Morrison finds his productivity report is useful for Labor too

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Treasurer Scott Morrison on Tuesday said reform was harder now than in the 1990s.
Lukas Coch/AAP

Michelle Grattan, University of Canberra

Just as the government hopes it is making progress on the energy conundrum, it finds itself struggling on another front of deep public disgruntlement – the NBN.

The rollout of what’s generally considered a second rate model is producing a high level of complaints. Monday’s ABC Four Corners program showed how customers in Australia are getting an inferior service compared with New Zealanders.

The government predictably is blaming Labor, though much of the trouble stems from scaling back to a cheaper version than the one it inherited. Malcolm Turnbull, who oversaw the NBN as communications minister, argues it’s obvious that as more houses are connected, the number of complaints rises. That logic only goes so far.

Faults with household and business internet services are sensitive consumer issues. The blame game only increases people’s irritation. It’s been the same for months with electricity, as the government lambasted Labor while trying to get together its own energy policy, which it released last week.

Essential polling released on Tuesday indicates that at this early stage people are not hostile to that policy, but many are confused.

More than a third (35%) approved the proposed National Energy Guarantee, with only 18% opposed. But the “don’t know” category is 47%.

People divided fairly evenly when asked whether they approve the government’s decision not to include a Clean Energy Target in the new plan – 35% approved, 32% disapproved, and 33% were “don’t knows”.

But many people retain their strong attachment to renewables. Asked whether they approved the government decision to phase out subsidies for these, 41% disapproved, 32% approved.

This result shows that in political terms, it could be sensible for Labor to accept the basic structure of the government’s scheme – and promise to improve on it. At Tuesday’s Coalition party room, Turnbull predicted Labor would propose a higher level of renewables within the Coalition’s policy framework.

If so, that would provide a measure of bipartisanship, which would at least encourage investment.

As the government and opposition argue over the claim the new policy could bring down prices by a small amount – a proposition to be tested by the modelling the government commissioned last week – the Essential polling showed the public are healthily sceptical. Only 16% think it will; 31% believe it will increase prices.

The grim reality faced by the government is that it is hard to get any messages through the high level of public distrust, and this is exacerbated when the messages chop and change.

It’s not just in the energy area where this has happened. Since the Coalition won office in 2013 it has had to alter course on many policies and much of its initial ambition.

The early attempts of the Abbott government at swingeing changes quickly collided with the realities of an angry public and a truculent Senate.

Releasing a report on Tuesday from the Productivity Commission (PC) on Australia’s productivity performance, Treasurer Scott Morrison said reform was harder now than in the 1990s, when there was “a lot of low hanging fruit” and “the burning platform” of recession “focused the debate and compelled greater bipartisanship”.

These days, he said “reform comes more stubbornly and incrementally”.

“We also need to understand that many Australians are now far more sceptical of change. Whenever governments mention the word ‘reform’ or ‘productivity’, they get nervous. They’ve seen this movie before.

“Unlike last time when economic reform was a mystery to most, this time around Australians are more alive to the costs of change as well as the benefits.

“Plus, the economic and political bandwidth available for change is narrower than it once was, made more difficult by the binary way change is viewed and exploited. Who are the winners and who are the losers? Where is the conflict?” Morrison said.

While his argument is right, other factors were also important to achieving reform in the 1980s and early 1990s under the Hawke-Keating government. Some of the change involved trade offs, under the accord with the trade union movement. And reform was better sold by the political leadership than today.

The PC report promotes a reform agenda focused on individuals, “involving the non-market economy (mainly education and healthcare), the innovation system, using data, creating well-functioning cities, and re-building confidence in institutions”.

The recommendations are a mixed bag of old and new, the sensible and – as happens with the PC – the near impossible, either politically or practically (such as automatic dispensing of medicines).

The report’s language is redolent of that used by Labor, notably when it says that “a key issue will be to ensure that future economic, social and environmental policies sustain inclusive growth — by no means guaranteed given current policy settings, and prospective technological and labour market pressures.

“Productivity growth provides a capacity for higher incomes and poverty alleviation — either directly through higher wages or indirectly by increasing the capacity for funding transfers to lower-income households.

