erroneously think the deficit is the result of a big spending Commonwealth. That is not the case.
The pursuit of a budget surplus is really a quest for a political trophy rather than a demonstration of good economic policy. If the Government undermines growth then their quest for surplus will be denied and the political trophy lost anyway. I predict that outcome.
Good economic policy should never be driven by inflexible fiscal rules such as “we will deliver a surplus by 2012-13”.
PM Julia Gillard watching (red suits), Treasurer Wayne Swan delivering the 2011 Budget to the Parliament
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