Australian Politics
Wednesday, May 15, 2024
Budget controversies
The big heartburn from the recent Australian Federal budget seems to be the $300 electricity subsidy. It was criticised because it goes to everyone and it was called inflationary.
It was alleged that restricting it to lower income people would have reduced its inflationary impact as well as being fairer. As a cost-push influence that is very doubtful. An extra $75 in their pockets for four consecutive quarters would hardly be noticed by middle to high income earners so would have litte impact on their spending.
And its inflationary impact can really only be judged by how it was financed. But amid a big overall increase in spending that is impossible to dissect. Would inflation have been less if the subsidy had been less? It is impossible to know with any certainty. Paradoxically, the government hope that it will REDUCE inflation. That more spending will reduce inflation is absurd.
But the big folly in the budget is all the money given to push our indusrries into processing our exports of minerals rather than simply digging them up and putting them straight onto a ship to go overseas.
That is hopeless. China and other Asian countries have much lower costs than us in both labour and energy so will always out-compete us on any processing we do. Only continuing subsidies could make processing competitive here: Just a continuing bleed of money into a hopeless cause
Australians are getting a $300 sweetener in the form of a rebate for energy bills in this year’s federal budget to help deal with cost of living pressures.
But economists are concerned that the short-term gain will mean longer-term pain — if the savings are spent by households, that could further fuel inflation and potentially cause the Reserve Bank to further increase interest rates.
Tuesday's budget includes a range of cost of living measures including tax cuts, energy bill relief, housing and rental assistance, among other policies.
From 1 July, more than ten million households will receive rebates of $300 on their energy bills, while around one million small businesses will receive $325.
Treasurer Jim Chalmers described this third budget as a "responsible" one that would help people under pressure today while "investing" in the future.
"I want Australians to know that despite everything coming at us, we are among the best placed economies to manage these uncertainties and maximise our opportunities."
"Treasury is now forecasting inflation could return to target earlier, perhaps even by the end of this year," he told federal parliament.
But Deloitte Access Economics partner Stephen Smith said the increased spending in the budget may stoke inflation, making the job of the central bank more difficult.
He described this as a "big spending budget" that had the potential to fuel inflation.
"Saving more on energy is good for Australians, but those savings are likely to be spent elsewhere in the economy. It's not necessarily a budget that will reduce inflation," he told SBS News.
Chalmers told SBS News the combination of the government's "responsible economic management" and the way cost of living measures were designed in the budget would put downward pressure on inflation.
"We’ve designed it in a way to be part of the solution rather than part of the problem," he said.
"The clear advice that we received, is that a combination of our cost of living policies, particularly our energy relief and rent assistance will put downward pressure on inflation without adding to inflationary pressures elsewhere in the economy.
Rating agency S&P said the budget could be "mildly inflationary".
"Today's budget slightly loosens the purse strings," the rating agency said in a statement.
"There will be a range of views about that but we are pretty confident we got it right."
The federal Opposition said Labor had added $315 billion of new spending, at a time when restraint was needed.
"The government is no closer to dealing with its homegrown inflation crisis – which means more pressure on cost of living and interest rates higher for longer," shadow treasurer Angus Taylor said.
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Will the budget reduce housing costs?
The ONLY way to reduce housing costs is to increase the supply of houses and I can see little if anything of that below. To achieve anything there need to be more tradesmen and more vacant land available. I can see nothing to bring that about below
Residential and commercial property developers have been buoyed by the expansionary budget, but have called for more to be done to make housing more affordable.
Housing developers stand to benefit from a combination of tax cuts and infrastructure packages put in place to stimulate building but major hurdles remain for the industry and the budget could feed into higher rates.
The Urban Development Institute of Australia backed the government’s commitment to address housing supply through the targeted strategies in the budget, UDIA national president Col Dutton said.
Measures include bolstering funding for infrastructure projects, with about $1bn going to getting homes built sooner, with funding for states included to provide roads, services and parks.
There is also a new national agreement on social housing and homelessness for states and territories to deliver crisis support and social housing, and $90.6m going into training more tradies and construction workers through fee-free TAFE places.
The budget also allocates $1.9bn over five years to increase maximum rates of Commonwealth Rent Assistance by a further 10 per cent.