“The motivation for limiting inequality extends beyond its intrinsic value to the desirability of avoiding too great a dispersion in incomes, given evidence that this can, in its own right, adversely affect productivity growth. Public support is also more likely for reforms that offer benefits to the bulk of people.”

Shadow treasurer Chris Bowen said: “The Productivity Commission has pointed out that investment in our human capital is the key to economic growth. Well we agree, we agree strongly.”

Morrison is alert to this possible political crossover.

“I haven’t got up here today to talk about a new inclusion agenda”, he told a CEDA function. “I’m talking about a productivity agenda”.

“From a Liberal-National perspective, we’re coming at this quite differently from our political opponents. This isn’t about social justice. This is about more and better paid jobs, because I think that’s the best justice for anyone. … This is about lifting living standards.

“I’m not trying to settle scores in health and education as some sort of social justice wars. I’m just trying to lift people’s wages.

“This is not the product of ideology, it’s the product of economics and the economics say pretty clearly that people [who] are healthier and better equipped through the education system are going to do better.”

The ConversationSharing ground with Labor can be uncomfortable.

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.


Australians are increasingly non-partisan: Morrison

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Scott Morrison talked about the challenges of a nation indifferent to the business of politics.
Dan Himbrechts/AAP

Michelle Grattan, University of Canberra

Treasurer Scott Morrison has highlighted the difficulty of reaching today’s public, declaring Australians have “turned down the volume on Canberra’s noise”, ignoring both politicians and the media.

“After ten years of political brawling, Australians are fed up with the ‘politics-as-usual’ approach,” he said.

“This means that outside the bubble of Canberra, it is increasingly not about the conflict of partisanship. These are old political fights and battle lines that hold little if no interest to everyday Australians.

“Australians are increasingly non-partisan. They have their own tribes, which usually have nothing to do with politics. And their views do not always fit neatly into our partisan boxes, and nor do they care,” Morrison told the Liberal Party federal council at the weekend.

His comments reflect the concern in the government at the difficulty it is finding in cutting through to the electorate, and its deepening fear that voters have stopped listening, which is working against its attempt to sell messages including from the recent budget. If the electorate has already tuned out, the Coalition’s task of trying to turn around the negative polls become even harder.

Despite his point about people being fed up with partisanship, Morrison launched an attack on Bill Shorten, saying under him Labor represented “the same old self-interested politics – vested interests, special deals, protecting the big unions and their big deals that work against workers, machine politics, Shanghai Sam, John Setka and the CFMEU”.

Morrison said politics around the world had been “turned on its head. In election after election we have seen conventional politics and conventional politicians left standing at the polls.”

“Entrenched cynicism. Widespread disconnection. Broad-based economic frustration. Feelings of disempowerment. Distrust of mainstream institutions and conventional approaches, and not just by governments and oppositions. Media, banks, big business, utilities companies, just to name a few, are also in the firing line.”

He said the government and the Liberal Party must “face and embrace” the new reality. “It means we must be careful not to slavishly follow past political orthodoxies, simply because they worked before. The political and economic times have changed.”

The fall in earnings after the global financial crisis had made people feel more vulnerable, and also more acutely aware of essential services including Medicare, the pharmaceutical benefits scheme, schools funding and income support.

“For many Australians, the lack of progress in their own personal economic situation has led people to conclude that our economic system is not longer working for them. In frustration, many are turning away from fundamental economic policies as they search for alternatives to ‘business as usual’.” This had led some to turn to protectionism, he said.

“It is our job to give these Australians hope. To assure them that they have not been forgotten”, just as Robert Menzies had done 75 years ago when he spoke of the “forgotten people”.

“The twist for today’s forgotten people, though, is that they have chosen to forget us, the political class, making them much harder to reach,” Morrison said.

“Australians have collectively reached for the remote and turned down the volume on Canberra’s noise, which includes more than just politicians. The media are similarly ignored.

“They are giving up on politics holding any value for them because in their eyes, too often it is simply not relevant for them.”

Morrison said people were demanding to be better heard, better understood; they wanted politicians to focus on what mattered to them and deliver results.

