Frydenberg’s directions to ASIC throw the banking royal commission under a bus


Mick Tsikas/AAP

Andrew Schmulow, University of WollongongFor Australia’s habitually-abused financial consumers it’s Back to the Future (minus the DeLorean).

Treasurer Josh Frydenberg appears to have thrown the most important findings of the banking royal commission under a bus, in glorious double-speak.

On Thursday he issued a direction to the Australian Securities and Investments Commission through what is known as a statement of expectations.

It is very different from the previous such statement, issued in 2018.

This one includes an entirely new clause, placed right at the top.

The government expects ASIC to:

identify and pursue opportunities to contribute to the government’s economic goals, including supporting Australia’s economic recovery from the COVID pandemic.

It’s an odd role for a corporate cop, on its face inconsistent with the way ASIC itself describes its function in the “our role” tab on its homepage.

Perhaps not yet updated to take account of the guidelines, ASIC’s description says it is a regulator whose job is to “take whatever action we can, and which is necessary, to enforce and give effect to the law”.

From ‘why not litigate’…

It’s how the royal commission saw ASIC’s role. In his final report, Commissioner Kenneth Hayne was scathing about how ASIC carried out those duties, saying it was too ready to negotiate, and not keen enough to litigate.

Financial services entities are not ASIC’s ‘clients’. ASIC does not perform its functions as a service to those entities. And it is well-established that ‘an unconditional preference for negotiated compliance renders an agency susceptible to capture’.

Negotiation and persuasion, without enforcement, all too readily leads to the perception that compliance is voluntary. It is not.

Hayne said the first question ASIC should ask whenever misconduct was identified was “why not litigate?”.

Frydenberg’s new statement of expectations turns that on its head.

…to ‘why not capitulate’

Rather than “why not litigate,” it reads as “why not capitulate” — justified by the need to identify opportunities to contribute to Australia’s economic recovery.

The statement says the government expects ASIC to “act independently” but also says it should “consult with the government and treasury in exercising its policy-related functions” — a requirement not previously expressed in those terms.




Read more:
Pro tip for Australia’s banks: imagine you are in Canada


It should “minimise regulatory burdens” (including presumably those that require regulated firms to act in the best interest of their customers).

It should ensure any guidance it offers to financial service providers is not “unduly prescriptive”.

The banks have not earned leniency

Granted, these are conditions that could be interpreted positively if ASIC was charged with supervising an industry that had demonstrated its trustworthiness and its commitment to putting its customers first.

Royal Commissioner Kenneth Hayne believed the banks had not earned out trust.
AAP

But after the evidence that was ventilated before the Hayne Royal Commission no one – not even the Australian Banking Association makes such a claim.

Indeed, the damage done by more than a decade of financial industry misconduct, fraud, criminality and venality, committed on an industrial scale, is yet to be fully quantified.

Colleagues at the University of Melbourne estimate the full cost at north of A$200 billion, affecting approximately 54% of the population.

Frydenberg’s solution appears to be to put the needs of industry first. Separately, he is trying to scrap responsible lending laws.

From somewhere, to nowhere

What will the upshot be of a newly enfeebled ASIC? In light of the demonstrable failure of banks, super funds and insurers to act with integrity after the royal commission, the upshot will be more of the same.

Indeed, as reported in The Klaxon in November, the almost one million customers in Westpac-BT’s “retirement wrap” umbrella fund had been gouged as much as $8 billion over the past decade, thanks to exorbitant fees.

Between mid-2018 and mid-2020 returns to members were close to zero (0.1%).

According to Australian Prudential Regulation Authority data, had the performance of the Westpac funds been merely average, its customers would have been $5 billion better off.




Read more:
Why bank shares are climbing despite the royal commission


The matter was reported to ASIC on November 23 last year. All ASIC has done since is “review” the situation. In that time fund members might have lost a further $1.5 billion relative to the industry average.

A better way to support a post-COVID economic recovery would be to give customers confidence that the laws meant to protect them were being properly enforced. It isn’t the road the treasurer has taken.The Conversation

Andrew Schmulow, Senior Lecturer, Faculty of Law, University of Wollongong

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Grattan on Friday: As COVID’s third wave worsens, Scott Morrison pivots to the future


Michelle Grattan, University of CanberraJosh Frydenberg is Scott Morrison’s house guest at The Lodge – sharing, in Canberra’s lockdown, microwaved meals and watching “Yes, Prime Minister”.

As he recounted domestic life with Scott, the treasurer was inevitably asked whether he’d measured up the curtains.

Among the ministers, Frydenberg and Health Minister Greg Hunt have carried the frontline burdens during the pandemic. For Frydenberg – the biggest-spending federal treasurer in the nation’s history – the experience can be viewed as a test for future leadership.

Although there’ve been mistakes – JobKeeper had design flaws which led to serious waste – he has come through creditably in extraordinary circumstances.

