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.

Budget explainer: the federal-state battle for funding


Adam Webster, University of Oxford

There seems to be an ever present struggle for a share of the revenue government collects, not only between states but also between the different levels of government. The Conversation

In each year’s budget, the federal government allocates funds for federal programs (such as defence) and for some programs operated at a state level (such as school education, public transport, and hospitals). It has this role because it also collects more revenue from taxpayers than the states.

The reason for this all relates back to (at least in part) the Australian constitution.

The division of power between the federal and state governments

The federal parliament can only legislate (that is, make laws) in certain areas, known as “heads of power”, most of which are listed in sections 51 and 52 of the Constitution. This gives the federal parliament the power to legislate with respect to matters such as defence, external affairs, immigration, invalid and old-age pensions, and marriage.

In contrast, there is no equivalent limit on the legislative power of the states. The states may legislate in any area. However, section 109 of the constitution provides that where there is an inconsistency between a federal law and a state law, the federal law will prevail. In simple terms, this means that if the federal parliament has made a law dealing with a particular matter, state governments are unable to legislate in ways that conflict with the federal law.

The federal government’s control of revenue

The state and federal governments all have the power to collect tax, subject to some exceptions. Notably, section 90 of the Constitution gives the federal government exclusive power over the lucrative revenue streams of customs and excise duties (taxes on goods, such as alcohol, tobacco and fuel).

Until the Second World War, Australians paid income tax to both state and federal governments. However since 1942, the federal government has been the sole collector of income tax.

The federal government has also collected company tax for over 100 years, and the GST since 2000. The states could still collect income tax if they wanted to, but choose not to for political reasons.

Prime Minister Malcolm Turnbull tried to explore the possibility last year of both the federal and state governments collecting income tax, but this was quickly rejected by the states. While the states generate some revenue – for example through gambling, property and payroll taxes and mining royalties – they are unable to collect anywhere near the same amount as the federal government.

This creates a “vertical fiscal imbalance” between the federal and state governments. Conversely, the federal government is in the opposite position: while the federal government collects extensive revenue, its power to spend and directly fund programs is more limited.



The Conversation, CC BY-ND

Testing the government’s power to spend on certain programs

Until recently, the federal government thought it could spend money more or less as it pleased. However, the High Court clarified and restricted the federal government’s power to spend money and limited its ability to fund directly some programs.

Its power to spend was tested in 2012 and 2014 in two legal challenges to the government’s funding of the national school chaplaincy program. Prior to the legal challenges, the federal government had entered into agreements with religious service organisations – such as Scripture Union Queensland – to provide chaplains in schools.

The High Court held that (with some small exceptions) the federal government’s power to spend money is limited to where the authority to spend money is expressly conferred by legislation. The legislation authorising the spending must also be supported by one of the “heads of power” granted to the federal parliament by the constitution.

In the case of the chaplaincy program, the court rejected the arguments that the legislation could be supported by the power in one section of the Constitution to make laws for the “provision of…benefits to students” or by the corporations power in another section of the Constitution. To continue the funding of the national school chaplaincy program the federal government turned to the states for assistance.

How the federal government gives money to the states

Section 96 of the Constitution provides for the federal government to provide a significant proportion of its revenue to the states:

…the Parliament may grant financial assistance to any State on such terms and conditions as the Parliament thinks fit.

This distribution of revenue takes two forms – general revenue assistance (“untied funding”) and payments for a specific purpose (“tied funding”).

The untied funding that states receive from the federal government is largely made up of the money that the federal government collects from the GST. The states can spend this money as they see fit.

However, the passing on of the GST revenue is not unconditional. It’s conditional on the states giving up the collection of a number a number of states taxes.

The complex task of carving up the GST revenue between the states is left to the Commonwealth Grants Commission. The annual process always seems to leave a least one state claiming it should receive a greater share of the pie.

The federal government may also provide funding to the states for a specific purpose. The states have to consent to receiving the funding (which is not usually a problem), but it does mean that the federal government cannot impose programs on the states that they vehemently oppose.