“The challenge for us as Liberals is to come to terms with the fact that it is no longer about convincing Australians to be on our side, but to convince them that we are on theirs.

“To crack through this thick ice, we must communicate candidly and with authenticity,” he said.

“The challenge for us is not to differentiate ourselves from Labor, but to differentiate ourselves from being the party of ‘politics as usual’, which Labor represents.

The Conversation“We need to show how we are pragmatically acting to change government, turn over the tables, reset the rules. We need to demonstrate how we are breaking the mould and siding with Australians on the issues that are seen to be working against them,” he said.

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

Budget 2017: Morrison heads off the right with an appeal to altruism over self-interest

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Treasurer Scott Morrison’s budget is stressing the ‘potential for better days ahead’, and in that he is half-right.
AAP/Lukas Coch

Tony Walker, La Trobe University

Treasurer Scott Morrison has delivered a 2017-18 budget based on some heroic assumptions about a continued improvement in the international economy, and tethered firmly to concerns about the government’s own political vulnerability. The Conversation

In the process, Morrison has leapfrogged normal practice in the first budget after an election – traditionally an opportunity to tighten purse strings – by outlining free-spending government programs in health, education, housing affordability, assistance to seniors and a big down-payment on an ambitious suite of infrastructure projects.

With its eyes firmly on a populist challenge from the right, the government has projected some tough measures to bring the larger banks to heel by instituting a series of reforms that will seek to answer those concerns.

Banks will not be happy, nor will investors in those institutions whose share prices are likely to retreat once the impact of the proposed levy on profits is factored into market calculations.

Beyond all that, Morrison’s budget speech could be read in part as an electioneering document, as if the next election was just around the corner instead of two years away.

Theoretically, we are two budgets shy of the next election. But clearly Morrison and Prime Minister Malcolm Turnbull have resolved to move onto the offensive politically by bringing down a budget that is both populist and expansionary.

This is a budget that could easily have been delivered by a Labor treasurer.

What should be kept in mind is that the Turnbull government is clinging to the slenderest of parliamentary majorities, and therefore vulnerable to unforeseen developments, including health issues that may deprive it of that majority.

While it is premature to make such a judgement, the 2017-18 budget may well come to be regarded as the moment when Turnbull resolved to put a stake in the ground on issues that will define his tenure.

Thus, his decision to resurrect the Gonski needs-based funding program for schools, and his undertaking to fully fund the National Disability Insurance Scheme via an increased Medicare levy, are significant initiatives in the life of his prime ministership.

He is already getting pushback on the Gonski proposals from Catholic schools over a projected slowing in the growth of allocations to that sector.

Increases in the Medicare levy – in other words, an increased tax – will dismay some of those on the right.

Perhaps most pointedly, this budget represents a riposte to the 2014-15 budget from Joe Hockey in the Tony Abbott government, when a number of government programs were curtailed, raising questions about fairness.

Morrison and Turnbull have thrown that strategy into reverse. In the process, they have sought to market the budget as an attempt to rebalance the government’s relationship with an electorate that believed it was no longer being heeded, and certainly not being treated fairly.

It remains to be seen whether this approach will work, or whether it is too late for a conservative government to regain lost ground.

At his budget eve press conference, Morrison made a telling observation that appeared to anticipate criticism from the right.

“This is not a budget for ideologues,” he said. “This is a budget for a government elected to do its job.”

Morrison returned several times to the issue of sluggish wages growth in his remarks to the media, an indication that the government understands it is vulnerable to widespread disaffection over a lack of material improvement in people’s lives.

Now to the glass half full assumptions on which the 2017-18 budget is based, and more to the point Morrison’s insistence he had charted a clear path to a return to surplus in 2020-21.

His prediction that a deficit of A$29.4 billion in 2017-18 will return to a projected surplus of A$7.4 billion in 2020-21 rests on a continued strengthening in the global economy, and ongoing improvement in Australia’s own economic performance.

“The signs of an improving global economy are there to see,” he said in his budget speech. “There is clearly potential for better days ahead.”

Well, maybe!

Morrison is predicting a rebound in Australia’s real GDP growth to 3% 2018-19 from 2.75% in 2017-18, reflecting an improvement in global economic conditions.