Frydenberg, who is also deputy Liberal leader, has never hidden his ambition and is hungry for the top job. But he is also loyal. Morrison knows that, unlike prime ministerial predecessors Tony Abbott and Malcolm Turnbull, he doesn’t have to look over his shoulder, even in the bad times. Morrison marked three years as PM this week, and there has been no white-anting.

There’s more than one path to the prime ministership for Frydenberg. If Morrison loses the election, Frydenberg would be favourite to become leader of the opposition. But that’s the start of a very rocky road; hard work and high hopes can be dashed, as Bill Shorten found.

An alternative path is to be well placed vis-a-vis your internal competitors and inherit the post when it becomes available, one way or another.

If the Coalition is re-elected next year, would Morrison serve a full term, or is it possible he might leave triumphant after a couple of years, not risking the gamble on a third election “miracle”? Frydenberg knows Morrison’s moving on in a smooth transition would be his best prospect.

The prime minister this week was in full campaign mode for the March or May election and we had a glimpse of the formidable fighter we saw in 2019.

In a week when the NSW government lost control of COVID, the state’s daily new cases rising above 1,000 and hospitals under severe strain, and with Victoria on the brink, Morrison made a dramatic pivot to focus on opening the country.




Read more:
View from The Hill: Achieving vaccine targets could be followed by a (pre-election) health ‘pinch point’


Embattled NSW Premier Gladys Berejiklian was firmly in step, making it clear she’s determined to move when the 70% vaccine target is reached (meanwhile announcing some minor easings).

It seemed incongruous that as the third wave deepened and with only a third of eligible people fully vaccinated, Morrison simply left the bad news behind and headed for the ground on which he wants to stand. In his Thursday news conference, for example, he began by hailing “another day of hope”, based on the latest vaccination numbers.

Morrison, backed by research, judges most voters have had enough of lockdowns and blocked internal travel.

A poll published by Nine this week showed 54% believed Australia could not completely suppress COVID, and more than six in ten favoured opening up once the target vaccination thresholds were reached. In the second year of the pandemic, public opinion appears to have swung from preoccupation with the health response to a strong desire to return to more freedom.

While Morrison pivots when in political trouble, Anthony Albanese this week looked to be lumbering. With the PM accusing the opposition leader of undermining the national cabinet’s exit plan, Albanese knew he had to get himself out of that corner. He stressed support for the plan, but his demeanour was that of a man on the back foot.

The defiant premiers of Queensland and Western Australia are in an easier short-term position. WA’s Mark McGowan, in particular, with his stratospheric popularity, can tell Morrison to go jump, as in effect he did this week. After the PM invoked “The Croods” film to say we must emerge from the cave, McGowan played heavily to West Australians’ parochialism and angst towards the east.

“This morning the prime minister made a comment implying Western Australians were like cave people from a recent kids’ movie. It was an odd thing to say,” McGowan wrote on Facebook. “I think everyone would rather just see the Commonwealth look beyond New South Wales and actually appreciate what life is like here in WA.

“We currently have no restrictions within our State, a great quality of life, and a remarkably strong economy, which is funding the relief efforts in other parts of the country.

“West Aussies just want decisions that consider the circumstances of all States and Territories, not just Sydney.”

Regardless of the national plan to which they agreed, McGowan and Annastacia Pałaszczuk have the constitutional and political authority to handle their states’ transitions as they see fit. But they can’t get away from the fact they’ll have to make the journey, relaxing border restrictions, at some stage.




Read more:
Coalition gains in federal Resolve poll, but Labor increases lead in Victoria


As New Zealand is now finding, a zero-COVID position, however assiduously pursued, seems an impossible dream over the longer term.

Without the sharp motivators of big outbreaks, WA and Queensland have vaccination rates lower than the national average, and health systems that haven’t been stress-tested under maximum COVID pressure. WA, self-sheltered for so long, would be especially vulnerable if there were a big outbreak.

At the national level, one political unknown is what the public reaction will be in the difficult transition period ahead. Will sentiment change again when there are more hospitalisations and deaths as we reopen, albeit with some continuing safeguards?

With the length of the current extensive lockdowns unknown, it is not clear whether by election time we’ll have had, or have escaped, another recession. We know this September quarter will be negative but the December quarter could go either way.

Two consecutive quarters of negative economic growth (the economy shrinking) is taken in technical terms to be a recession. AMP economist Shane Oliver says there is a 45% chance of negative growth in the June-quarter figures, which will be released next Wednesday. If that happened a recession would be certain.

At the election the economy and fiscal policy will be central issues. If we are as “open” as the prime minister foreshadows, the government will need to have plans for when and how it would start fiscal repair.

For Morrison and Frydenberg, this will be another pivot point. Many will be watching carefully how much agility the treasurer can show.




Read more:
Politics with Michelle Grattan: Doherty’s Sharon Lewin on pivoting from chasing COVID zero


The Conversation


Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Great approach, weak execution. Economists decline to give budget top marks


Wes Mountain/The Conversation, CC BY-ND

Peter Martin, Crawford School of Public Policy, Australian National UniversityDespite overwhelmingly endorsing the general stance of the 2021 budget, only a few of the 56 leading economists surveyed by the Economic Society of Australia and The Conversation are prepared to give it top marks.

