Sunday, November 25, 2012

How will we pay for the big dreams of Julia Gillard and Wayne Swan?

by: Terry McCrann

IN Julia Gillard and Wayne Swan, we have a Prime Minister and a Treasurer who dare to dream big dreams, at least in terms of how to spend very large sums of money. The name Gonski and the letters NDIS spring immediately to mind.

Astonishingly, though, they show no interest in the means by which the requisite large sums of money to fund the big dreams can be generated. Indeed, they preside over a government taking active steps to undermine such money generation.

The gap between the government's rhetoric of fiscal stringency and the big spending promises that are being almost casually embraced is obvious and has been criticised by this paper.

Similarly, the individual decisions that damage either the economy broadly, specific industries or geographic locations, or undermine directly or indirectly the core underlying health of the tax base, have also been criticised.

But the observations and analysis have tended to operate separately -- the extravagant spending promises on one hand, the anti-business, anti-growth decisions on the other. Like two hands waving and not clapping.

It is the fact that the two hands are clapping that is or should be really disturbing, as it defines not just how bad this government is but how dangerous it is for our future. As it locks us into huge increases in future government spending while undermining what I call the real tax base.

This threatens to set us up for, at best, chronic and significant budget deficits; or future "budget wars", which will be fought over on the one hand, significant and selectively punishing tax increases, and on the other, significant and selective cuts in government spending.

It will happen in a context which would demand a treasurer like Peter Costello and a budget like his inaugural tough 1996 one. But which is unlikely to find similar circumstances as conducive to taking the tough decisions.

Nor would we be likely to be mugged by quite as much good fortune, comparable to the benefits conveyed by that first really explosive growth of China in the early 2000s.

For those benefits conveyed to us mostly came without countervailing challenges, at least not then; and really helped wash away much of the negativity and pain that would otherwise have flowed from, first, the tough 1996 budget and then, second, the introduction of the GST.

The single biggest new commitment this government has made is to the NDIS, the National Disability Insurance Scheme. The Productivity Commission estimates its cost at $15 billion a year. As we revealed, the Australian Government Actuary has calculated it would grow to $22bn a year by 2018-19.

That alone represents a quantum increase in both the rate of growth of government spending and its absolute level. It would represent something like a 4 per cent increase in outlays, lifting them by nearly 1 per cent of GDP.

On its own the NDIS would likely wipe out any budget surplus -- on the heroic assumption there was a surplus available to be wiped out.

And it would single-handedly destroy the government's hand-on-heart, oft-repeated commitment to keep growth in government spending to just 2 per cent a year in real terms, until the budget was in significant surplus.

The actual commitment is until the surplus is at least 1 per cent of GDP. Today, that would be around $14bn, somewhat higher than the $1.1bn promised in the mid-year update.

It is interesting to note that in the May budget documents, while the 1 per cent surplus target commitment was rigorously stated upfront, later in the document the commitment was stated as "until the budget returns to surplus". Whether this was deliberate or just casually sloppy, with this government, this Treasurer and his office, and this Treasury, both are entirely possible.

Even on the government's own heroic projections of the budget surplus, it is not going to get anywhere near 1 per cent of GDP this side of 2015-16. It only gets, if I can use that word loosely, to 0.4 per cent of GDP in that year.

So how can the government contemplate a measure that would boost spending by 4 per cent in one hit? Unless it also contemplated swingeing cuts elsewhere.

But the NDIS, while clearly the biggest, is not a one-off. There's the $5bn a year promised to implement the Gonski recommendations on education, the dental scheme, starting small and growing who knows how big, the raft of commitments -- promises? -- on new defence hardware, multi-billion expenditures on submarines, destroyers and fighters, to name just the biggest.

Then there's the raft of measures that sit between the two hands, so to speak. That on the one hand will cost money -- compensating for the closure of so much of Australia's waters to commercial fishery, buying back water along the Murray-Darling.

While on the other hand, make their direct contribution to undermining the tax base. It does not seemed to have occurred to our fiscal mastermind that if you close down industry that previously operated in those spaces, you reduce your tax revenues.

The biggest anti-(real) tax base measure is of course the carbon tax. The whole purpose of the tax is to close down or reduce the activities of certain businesses and industries. Fine. They will pay less taxes in general and ultimately less carbon tax specifically.

The Treasurer probably thinks, as does Treasury and any number of economists, that the carbon tax broadens the tax base. The nominal tax base, obviously yes. Just as imposing a special tax on, say, the winnings of high-rollers at casinos would.

But in both cases -- the actual one of the carbon tax, my hypothetical example of casinos -- at the cost of undermining the real tax base. What is provided by a healthy, growing economy that is not artificially handicapped.

The mining tax sits in a bizarre space all of its own, threatening to raise little or no revenue, while "succeeding" in discouraging future development and in the process undermining the real tax base.

This is not just about budget chaos and the inevitability of continuing perhaps serious deficits under a Gillard-Swan government. The bifurcation between extravagant spending promises and anti-growth and anti-business policies actively threatens our future prosperity. Indeed, our future generally.


Green/Left accused of keeping Aborigines in poverty

THE Aboriginal academic Marcia Langton has accused the left of standing in the way of indigenous advancement, consigning the nation's first peoples to lives of poverty.

In her second Boyer lecture, an extract of which is published in the Herald, Professor Langton argues the environmental movement has emerged as "one of the most difficult of all the obstacles hindering Aboriginal economic development".