Growth in 2016-17 is forecast to be a limp 1.75%.

The point is that Morrison and his Treasury advisers are banking on a fairly robust pick-up in Australian rates of growth to underpin ambitious new expenditures, and an earlier-than-anticipated return to surplus.

However, much depends, as always, on China preserving growth at around 6.5% per annum. Perhaps more importantly, it will also need to maintain its appetite for Australian commodities.

The Budget papers acknowledge the difficulties facing China in its efforts to accommodate slowing growth “amid structural shifts in the economy, a declining working age population and high levels of debt”.

In other words, China providing a continued “Band-aid fix’’ to Australia’s precarious budgetary situation cannot be taken for granted.

That said, it is true that the global economic environment has improved somewhat in the past 12 months. This means that some of the financial pressures on the Turnbull government have eased since its mid-year economic forecast in December projected a less buoyant outlook.

Morrison is half-right when he says there is “potential for better days ahead”.

But there is also plenty of scope for disappointment if a fragile global recovery falters. Or geopolitical upheavals weigh on confidence. Or if landmines in the banking sector lead to another financial crisis. Or if the world finds itself beset by events that no-one could possibly predict, such as a terrorist episode on the scale of the World Trade Centre attacks in 2001.

Morrison and Turnbull cannot afford to dwell on the negatives in their efforts to get a listing conservative ship-of-state back on course. In that regard, this budget represents something of a gamble on continued global growth, and a willingness of an Australian public to accept a further tax increase (via the increased Medicare levy) and little prospect of tax reductions in the next two years.

To that extent, this is a budget that appeals to altruism over self-interest. This is not necessarily a winning formula politically, but Turnbull might be given credit for trying something different.

Tony Walker, Adjunct Professor, School of Communications, La Trobe University

This article was originally published on The Conversation. Read the original article.

Morrison’s fresh start budget comes with fresh pain

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Treasurer Scott Morrison explains the budget in the lock-up.
AAP/Lukas Coch

Michelle Grattan, University of Canberra

Scott Morrison has delivered a surprisingly big-taxing budget that pays for the last burial rites of the toxic Abbott legacy of 2014. The Conversation

The Medicare levy will be increased to fund the hyper-expensive NDIS, and Australia’s big banks are being slugged with a new tax. The public will feel some impact from the levy rise – by 0.5% to 2.5% – but Treasurer Scott Morrison is selling it as extra money for an “insurance” scheme.

Morrison’s insistence that the problem was not on the revenue side suddenly has become oh, so yesterday.

Ordinary people will feel little sympathy for the major banks bearing extra impost, although some of the new levy on them, raising more than A$6 billion over the forward estimates, will likely flow through to customers. If the banks squeal, the government has the comeback: if we are voted out you’ll get a royal commission from Labor.

The assorted so-called “zombie measures” that have been hanging around unable to pass the Senate have finally been abandoned. “We have decided to reset the budget by reversing these measures at a cost of A$13 billion,” Morrison said.

Indeed, “reset” could be a theme song for this budget, although the government prefers “fairness, security, and opportunity”.

Malcolm Turnbull and his treasurer are looking for fresh starts in all sorts of areas.

Morrison’s messages are that the government has noted people’s pain, with slow wages growth resulting in the frustration of those “not getting ahead”. He is optimistic about the future. “We are now moving towards the end of this difficult period”, he said, and with signs of an improving international economy “there is clearly the potential for better days ahead”.

As expected, bandages have been applied to health and housing affordability.

“We will legislate to guarantee Medicare,” Morrison said. A Medicare Guarantee Fund will be set up to pay for the expenses on the Medicare Benefit Schedule and Pharmaceutical Benefits Scheme.

Proceeds from part of the Medicare levy plus the amount of other income tax revenue needed to cover the costs will be paid into the fund. It’s more of a gesture than a real “guarantee”, but it reflects how frightened the government still is about last election’s “Mediscare”.

The housing package is an assortment of targeted measures, including a tax break for young savers, help for older downsizers, and initiatives on rental and low-cost housing. The government has preserved negative gearing but has cracked down on concessions associated with investment housing. It has also tightened arrangements for foreign investors.