Asked to grade the budget on a scale of A to F given Treasurer Josh Frydenberg’s objective of securing Australia’s economic recovery and building for the future, only three of the 56 economists surveyed gave it an ‘A’.

But a very large 41% awarded it either an A or a B, up from 37% in last year’s October COVID budget.

The economists chosen to take part in the Economic Society of Australia survey have been recognised by their peers as Australia’s leaders in fields including macroeconomics, economic modelling, housing and budget policy.

Among them are a former head of Australia’s prime minister’s department, a former member of the Reserve Bank board, a former OECD director and two former frontbenchers, one from Labor and one from the Coalition.

Of the panel members who commented on the historic stance of the budget — expanding the size of the deficit beyond what it would have been in order to drive down unemployment — all but three offered enthusiastic endorsement.

Emeritus Professor Sue Richardson of the University of Adelaide commended the government for at last turning its back on a “debt and deficit” mantra, that was “never justified”.




Read more:
Exclusive. Top economists back budget push for an unemployment rate beginning with ‘4’


Professor Richard Holden praised the “watershed”. In due course there should be increased attention paid to the structure and quality of spending, but for now we should applaud the “Frydenberg Pivot”.

Saul Eslake said the strategy of providing further stimulus to push unemployment down to levels not seen consistently since the first half of the 1970s was the right one. It meant the Reserve Bank and the treasury would no longer be working at “cross purposes” as they had been for most of the past two decades.



The Conversation, CC BY-ND

But Eslake said the budget fell short in the A$20 billion it devoted to tax concessions for small business in the mistaken and unfounded belief it is “the engine room of the economy” and in housing measures that failed to heed warnings from history about the risks of ultra-high loan-to-valuation ratios.

Rebecca Cassells of the Bankwest Curtin Economics Centre said the claim that 60,000 jobs would flow from extending the temporary loss carry back and full expensing tax concessions was “a stretch,” with the connection quite tenuous.

Bucks, but not the biggest bang

Consultant Nicki Hutley said a bigger boost to the JobSeeker unemployment payment would have achieved much more than the $7.8 billion one-year extension of the “lamington” low and middle income tax offset.

Economic modeller Janine Dixon said while spending more to get more people into work was the “right setting for the times,” Australia had to ensure its workforce was ready to supply the extra aged care and child care and disability services it had funded by delivering the right training, especially in the absence of migration, which has traditionally been used to address workforce shortages.

Labour market specialist Elisabetta Magnani said measures to boost wages in the caring occupations could have achieved the double bonus of drawing more workers into those occupations and shrinking the gender pay gap, given that more than 80% of the workers in residential aged care are female.

Little for net-zero

Michael Keating, a former head of the prime minister’s department, said restoring high wage growth would require big investments in education and training, which sits oddly with the cuts in funding for universities. The extra funding for apprentices and trainees only makes up for past cuts.

Professor Gigi Foster said the $1.7 billion spent on childcare subsidies was only “surface-level fiddling with the sticker price”.

“Where is the supply-side intervention required to make childcare services sustainably accessible and of high quality?” she asked. “Childcare should be viewed as social infrastructure. Instead, when we heard infrastructure, it was mainly code for transportation.”




Read more:
Fewer hard hats, more soft hearts: budget pivots to women and care


Margaret Nowak of Curtin University said a budget that really “built for the future” would not have focused on the “infrastructure of the past”. Professor Richardson lamented that most of the infrastructure spending was on traditional “roads and ports” when the future was net-zero emissions.

“There is little in the budget that supports this transformation,” she said. “It is an extraordinary lost opportunity.

Nicki Hutley said retooling the economy for zero emissions would have brought forth “more jobs, higher wages, more growth and private sector co-investment”.

Some concern about debt

Former OECD director Adrian Blundell-Wignall said a much-greater investment in vaccinations would have helped “get the economy back to work and the borders opened sooner which, in turn, would have saved unemployment benefits, tourism, aviation support and the need for the extension of temporary measures”.

And he was concerned that a jump in US inflation might cause international interest rates to rise faster than expected, forcing Australia to cut its projected budget deficits in order to stabilise net debt.




Read more:
Frydenberg spends the bounty to drive unemployment to new lows


Former International Monetary Fund economist Tony Makin, a critic of government spending during the global financial crisis,
described the budget spending as a “knee-jerk primitive Keynesian reaction” to the COVID recession.

Unease about going into debt to keep and create jobs aside (and very few of the economists surveyed shared Makin’s unease) the criticisms of the economists surveyed relate to execution and details. If Frydenberg had been judged on his approach, most would have given him an A.


The Conversation

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Australia: Budget 2021


Frydenberg spends the budget bounty to drive unemployment down to new lows


Peter Martin, Crawford School of Public Policy, Australian National UniversityNever before has a budget spent so much to supercharge the economy after the worst of a recession has already passed.