This funding is tied to a particular project, where the federal government provides the funds and the state carries out the project. Grants such as these have been used regularly to fund education and health projects in the states. These specific purpose grants may be conditional on states meeting regular reporting requirements or achieving certain milestones.

Providing funding to the states through specific purpose grants allows the federal government to have great influence on policy areas that have traditionally been within the purview of the states.

The federal system of government created by the constitution divides power between the federal and state governments. While at times this might seem inefficient, it also provides checks and balances on government spending.

Adam Webster, Departmental Lecturer in Law and Public Policy, Blavatnik School of Government, University of Oxford

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.”

https://www.podbean.com/media/player/hb5bg-683276?from=yiiadmin

https://www.podbean.com/media/player/vtwdr-682691?from=yiiadmin

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: 1 December 2014 – Broken Promises


Australia: 2014 Budget and the Conservative Journalists


The link below is to a very observant article concerning certain newspaper journalists and others of the same ilk, in relation to the 2014 budget handed down by the current Australian government. It is a great article that sums up the situation brilliantly.

For more visit:
http://www.smh.com.au/comment/conservative-columnists-taxed-by-political-climate-change-20140516-zreyq.html

CHINA: CHRISTIANS WARY AS RECESSION, UNREST HIT


Beleaguered government officials could view church as threat – or a force for stability.

BEIJING, February 25 (Compass Direct News) – With China’s central government last December issuing a number of secret documents calling on provincial officials to strive to prevent massive unrest in a rapidly collapsing economy, observers are watching for signs of whether authorities will view Christian groups as a threat or a stabilizing influence.

While the Sichuan earthquake last May proved that Christians were willing and able to assist in times of national crisis, raids on house church groups have continued in recent weeks.

The secret reports have come in quick succession. A central government body, the Committee for Social Stability (CSS), issued an internal report on Jan. 2 listing a total of 127,467 serious protests or other incidents across China in 2008, many involving attacks on government buildings or clashes with police and militia.

“Recently every kind of contradiction in society has reached the level of white heat,” the CSS warned in an earlier document issued on Dec. 16.

The document said some officials had “ignored the welfare of the masses … piling up pressure until the situation exploded,” and concluded that, “The relevant Party and State organs must … give daily priority to the task of getting rid of all the maladies which produce social instability and the present crisis.”

On Dec. 10, the Central Committee of the Chinese Communist Party and the National People’s Congress issued an internal document calling on senior provincial officials to make every effort to alleviate social and political problems exacerbated by the current recession.

On Dec. 12, the Ministry of Public Security authorized provincial officials to tighten control of all communications in the sensitive period prior to Chinese New Year, which this year fell on Jan. 25. Fearing turmoil as millions of newly-unemployed factory workers headed home for New Year celebrations, the government cancelled all leave for Public Security Bureau (PSB) officers, placed them on high alert and mobilized an additional 150,000 police and armed militia for the holiday period.

On Dec. 15, the public security ministry issued a further document calling for tightened security at government ministries, military bases, armament stores, state borders, airports and railway stations.

In its Dec. 16 report, the CSS warned that provincial authorities must try to resolve grievances by non-violent means before protestors begin attacking factories and government offices or stealing, looting and burning property.

The scale of demonstrations and riots has already reached frightening proportions. In the Jan. 2 internal assessment leaked in Hong Kong, the CSS said the 127,467 serious incidents across China last year involved participation of around 1 percent of the population. Of these cases, 476 consisted of attacks on government and Party buildings, while 615 involved violent clashes with police and militia, leaving 1,120 police and Party officials and 724 civilians killed or injured.

 

Church as Subversive

Concerned by the growth of unregistered house church groups in an uncertain political and social climate, the Chinese government has ramped up efforts both to identify Christians and to portray Christianity as a subversive foreign force.

Local governments in China last year reported on continued measures to prevent “illegal” religious gatherings and curb other criminalized religious activities, according to reports from the U.S. Congressional Executive Commission on China (CECC) on Dec. 20 and Feb. 2. (See “Tortured Christian Lawyer Arrested as Officials Deny Abuses,” Feb. 11.)

In recent months authorities have quietly gathered data on church growth using surveys at universities and workplaces, and called meetings at various institutions in the capital to discuss the supposed dangers of foreign religious influence. (See “Officials Grapple with Spread of Christianity,” Feb. 4.)