Turnbull’s radical change of direction on schools, funded in the budget, was unveiled earlier and is already contested, with a strongly negative reaction from the Catholic sector. The prime minister would be heartened that Tony Abbott’s party-room criticism (just hours before the budget) wasn’t taken up by many colleagues, although this could still be a slow-burn issue.

As in all Coalition budgets, those on welfare get something of a kicking. Perennially, the government announces “crackdowns”. This time it proposes a drug testing trial for 5,000 new welfare recipients, and will deny the disability support pension for a disability caused solely by a person’s own substance abuse.

Somewhere along the line the Coalition has moved from a preoccupation with small government to an embrace of expansive government. This is on two fronts. It has become much more sympathetic to people’s attachment to services. In the budget lock-up, Morrison explained this by saying the fact people’s wages hadn’t been growing made their reliance on services that much greater.

On a second front, the government has become increasingly enthusiastic about investing in nation building. Abbott might have wanted to become the “infrastructure prime minister”, but Turnbull and Morrison are committing public equity dollars to big schemes: the Melbourne to Brisbane freight rail and Sydney’s second airport, among others. They’d also like to buy out the states’ shares of the Snowy Hydro.

In the run-up to the budget, Morrison made much of “good debt” and “bad debt”. He’s sticking with the distinction, but being more nuanced in his language. The budget says that the government will no longer be borrowing to pay for “everyday expenses” – recurrent costs – from 2018-19. This makes an uncomfortable overall debt situation perhaps sound better, although it doesn’t change its reality.

The budget is still projected to reach balance in 2020-21, going from a forecast deficit of $29.4 billion in 2017-18 to a projected surplus of $7.4 billion in 2020-21, a little larger than the previous forecast.

The government hopes the rating agencies will be convinced by its numbers – despite what looks an optimistic forecast for wages growth, on which depends income tax revenue – and by its wiping the slate clean of measures that were never going to jump the parliamentary hurdle.

“This is a practical budget,” Morrison said. “We are a practical government.” It was not, he said “a budget for ideologues”.

Turnbull desperately needs it to be a budget that the public accept, weighing its mixture of optimism, reassurance and initiatives as worth more than some unexpected imposts.

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

Treasurer Scott Morrison’s 2017-18 budget speech, annotated by experts

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What was between the lines of Scott Morrison’s budget speech?
AAP/Mick Tsikas

Tom Clark, Victoria University; Annabelle Lukin, Macquarie University, and Danielle Wood, Grattan Institute

In his speech to the House of Representatives tonight, Treasurer Scott Morrison claimed the 2017-18 budget was a “fair and responsible path back to a balanced budget”. The Conversation

The Conversation asked three experts – political speech expert Tom Clark, linguist Annabelle Lukin, and economist Danielle Wood – to closely watch the treasurer’s budget speech, which you can read in full here. We’ve collected their live tweets of the speech in Storify below, and a selection of their best tweets and annotations is to come.

I know this has put real pressure on Australians and on their families. Terribly, this has meant some families have even broken apart. – Treasurer Scott Morrison


This paragraph is the treasurer’s signal to his base: they should regard the 2017 contribution as a “family values” budget.

In giving an address to the Australian Christian Lobby 2016 National Conference, just over a week before his 2016 budget speech, Morrison reminded people that his core constituency is among conservative protestants in the newer congregations and mega-churches. His compact with them is that he will always put family interests at the heart of his policy outlook.

He does not often express it in overtly religious terms, but he always makes it the dramatic (or melodramatic) core of his policy narratives. – Tom Clark, Victoria University

We cannot agree with those who say there is nothing that the government can do. And we must choose to ensure the government lives within its means. – Treasurer Scott Morrison


This is where the treasurer tries to communicate his government’s change of direction without losing the confidence of conservative supporters.

This government has very often in the recent past agreed with people who say it can and should do less. It has very stridently insisted that spending less money on programs is preferable to raising more for them.

Now the government needs to relent on that logic, so the 2017 budget speech needs to balance competing political agendas.