The economy bounced back from last year’s COVID recession far more sharply than the treasury (or just about anyone else) expected.

The bounty from the higher-than-expected tax collections that flowed from more people than expected in work, a much higher-than-expected iron ore price, and lower than expected unemployment benefits, should amount to A$26.8 billion this financial year, $15.5 billion the next, and $18.6 billion the year after that.

But rather than bank those riches and improve the budget bottom line, as the Coalition’s budget strategy used to require it to do, the government has instead decided to spend the lot.



It will spend $21 billion of this year’s $26.8 billion; it will spend or give up in new tax concessions $26.9 billion — far more than next year’s $15.5 billion bounty, and so on.

Treasurer Josh Frydenberg has come good on his historic promise to keep spending way beyond the crisis, to drive the unemployment rate down below where it was when the pandemic started.




Read more:
View from The Hill: Frydenberg finds the money tree


The budget predicts an unemployment rate of 4.75% by mid-2023 and 4.5% by mid-2024.

If delivered (and the treasurer’s revised strategy published in the budget requires him to keep spending until it is), it will mark what the budget papers describe as, “the first sustained period of unemployment below 5% since before the global financial crisis, and only the second time since the early 1970s”.



In the same way as Australia emerged from the early-1990s recession with a dramatically lower inflation rate because the Reserve Bank was determined to salvage something from the carnage, Frydenberg has decided to exit the COVID recession with an ongoing lower floor under unemployment.




Read more:
Less hard hats, more soft hearts: budget pivots to women and care


Both the treasury and Reserve Bank believe Australia can sustain much lower unemployment than the 5-6% it has grown used to. The treasury’s estimate is 4.5%; the Reserve Bank’s is nearer 4%. Before COVID, the United States managed 3.5%.

If achieved, it will mean hundreds of thousands more Australians providing services, drawing paycheques, and paying tax. And no longer on benefits.



A dramatic budget graph tracking the fortunes of every Australian whose payroll was reported to the tax office throughout 2020 shows the biggest victims of the COVID recession — by far — were those without post-school education. At the deepest point of the COVID recession in May, they were almost three times as likely to have lost their jobs as Australians with degrees.

The budget provides an extra $400 million for low-fee or no-cost training for jobseekers, to be matched by the states; an extra $481 million for the transition to work employment service directed at Australians aged 24 and under; and a further $2.4 billion to the Boosting Apprenticeship Commencements program.




Read more:
Budget 2021: the floppy-V-shaped recovery


But most of what it intends to do for jobs is the indirect result of a barely precedented expansion in spending and tax concessions in all sorts of areas.

The extra $17.7 billion it is spending on aged care over four years ought to create many jobs, as should the extra $13.2 billion it is spending on the National Disability Insurance Scheme.

The $1.7 billion it is spending on making childcare more affordable should both create jobs in the sector and free up more parents to return to work.

An extra $20 billion in business tax concessions should help as well.




Read more:
Cuts, spending, debt: what you need to know about the budget at a glance


The budget’s break with the past isn’t its dramatic expansion of discretionary spending. That’s common in recessions. What’s unusual is that spending is being ramped up when we are not in recession.

In the words beloved of economists, the spending is “pro-cyclical” rather than “counter-cyclical”. It is designed to supercharge our exit from recession rather than merely bring it about.

And there’s little sign of the spending stopping.

If this government or the next achieves success in driving the unemployment rate down to 4.5%, it will want to go further. It will keep going further right up until we get inflation near the top of the Reserve Bank’s 2-3% target band and wage growth in excess of 3%, neither of which this budget foresees in forecasts going out four years.




Read more:
Budget splashes cash, with $17.7 billion for aged care and a pitch to women


Government debt, anathema to the Coalition when Labor ran it up during and after the global financial crisis, isn’t much of a constraint.

The Reserve Bank holds much of the government’s debt (it didn’t during Labor’s time) and is buying as much as it needs to to keep interest rates low. Recently, interest rates have been rising, but not for most of the government’s borrowings, which are long-term.

The budget papers show that even with net government debt at 34% of GDP and heading to 44%, interest payments on that debt are much less of a drain on the budget than they were back in the mid 1990s when net debt hit 18% of GDP.



And the times have changed. Worldwide, few nations have an aversion to government debt, especially not the United States. In Australia, the only side of politics that used to complain about debt is in currently in office.

Before COVID, the fiscal strategy spelled out in the budget as part of the Charter of Budget Honesty required the government to eliminate net debt.

Frydenberg’s revised strategy merely requires him to stabilise and then reduce net debt “as a share of the economy”.

His priority is driving down unemployment. If that helps expand the economy and so drives down net debt as a share of the economy so much the better. But he wants to do it regardless.

The Conversation

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Budget splashes cash, with $17.7 billion for aged care and a pitch to women


AAP/Mick Tsikas

Michelle Grattan, University of CanberraThe Morrison government has brought down a big-spending, expansionary budget that forecasts Australia’s unemployment rate will fall to 4.75% in two years time.