"Among the left and among those opinion leaders who hang on to the idea of the new 'noble savage', Aboriginal poverty is invisible, masked by a 'wilderness' ideology," Professor Langton argues in the lecture, which will be broadcast on Sunday.

"Whenever an Aboriginal group negotiates with a resource extraction company there is an unspoken expectation that no Aboriginal group should become engaged in any economic development. They only tolerate Aboriginal people living on their own land as caretakers of wilderness, living in poverty and remaining uneducated and isolated."

Professor Langton, the chairwoman of Australian indigenous studies at the University of Melbourne, attacks environmental campaigners who teamed with dissident Aboriginal groups to oppose development at Jabiluka in western Arnhem Land and elsewhere "not because of impacts on Aboriginal people but to preserve nature and 'wilderness"'.

"Whether Aboriginal groups had projects imposed on them or negotiated successful settlements, these professional protesters, supported by sophisticated non-government organisations funded by a gullible public, accused Aboriginal leaders of 'selling out'. Not once have they campaigned against Aboriginal poverty. They assume that this is the normal for the natives.

"Time and again, native title groups have spent years getting an agreement with a resource company over the line, negotiating income streams that might shift indigenous people from the margins to the centre of regional economic development in return for land access, only for a ragtag team of 'wilderness' campaigners to turn up with an entourage of disaffected Aboriginal protesters to stop development at the eleventh hour."

She accuses Labor of taking Aboriginal voters for granted since the days of the Whitlam government but says this changed with the election of the West Australian Liberal MP Ken Wyatt as the first indigenous member of the House of Representatives, and the defeat of the Labor government in this year's Northern Territory election, largely due to the disaffection of indigenous voters in bush seats.

Professor Langton says the territory result challenged mainstream perceptions of the marginal power of the Aboriginal vote and demonstrated the Country Liberal Party - once rabidly opposed to Aboriginal rights - had changed its colour.

Professor Langton's lecture will be broadcast on ABC Radio National on Sunday at 5pm and will be available at


Weather forecasting a shambles in Australia too

A NEW $30 million meteorology forecasting and warning system has failed in its key aim of freeing up staff to focus on severe weather events.

The NexGen FWS computerised system is being rolled out nationwide over five years with Queensland the second-last state or territory to get it in late 2013.

Federal Sustainability parliamentary secretary Don Farrell said the timing was deliberate to allow additional development to cater for the more complex weather in tropical areas such as cyclones.

In making its case for the NexGen FWS system to be included in the 2009-10 Budget, the Bureau of Meteorology argued that it would "provide additional time for forecasters to focus on activities such as the prediction of high-impact weather events".

But a major independent review of the bureau's capacity by Clean Energy Regulator Chloe Munro, commissioned after the 2010-11 summer of disaster, found it failed to deliver.

Unlike a system introduced by the UK's MetOffice, NexGen still requires forecasters to spend time editing automated text and images.

"While automation has enabled forecasting offices to meet greater demand for day-to-day forecasting services with current staff levels, there is no evidence that it has freed up forecaster time in a way that augments capacity to respond to severe weather events," the June report says.

Of the 500 employees classified as "meteorologists", only 220 of them had the necessary qualifications to work as "operational meteorologists" and 100 of those were employed in aviation and defence support roles, leaving just 120 frontline staff across seven regional offices.

Overall, 10 per cent to 15 per cent of text forecasts generated by NexGen FWS were altered by forecasters.

The bureau has been criticised for failing to give specific warning of the intense storm cell that hit Brisbane last Saturday until 20 minutes after it happened.

Three months ago the Crime and Misconduct Commission, in its report on the performance of dam engineers during the fatal floods of January 2011, noted that the bureau failed to issue a flood warning for the Lockyer Valley and Gatton until an hour after the disaster despite Weatherwatch forecaster Anthony Cornelius highlighting the danger four hours earlier.


In Soviet Australia defence is welfare

I’m not sure whether Minister for Defence Materiel Jason Clare is a fan of ‘in Soviet Russia’ jokes, but I’m hoping there is a punch line somewhere in his recent speech at a Submarine Institute of Australia conference.

Talking about the $40 billion Future Submarine project (which will replace our six ailing Collins Class subs with 12 Future subs) the Minister noted, ‘We are not just building 12 submarines – we are building an industry … that could potentially last for a century or more.’ The Future Submarine project is billed as the ‘biggest and most complex defence project’ ever undertaken in Australia. Yet apparently that level of complexity is not sufficient – it now also needs to create and support an entire industry for a century.

In the rest of the world, defence safeguards the welfare of citizens. In Soviet Australia, it seems defence is welfare for some groups (companies in politically sensitive industries and regions).

Unless you are a Bond villain, grand schemes should be a last resort, not the first choice. How can one justify starting an extremely risky nation-building project ‘potentially the same size as the national broadband network’ without examining all options?

In my recent paper I made it clear that I believe Australia should investigate leasing US nuclear submarines. This position has received a great deal of support – and a fair bit of criticism, particularly from those who want to see the submarines built in Australia.

Debate on the relative complexities and capabilities of submarine options is fine, as is consideration of issues such as safety and strategic objectives. However, what should not be acceptable is blindly supporting local jobs, especially not with this price tag.

Australians need to start asking hard questions on government spending. Do we need home-built subs more than we need the National Disability Insurance Scheme? Call it the ‘NDIS test’ – is this cause more worthy than wheelchairs for kids with disabilities?

When seen in that light, corporate welfare doesn’t look like such a good idea, does it?


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