On the one hand, moderates and centrists need to know that Morrison “buries the ghosts of 2014” (which was a hardline budget that deeply shook this government’s credibility). On the other, conservatives need to know the Liberal Party will still tax and spend less than Labor would. – Tom Clark, Victoria University

I can confirm tonight that the budget is projected to return to balance in 2020–21 and remain in surplus over the medium term. – Treasurer Scott Morrison


The budget position is forecast to improve from a deficit of A$37.6 billion this year to a surplus of $7.4 billion in 2021. This is now the eight budget is which the government has claimed that we will back to surplus (or close to it) over the four-year forward estimates.

In reality, the deficit has sat stubbornly at around 2% of GDP. Underpinning these hopes is strong projected growth in income tax collections as wages are forecast to rise from 2.1% to 3.75% in 2021, which looks very optimistic. – Danielle Wood, Grattan Institute

To respect future taxpayers, this everyday spending should be funded from the first dollar we receive in taxes, not debt. – Treasurer Scott Morrison


This is a big-taxing, big-spending budget. Almost all the budget repair “work” in this budget comes from higher revenues. Revenues are forecast to increase from 23.2% to 25.4% GDP between 2017 and 2021.

Spending is forecast to fall marginally from 25.2% to 25% GDP. And most of the revenue increases are from personal income tax – because of the increase in the Medicare levy and bracket creep from strong forecast wage growth. – Danielle Wood, Grattan Institute

The Snowy Mountains Scheme is the benchmark for nation-building infrastructure. – Treasurer Scott Morrison


Government will be equity holder in these projects. These equity injections don’t factor into the budget balance numbers. This is the same treatment as the National Broadband Network. This has allowed the government to announce a sizeable program of infrastructure spending (western Sydney airport, Snowy Hydro, inland rail) without finding the money to pay for it.

Unless these projects generate a commercial return they will cost taxpayers down the track. – Danielle Wood, Grattan Institute

**Mr Speaker, in this budget we have chosen to place downward pressure on rising costs of living. – Treasurer Scott Morrison


This marks the beginning of a long tail of the speech. I have tweeted it is the “we are listening” section.

The government is relenting on its resistance to banking reform, on its apparent indifference to Australia’s brewing crisis of energy supply, and on its insistence that remedies to rising house prices are worse than the problem they seek to fix.

Here are some of the biggest ideological about-turns from this government, so perhaps it is no surprise that Morrison comes to these details near the end of his speech. Along with many other elements, it points to a speech more carefully planned and drafted than his 2016 effort. – Tom Clark, Victoria University

The speech in tweets

Tom Clark, Associate Professor, College of Arts, Victoria University; Annabelle Lukin, Associate Professor in Linguistics, Macquarie University, and Danielle Wood, Fellow, Australian Perspectives, Grattan Institute

This article was originally published on The Conversation. Read the original article.

Budget to distinguish good and bad debt

Michelle Grattan, University of Canberra

The government will highlight in its May 9 budget a distinction between “good” debt, incurred to boost growth, and “bad” debt, used to finance welfare and other recurrent spending. The Conversation

Treasurer Scott Morrison will say in a speech to business economists on Thursday that while previously all debt, whether for capital or recurrent purposes, has been lumped together, in this budget it will be linked to spending.

This “will make clearer the share of expenditure that is contributing to investment that increases productive capacity and produces future income and the debt that is being incurred to deal with everyday expenditure”.

The budget will also assign the level of government debt across portfolios. “We all need to understand what is driving the growth in our public debt and we need to budget in a way that creates accountability for increasing public debt and the interest payments that go with it,” Morrison says in his speech, released ahead of delivery.

The government is beginning the process of changing the spending culture, he says. “Portfolios will be held responsible for the debts they are incurring for future generations as a result of their expenditure.

“At the same time we will be providing room for common sense decisions to invest in our economy, by utilising our balance sheets to support investment that boosts growth and the jobs and wages that depend on that growth.”

On the latest figures net federal government debt in this financial year is estimated at A$317 billion.

Net debt is projected to peak at 19% of GDP in 2018-19 and then decline over the medium term.