Raids on unregistered church groups have continued in recent weeks, with police perhaps prompted to ensure tighter controls on church activity. On Feb. 11, police arrested two South Korean pastors and more than 60 Chinese house church leaders from four provinces who had gathered for a seminar in Wolong district, Nanyang city, the China Aid Association (CAA) reported. The police also confiscated personal money, cell phones and books, and forced each person to register and pay a fine before releasing some of the elderly leaders.

Authorities held six of the detained leaders for several days but by Sunday (Feb. 22) had released all of them, Compass sources confirmed.

In Shanghai, police and members of the State Administration of Religious Affairs on Feb. 10 ordered Pastor Cui Quan to cancel an annual meeting for house church leaders, and then ordered the owner of the hall used by Cui’s 1,200-member congregation to cease renting it to Cui within 30 days, according to CAA.

Senior staff at Beijing’s Dianli Hospital on Feb. 6 ordered elderly house church pastor Hua Zaichen to leave the premises despite being severely ill, CAA reported. Government officials had refused to allow Hua’s wife, Shuang Shuying, an early release from prison to visit her dying husband unless she agreed to inform on other Christians, according to Hua’s son. After refusing their offer, Shuang was finally able to visit Hua on her release date, Feb. 8; Hua died the following day.

Both Shuang and her husband have suffered years of persecution for their involvement in the house church movement.

On Feb. 4, police seized Christian lawyer and human rights defender Gao Zhisheng from his home in Shaanxi province, CAA reported. At press time his whereabouts were unknown.

While other incidents have gone unreported, house church leaders in northern China told Compass in January that despite tighter restrictions in the current economic and political climate, they were optimistic about the ability of the church to survive and flourish.

 

SIDEBAR

Disenchantment, Dissent Spread Across China

In December, China celebrated the 30th anniversary of Deng Xiaoping’s “open door” economic reform policy, which had led to a high annual growth rate of some 10 percent. While Party leaders publicly congratulated themselves, an internal party document warned that 75 percent of the financial benefits had gone to only 10 percent of the population, mainly high and middle-ranking Party members and some entrepreneurs.

With the growth rate now seriously dented, relations between Party members and the general public were “about to explode,” the document warned.

The document also referred to an “ideological vacuum in Party and state,” a “moral vacuum in upholding regulations,” and a “vacuum in spiritual civilization,” in stark contrast to the moral and spiritual values held by religious groups.

According to the Research Institute of the State Council, urban unemployment among young people had already risen to 10.5 percent by last June. If foreign investors continued to withdraw funds, the institute warned, this figure could rise to 16 percent or higher, sparking more outrage against the government.

Tens of thousands of factories closed down in the first six months of 2008, well before the full impact of the global recession hit China. By November, 10 million migrant workers were unemployed; most recent estimates put the figure at 20 million, and officials admit this figure will reach at least 35 million by the end of 2009.

Vice-Premier Hui Liangyu, responsible for agricultural affairs, warned in a recent report that 30 percent of all villagers have set up peasant organizations to challenge local government officials and crime bosses. Some groups also have plans to launch armed insurgencies and their own peasant governments.

Several million university graduates will also face unemployment this year, potentially lending their voices and leadership skills to mass protest movements.

An increasing number of intellectuals have already signed Charter 08, a petition issued in December calling for multi-party elections, human rights, press freedom and the rule of law.

On Jan. 7, a prominent Chinese lawyer, Yan Yiming, filed an application with the Finance Ministry demanding that it open its 2008 and 2009 budget books to the public. On Jan. 13, more than 20 Chinese intellectuals signed an open letter calling for a boycott of state television news programs because of “systematic bias and brainwashing,” while a Beijing newspaper ran an article arguing that freedom of speech was written into the constitution, The Washington Post reported in late January.

In response, Public Security Minister Meng Jianzhu warned China’s leaders via state media that, “The present situation of maintaining national security and social stability is grave.”

Many analysts agree that the Chinese Communist Party may be facing its greatest challenge to date.

Report from Compass Direct News