But Australia’s international borders won’t be properly open for at least a year, according to the budget’s assumptions.

“Australia is coming back,” Treasurer Josh Frydenberg told parliament on Tuesday night.

“Employment is at a record high, with 75,000 more Australians in jobs than before the pandemic.

“This budget will help to create more than 250,000 jobs by the end of 2022-23,” Frydenberg said.

“This budget secures the recovery and sets Australia up for the future.”




Read more:
Frydenberg spends the budget bounty to drive unemployment down to new lows


The deficit for next financial year is expected to be A$106.6 billion, with cumulative deficits of $342.4 billion over the forward estimates.

As the government continues to spend to underpin the recovery, net debt will increase to 30% of GDP at the end of June, before peaking at 40.9% at June 30, 2025.

Aged care centrepiece

The centrepiece of Frydenberg’s third budget – which had been largely pre-announced by the government – is a $17.7 billion aged care package, spent over five years and including 80,000 extra home care packages.

Frydenberg said this would make a total of 275,000 packages available. The present waiting list is 100,000.

The aged care package is designed as long term structural reform after the royal commission found the system in a parlous state and needing a comprehensive overhaul.

“We will increase the time nurses and carers are required to spend with their patients,” Frydenberg said.

“We will make an additional payment of $10 per resident per day to enhance the viability and sustainability of the residential aged care sector.

“We will support over 33,000 new training places for personal carers, and a new Indigenous workforce.

“We will increase access for respite services for carers.

“We will strengthen the regulatory regime to monitor to monitor and enforce standards of care.”

In other major initiatives, there is $2.3 billion for mental health, while the earlier-announced adjustment to the JobSeeker rate will cost nearly $9.5 billion over the budget period.

Tax cuts and a focus on women

Some 10.2 million low and middle income earners will benefit from the extension of the tax offset for another year, at a cost of $7.8 billion.

As Morrison seeks to repair his image with women, there is a range of measures on women’s safety, economic security, health and wellbeing totalling $3.4 billion.

This includes $1.7 billion for changes to child care, $351.6 million for women’s health, and $1.1 billion for women’s safety.

There will be another $1.9 billion for the rollout of COVID vaccines.

Quizzed at his news conference on the future of Australia’s closed border, Frydenberg hedged his bets. “When it comes to international borders, it’s an imprecise business.”

The budget papers assume a gradual return of temporary and permanent migrants from mid-2022, and small arrivals of international students, starting late this year and increasing from next year.

“The rate of international arrivals will continue to be constrained by state and territory quarantine caps over 2021 and the first half of 2022, with the exception of passengers from Safe Travel Zones.

“Inbound and outbound international travel is expected to remain low through to mid-2022, after which a gradual recovery in international tourism is assumed to occur,” the papers say.




Read more:
Budget 2021: the floppy-V-shaped recovery


The budget is heavy on continued help for business, with more than $20 billion extra in support.

With the country facing a skill shortage and skilled workers not able to enter, Frydenberg said the government would create more than 170,000 new apprenticeships at a cost of $2.7 billion.

“We will help more women break into non-traditional trades, with training support for 5,000 places,” he said

There will be 2,700 places in Indigenous girls academies to help them finish school and enter the workforce.

More STEM scholarships will be provided for women.

Another 5,000 places are being made available in higher education short courses.

Housing and support for retirees

The budget’s housing package includes another 10,000 places under the New Home Guarantee for first home buyers who build or buy a newly-built home. It will also increase the amount that can be released under the First Home Super Saver Scheme.

From July 1, 10,000 guarantees will be provided over four years to single parents with dependants to build or buy a home with a deposit as low as 2%.

Retirees will benefit from a measure to encourage them to downsize.

Older people will no longer have to meet a work test before they can make voluntary contributions to superannuation. People aged over 60 will be able to contribute up to $300,000 into their superannuation if they downsize.

Given the housing shortage, this is aimed at freeing up more housing for younger people.

The government will also enhance the Pension Loan Scheme by providing immediate access to lump sums of $12,000 for single people and $18,000 for couples.

Although modest, one measure that will help women, who retire on average with much less superannuation than men, is that the government will remove the $450-a-month minimum income threshold for the superannuation guarantee.

Frydenberg said the government was committing another $15 billion over a decade to infrastructure, including roads, airports and light rail.

There is also $1.2 billion for multiple measures to promote the digital economy.

Labor says it’s ‘just more of the same’

The opposition was dismissive. Anthony Albanese said, “Australians have endured eight long years of flat wages, insecure work and skyrocketing cost of living under the Liberals and Nationals – and this budget does nothing to change that.

“It’s just more of the same from a tired old government.”

The Business Council of Australia welcomed the budget, saying it “strikes a prudent balance between growth and fiscal discipline by making sensible investments in the levers of growth”.

But the ACTU said while the Coalition’s rejection of austerity was welcome, “the government has failed to use the spending in this budget to tackle the underlying problems of low wages and insecure jobs”.