The government remains committed to budget repair and its first priority for that remains controlling growth in spending, Morrison says.

“It is not sustainable for Australia to continue to finance our recurrent expenditure by borrowings.

“Australians understand taking out a mortgage to pay for their home is a wise investment for their future. But they also know that putting your everyday expenses on the credit card is not a good idea. It doesn’t end well.

“That is basically the difference between good and bad debt. The same is true for government.

“It can be very wise for governments to borrow, especially while rates are low, to lock in longer term financing and invest in major growth producing infrastructure assets, such as transport or energy infrastructure. But to rack up government debt to pay for welfare payments, Medicare costs or other everyday expenses, is not a good idea.

“This is a critical part of ensuring that government lives within its means.”

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

The real reason Scott Morrison is playing down the budget

Phil Lewis, University of Canberra

Despite the Treasurer, Scott Morrison, describing the federal budget as “not a centrepiece”, it has always been regarded as just that – the centrepiece of fiscal policy in Australia. The Conversation

Any changes in federal taxes and expenditure are intended to achieve good outcomes for Australia’s economy, such as low unemployment, price stability and economic growth. In economic terms, government spending should increase and tax receipts fall during downturns in the economy, and the opposite should happen when the economy is booming. This is how the government is able to balance out cycles in spending by the private sector.

Importantly, the budget is made up of more targeted fiscal policies (referred to as “discretionary” by economists) as opposed to automatic processes (referred to as “stabilisers”). The distinction between the two is important.

Automatic processes refer to when government taxes and expenditure generally increase and decrease with the business cycle. They are automatic because these changes in taxes and spending occur without the government having to do anything.

For example, when the economy is growing strongly, employment increases and unemployment falls. This results in unemployment benefit payments to workers, who were previously unemployed, automatically decreasing.

Also, when the economy is expanding, expenditure and incomes for workers and for businesses rise and the amount the government collects in taxes increases. When economic growth slows or becomes negative, the opposite occurs: the amount the government collects in taxes will fall and expenditure on unemployment benefits will rise.

With more targeted fiscal polices, the government takes actions to change spending or taxes. But although the budget is the centrepiece, it is not a very effective means of managing the economy.

The government and parliament have to agree on changes in fiscal policy. The treasurer initiates a change in fiscal policy through the budget in May each year. This must be passed by both houses of federal parliament, which can take many months (some measures have been blocked by the Senate for much longer).

Even after a change in fiscal policy has been approved, it takes time to implement. Suppose, for example, that parliament agrees to increase spending on infrastructure to create “jobs and growth”. It will probably take several months or more to prepare detailed plans for construction projects.

State or territory governments will then ask for bids from private construction companies. Once the winning bidders have been selected, they will usually need time to organise resources, including hiring labour, in order to begin the project.

Only then will significant amounts of spending actually take place. This delay may well push the spending beyond the end of the low point in the economy that the spending was intended to counteract.

Indeed, if the economy has recovered by the time the construction and related jobs come on board then the government spending will mean a shortage of labour in other parts of the economy and few or no new jobs (unless shortages are filled through migration).

Because the budget is a very difficult means of carrying out targeted fiscal policy, it’s become more important as a centrepiece for the government to set out its broad economic strategy – its goals and how to achieve them. But it seems that both major parties are failing even with this goal.

In recent years the view of most economists has been the need to reduce the structural budget deficit and the level of government debt. In 2016-17 net government debt stood at A$326 billion, and was forecast in last year’s budget to increase until at least 2018-19. There is also quite widespread acceptance that our tax system is in need of reform.

There are two glaring omissions from recent federal budgets of both major parties: any plan to significantly reduce the deficit any time soon, and any proposal to embark on meaningful tax reform.

The Rudd and Gillard governments will be remembered for Wayne Swan’s budgets, which consisted of new spending initiatives including the National Disability Insurance Scheme, the National Broadband Network, and the Gonski education funding reforms, but featured no plan to raise revenues to fund them and manage the huge subsequent debts.

Joe Hockey and Tony Abbott’s attempt in the 2014 budget to address government deficit and debt was regarded as a disaster, resulting in the demise of both as leading politicians. Morrison and Prime Minister Malcolm Turnbull are desperate not to make the same mistake, and this severely limits their capacity to do anything meaningful to tackle the deficit and debt issue.

The major problem with successive budgets is that they have not provided a cogent strategy for improving living standards, including addressing inequity for the most disadvantaged Australians, which can only be achieved through economic growth.

Growth entails taking materials, labour and capital to produce goods and services of greater value that people want at prices they are willing to pay. This is best done by the private sector and cannot arise from wasteful government expenditure, accumulating debt or fiddling at the edges with markets, through such things as changes to superannuation or housing finance.

Growth and jobs can only arise from value-adding activities and government policies which facilitate this such as reducing debt, promoting free trade, reducing restrictions on business and labour market reform. This is hard to do and far more difficult than easy options, which explains why we can expect little from the budget to address real reform.

Phil Lewis, Professor of Economics, University of Canberra

This article was originally published on The Conversation. Read the original article.

Scott Morrison says budget will remember the renters

Michelle Grattan, University of Canberra

The proposed housing affordability package in the May budget will target people relying on social housing as well as those trying to break into the market, Treasurer Scott Morrison has said. The Conversation

Morrison said housing would be a very strong focus of the budget and he stressed the rental side.

“It won’t just deal with the challenges faced by first home-owners,” he said. “You have got to remember that over 30% of Australians actually live in homes that are rented, and when people are finding it hard to get into the housing market that puts a lot more pressure on the rental market.”

Noting that the number of people on low incomes in rental stress had gone up, Morrison said: “I am as much concerned about someone who is on a low income struggling with their rent as I am with someone who I know wants to get on the home-ownership market themselves. They are both important challenges for Australians.”

Morrison renewed his criticism of “one of the most disgraceful failures of public spending” – the National Affordable Housing Agreement. This was “a one-way cash ATM to the states which asks for nothing in return.

“We are handing over A$1.3 billion every year and the number of people on public housing waiting lists has gone up. The number of social housing dwellings which are owned by the state governments has gone down. We have basically shelled out billions and billions and billions for a program that isn’t achieving anything,” he told Sky. These were matters that would be addressed in the budget.

“We have to spend that money better. We don’t necessarily need to spend less on that. It is a very important issue,” he said.

He was frustrated as treasurer that while serious money was spent on a lot of problems, “the debate is so often that you need to spend more here. No, just spend what you are spending really well and more effectively and get the outcomes that we are accountable for.”

He said social housing often got overlooked in the debate, and he was “quite passionate” about it.

The Victorian government at the weekend announced relief from stamp duty for first home-buyers purchasing properties below $600,000. Investment properties would not be eligible.

There will be a concession, applied on a sliding scale, for properties between $600,000 and $750,000. The exemption and concession applies to both new and established properties and the state government says it will help 25,000 Victorians with first homes.

Morrison also highlighted the problem of flat wages growth and the consequences that brought.

“Whether it is the NDIS [National Disability Insurance Scheme], whether it is schools, whether it is hospitals, whether it is Medicare – at a time when wages growth is admittedly and regrettably flat, Australians – particularly hard-working Australians on middle incomes – rely more and more and depend more and more on these services,” he said.

“And so the budget does need to signal, and the government has been signalling this, the need to ensure that people can feel confident about the support for those services.”

He made it clear that any improvement in commodity prices or wages growth would be used for budget repair rather than for new spending.

With an eye to the imperative that the budget must be convincing to the ratings agencies, Morrison said: “We have to deal with the political environment that we work in. You can’t just go out there and announce a whole range of things which you don’t have a reasonable prospect of being able to implement.”

He said Labor seemed “to be engaged in a very cynical process of sabotaging the budget to try and crash the AAA rating”.

“They won’t engage in getting spending under control, they want to see the nation’s welfare bill be higher. They want to tax people more to pay for a higher welfare bill.”

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

Australia: Budget 2016

For those yet to see this inspiring piece of economic policy/politics from Australia, or perhaps you just want to see it again (for some reason), here is the Australian 2016 budget being delivered by Scott Morrison.

Australian Politics: 31 January 2014 – The Show Rolls On