Instead, it was “handing billions of dollars to business including in the critical areas of aged care, mental health and vocational training, with little accountability or strings attached”.

The Australian Aged Care Collaboration, which represents more than 1,000 providers, congratulated the government on agreeing to implement most of the royal commission’s 148 recommendations.

AACC representative Patricia Sparrow said “after 20 government reviews in 20 years, this budget, and the government’s response to the royal commission’s recommendations, finally addressed many of the challenges facing aged care”.The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Less hard hats, more soft hearts: budget pivots to women and care


WHYFRAME/Shutterstock

Danielle Wood, Grattan Institute and Tom Crowley, Grattan InstituteLast year’s post-budget photo ops were all heavy machinery and hard hats. But this year we can expect soft-focus shots with children and the elderly.

The big story of the budget is not just that the government is spending tens of billions more as we emerge from the recession; it is also the major shift in what the money will be spent on.

The change in fiscal strategy – from a “construction-led recovery” last year to a concerted emphasis on women and the care sector this year – is based on solid economic advice.

It has also come at the best possible time for a government that has been in the spotlight for underfunding aged care and mental health, and under pressure to do more to support women’s economic participation.

The treasurer was understandably eager to emphasise the Government’s new spending initiatives. And the shift is notable.

But while there is welcome progress, the budget falls short of delivering big structural reforms that are needed for childcare, aged care, and mental health.

Budget delivers on social spending

For childcare, the government has announced an extra $1.7 billion over three years starting from July 2022, a modest boost to the $9 billion the government spent last financial year.

We proposed a more ambitious package, which would have spurred big economic gains from higher female workforce participation.

The budget falls short of that, but it is still well targeted at the families that face the most crippling out-of-pocket childcare costs: those with two or more children under six in care.



For aged care, there is an extra $17.7 billion over four years, a significant increase to the $22.5 billion the government spent last financial year.

While not enough to deliver the Aged Care Royal Commission’s vision of a full rights-based model – where every Australian is entitled to the care they need – it still offers improvements.




Read more:
Budget splashes cash, with $17.7 billion for aged care and a pitch to women


The 80,000 new home care packages will help to reduce waiting times, and the boost to front line care minutes and the Basic Daily Fee provides additional support to those in residential care.

The accompanying focus on attracting, training, and up-skilling staff is particularly welcome given that the Royal Commission anticipates future staff shortages, although the Budget doesn’t have much specific to say about pay in the sector.




Read more:
View from The Hill: Frydenberg finds the money tree


For mental health, a sector whose problems have been laid bare by increased demand for services during the pandemic, there is an extra $2.3 billion over four years.

Funding is targeted towards expanding access to mental health services and bolstering suicide prevention, but it falls short of the system reform required.

A women-centric makeover

The budget flags $3.4 billion over four years for women’s measures (including childcare). Outside of childcare, the biggest are for women’s health ($365 million) and spending on women’s safety including and violence prevention ($1.1 billion).

These measures, particularly the increased spend on front line and response services for family violence are important and significant.

But the more significant shift for women comes with the recognition that job-creating budgets need to invest in a broader range of jobs including in services sectors. About 80% of Australians work in services (and 90% of working women), so investing in these jobs ensures a broader recovery than the previous hard-hat focus.




Read more:
Frydenberg spends the budget bounty to drive unemployment down to new lows


While last year’s Budget ran hard on infrastructure and investment tax breaks that favour capital-intensive sectors, this time around there is a stronger focus on care economy jobs through the spend on aged care, childcare and mental health.

Even the extended JobTrainer scheme receives a care-centred makeover, with an additional 33,800 low fee and free training places set aside to support future aged care workers.

Services sectors hit hard by COVID also receive some cash including the already announced $1.2 billion support package for the aviation and tourism sector and $300 million for the creative and cultural sector. Universities again miss out but private education providers also receive additional supports.

The long-term challenge

Other major measures in the Budget include the rollover of the Low and Middle Tax Offset (the ‘lamington’) for another year – delivering up to $1080 into the hands of low- and middle-income taxpayers next year – and extension of two key business tax measures: instant expensing and loss carry backs – focused on bringing forward business investment.

The challenge is that much of this increased spending is permanent.

And when combined with the impact of COVID on migration and on the size of the economy, this leaves the medium-term forecasts looking markedly different to the (probably unrealistic) ones that voters were served up before the 2019 election.



But, as the Parliamentary Budget Office suggested a fortnight ago, even with this shift, Australia’s debt levels are sustainable and are likely to remain so. Net debt is forecast to stabilise and then fall over the medium term, even with continuing deficits.

This doesn’t mean that long-term structural challenges disappear, but it does mean that there is more breathing space for the government to let voters see its softer side. As an economic as well as political strategy, it makes a lot of sense.


The Conversation

Danielle Wood, Chief executive officer, Grattan Institute and Tom Crowley, Associate, Grattan Institute

This article is republished from The Conversation under a Creative Commons license. Read the original article.

View from The Hill: Frydenberg finds the money tree


Wes Mountain/The Conversation

Michelle Grattan, University of CanberraJosh Frydenberg’s third budget aims to give Australia a post-pandemic soft landing, using revenue windfalls for spending and tax cuts rather than for slashing the deficit.

Its philosophy is very much gain, not pain, for a population that has endured the stress of the pandemic, albeit not the devastation experienced by so many other countries.

There are plenty of winners, and minimal direct losers in a budget that lays the ground work for an election that is still expected next year rather than this.

Hard decisions have been eschewed. Prime Minister Scott Morrison is trying to avoid offending voters.

The political prism of this budget is very much in the moment. As such, it leaves Opposition Leader Anthony Albanese little room. Excessive criticism, and he risks sounding carping. Demands for too much more, and he might be accused of irresponsibility.

The $7.8 billion extension of the low and middle income tax offset is a carrot for Labor’s core constituency. Frydenberg told reporters the recipients were “the tradies and the truckies,” and “the teachers and the nurses”.

The budget dodges major reform, with the notable exception of aged care, which the royal commission’s scathing findings made unavoidable.




Read more:
Budget splashes cash, with $17.7 billion for aged care and a pitch to women


The deficit for the coming financial year is forecast to be $106.6 billion, only marginally below the December budget update forecast of about $108 billion.

Tens of billions of dollars in windfall revenue (from the faster-than-expected economic recovery, and high iron ore prices) have been distributed, rather than going to the bottom line.

At the end of the budget period, in 2024-25, the deficit will be an estimated $57 billion. Indeed, there is no surplus in sight in a decade.

Without a policy U-turn, Frydenberg as treasurer will likely never deliver that “back in black” budget. Indeed, by the time there is a surplus, he might have served as prime minister, been in opposition, and departed politics.

But of course, after the next election, at some point there will be a change of policy, towards fiscal consolidation.

Frydenberg presents an optimistic picture for the economy in the coming financial year, with the caveat that the pandemic lurks and therefore so does uncertainty.

The budget forecasts unemployment falling to 5% next year and dropping to 4.5% by June 2024. Growth peaks at 4.25% next financial year, but slows after that.

Critics will say that given the state of the economy, and the amount of revenue, budget repair is being delayed too long. That won’t, of course, be the judgement of the public.

We can apply many measuring sticks to the budget, beyond the spending-versus-repair one.

The most obvious is its response to the aged care royal commission. The government is putting some $17.7 billion into the system, and there will be 80,000 additional home care packages (the waiting list is 100,000).

The experts will argue over the money and probably conclude it is not enough. Equally, the test must be whether the initiatives adequately address improving regulation and achieving a larger, better trained and remunerated workforce. The government makes the right noises but the judgement can only come later. The workforce issues are particularly challenging.




Read more:
Frydenberg spends the budget bounty to drive unemployment down to new lows


The size of the task is enormous, with a planned new funding model to improve quality and a goal of cultural reform. Health Minister Greg Hunt on Tuesday described it as a “once in a generation” reform. The program will take five years.

As foreshadowed, there are many initiatives for women – on safety, health and economic security. Reforms to child care benefit families, but women especially will be making comparisons with the more generous, less targeted Labor scheme.

Many individuals and businesses will be scrutinising the budget for what it says about opening Australia back to the world.

The message is that it will be a slow path.

Migrants, temporary and permanent, will gradually start to come from mid next year.

Late this year, “small phased programs” of international students will start.

Inbound and outbound travellers will remain low for the next year.

But hey – it’s assumed “a population-wide vaccination program is likely to be in place by the end of 2021”. Let’s hope this is so – but it’s only an assumption.

By the end of next year, barring a fresh assault by the pandemic, we might – just might – be looking at more normality. And then we will be facing a more “normal” budget too, with its share of nasties.


The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Budget 2021: the floppy-V-shaped recovery


Lukas Coch/AAP

Richard Holden, UNSWI don’t often feel sorry for politicians. But having to manage a process that produces forecasts about the next four years of an economy still clawing its way out of a pandemic, and then having to publicly defend those forecasts, is no easy task.

That said, our compassion for the plight of Treasurer Josh Frydenberg shouldn’t stop us judging his budget forecasts. And, like all forecasts, those rest heavily on the assumptions that underpin them.

Core budget assumptions

The core budget assumptions about unemployment and economic growth are relatively rosy. Unemployment is forecast to be down to 4.75% by 2023-23 and 4.5% the year after – both well below pre-pandemic levels.

Real GDP growth is expected to rebound to 4.25% in 2021-22 and then settle down to about 2.5% thereafter. Given we are unlikely to have the population growth of the pre-COVID era, that’s a pretty high rate.

Taking a look graphically at actual and forecast GDP makes it clear why folks are talking about a “V-shaped recovery”. But even the fairly bullish assumptions reveal a recovery where the V isn’t really sharp enough. Call it a “floppy-V-shaped recovery.”



That’s rather disappointing, especially given Frydenberg has fundamentally shifted Liberal party fiscal strategy away from “debt and deficits” and dalliances with austerity, to one that sees government spending at more than 26% of GDP in steady state.

But what is more disappointing is that this increased spending isn’t forecast to translate into stronger employment and wages growth.




Read more:
Frydenberg spends the budget bounty to drive unemployment down to new lows


The budget forecasts an unemployment rate of 4.5% in 2023-24 and 2024-25. That’s better than pre-pandemic levels, but not all that close to the 4%-or-lower number many economists (including RBA governor Philip Lowe) think might be required to get wages growing meaningfully for the first time since 2013.

The budget forecasts reflect this, with wages growth of 2.25% in 2022-23 and 2.5% in 2023-24 both equal to forecast inflation in those years. That is, real wages growth is not even forecast to begin again until 2024-25—and even then, only barely.

Non-mining business investment is forecast to grow by 1.5% in 2021-22 and then jump by a massive 12.5% in 2022-23. That might reflect a post-COVID investment boom driven by a widely mRNA-vaccinated nation and a raft of government incentives. Or it might just be wishful thinking.




Read more:
View from The Hill: Frydenberg finds the money tree


As to immigration, we can expect our borders to be largely shut for the foreseeable future. This is reflected in the budget’s forecast population growth of “around 0.1% in 2020-21, 0.2% in 2021-22 and 0.8% in 2022-23.”

Whether immigration does actually pick up significantly in 2022-23 depends crucially on our vaccination rollout.

If we can reverse the bungled execution to date, overcome vaccine hesitancy, and secure enough Pfizer and Moderna doses (including for boosters) immigration might grow strongly again.




Read more:
Less hard hats, more soft hearts: budget pivots to women and care


But there are a number of things that have to go right for that to happen. And the government has a poor track record to date on those things.

And then there’s one notable assumption that makes news in every budget: the iron-ore price. The budget papers themselves highlight the importance of it, noting:

“The recent strength in key commodity prices, particularly iron ore, has seen a significant resurgence in Australia’s terms of trade […] As a result, nominal GDP is expected to grow by 3¾% in 2020-21, by a further 3½% in 2021-22 and by 2% in 2022-23.”

The budget assumes the iron-ore price will decline from its current level of over US$200 a tonne, to US$55 a tonne by March 2022. This incredibly pessimistic assumption basically gives the government a buffer on the headline deficit figure. If the forecast of a $99.3 billion deficit in 2022-23 is beaten significantly, it will likely be due to iron ore prices staying high.

The biggest assumption of all

The core economic assumptions discussed above underpin the budget bottom line – a number that used to receive considerably more attention when there was a question of “when” the budget might be back in surplus.

Those days are gone.

Frydenberg has engineered a remarkable shift in Liberal party economic philosophy. While maintaining their brand as “the party of lower taxes, not higher taxes”, they have jettisoned budget-balance fetishism.




Read more:
Cuts, spending, debt: what you need to know about the budget at a glance


Good. It’s about time.

But the biggest assumption of all in the out years of the budget is that the government – should it be reelected – sticks to this new strategy. If they do it holds the promise of being transformative.

It would represent a modest but welcome transformation of the economy, and a dramatic transformation of the Liberal Party brand.


The Conversation

Richard Holden, Professor of Economics, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Cuts, spending, debt: what you need to know about the budget at a glance


AAP/Shutterstock/The Conversation, CC BY-ND

Alexandra Hansen, The Conversation; Chynthia Wijaya, The Conversation, and Wes Mountain, The ConversationAfter twenty years of rhetoric from both sides of politics focusing on getting back to surplus, this year’s budget continues pandemic spending in the hope of getting the economy back on track as the pandemic starts to settle.

The projected deficit is $161 billion for 2021-22, but rather than tackling this in the next four years, the government’s focus is instead on payments and long-term serviceable debt.



The government is projecting a bump in real GDP growth in the next financial year, before growth settles again over the near future.



Part of the reason the government can afford to keep spending high is the low cost of international debt. This means that while net debt will continue to increase beyond the next four years the budget estimates cover, net interest payments should remain low.



And another major factor in the budget’s performance – despite the big spending – is the impact of a very high iron ore price, in the midst of a global pandemic.

The chart below shows the difference between policy decisions and other factors, generally beyond its control.



With a major focus on business and infrastructure spending to revive the economy, extensions to tax benefits and announced packages for childcare, there are many spending announcements in this year’s budget and very few cuts or savings.




Read more:
Frydenberg spends the budget bounty to drive unemployment down to new lows


The difference is so great that we have drawn out some of the major spending announcements and included all significant cuts in our headline figures for this year’s budget.


The Conversation

Alexandra Hansen, Deputy Editor and Chief of Staff, The Conversation; Chynthia Wijaya, Deputy Editor, Multimedia, The Conversation, and Wes Mountain, Multimedia Editor, The Conversation

This article is republished from The Conversation under a Creative Commons license. Read the original article.