But, Mr Dutton said for the government to reach its ambitious National Housing Accord target of building 1.2 million new homes over five years, 97 per cent must be delivered by private developers.
“Market-wide solutions will be necessary to tackle a range of fundamental problems, particularly at a time when completions are in free-fall. These include chronic lack of development-ready land, significant shortage of skilled workers in the construction industry, accelerated cost of construction materials and inhibited project finance, all of which are holding back projects,” Mr Dutton said.
Property Council of Australia chief executive Mike Zorbas supported the budget’s focus on housing. But, he warned further investment in creating new stock was essential to hitting “ambitious” housing targets.
“The government’s continued focus on housing is welcome. This budget contains solid investment in housing — particularly for the most vulnerable — and the better planning of our cities,” Mr Zorbas said.
“To hit 1.2 million homes by 2029, we need to improve investment settings, incentivise housing approvals, further boost … housing options including retirement living, purpose-built student accommodation and build-to-rent housing and bring more tradies in from overseas to complement domestic capacity,” he said.
The industry body boss said the government missed the opportunity to adjust the eligibility threshold for rent assistance to include those living in retirement villages.
The Real Estate Institute of Australia said the budget was a missed opportunity for the federal government to address stamp duty given the affordability struggle.
“These are homes built now that aren’t reliant on pressures within the building and construction sector,” president Leanne Pilkington said.
“Stamp duty reform would — at a minimum — bring around 4 per cent of existing homes to market, around 430,000 homes.”
Macquarie analysts said there were $6.2bn of new initiatives to continue addressing housing pressures, including meeting the housing target.
They noted the build-to-rent industry would be supported by lower foreign investment fees and said retail landlords would benefit from the stage three tax cuts and cost-of-living measures.
“We believe the housing package, and measures to increase construction workers should help reduce development time-frames over the medium term, which should be a tailwind to residential developers,” they said, noting more spending power from tax cuts should help malls.
Senior economist at research house PropTrack, Paul Ryan, called for the national housing accord to be broadened, saying it was the perfect forum to co-ordinate a switch from stamp duty to land tax, which had the potential to unlock the spare housing capacity in existing homes.
“Removing stamp duty would be transformative in improving productivity across the economy by opening up the ability for people to move where opportunities arise,” he said.
“Given the time it takes to approve and build new housing, there is no time to waste in tweaking these policies to unlock housing supply if it is to have an impact on housing costs over the coming years.”
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Get ready for an early election after Labor’s budget splurge
It’s now the day after the budget, and the dust has settled. The smarter operators in the ALP government will already realise the safest course to adopt will be to call an early election in late 2024 or early 2025.
The 2024 budget is a magnificent pre-election budget, but it contains a series of high-risk assumptions which could very easily unravel if Anthony Albanese waits until May 2025.
The 2024-2025 budget is a high-spending exercise which appears to have been against the view of treasury, and the inflationary impacts of this spending will gather momentum in 2025 and by next May they will be very apparent. The extra money in the system will create a buoyancy at the end of this year and early next year.
The inflationary side effects will come later and will also be masked by the subsidies. It's crazy to hold an election when the subsidies are about to end.
It's unlikely the Reserve Bank will reduce interest rates on the basis of the temporary power and other subsidies. If there is a late-2024 rate cut then it's a perfect election time and, if there is not, then the prospect is still there.
At present, the opinion polls have the two parties very close, and Australians don’t like early elections.
But, this budget looks like it has been prepared by a cabinet which understands what could happen in 2025, and so presents a smorgasbord of benefits extending to most people in the community.
This is the sort of thing you do when you are planning an election. It is not the sort of thing politicians usually do if they are going to wait 12 months before calling a poll.
Among the specific May 2025 dangers for the government are:
* The 3.25 per cent wage rise assumption is one of the key pillars in the reduction of inflation forecast, which the government is using to fan the idea of interest rate cuts. If Fair Work accepts the government’s recommendation and in a few weeks awards a 4 per cent wage rise starting July 1 there is little chance the government’s low 3.25 per cent wage index rise will be achieved. But, the inflationary impact of those higher wages will not be felt until 2025.
* The government is pulling down inflation with subsidies across the board. If the government waits until May these subsidies will be on their way out and inflation will be set to return and will become very apparent to the electorate.
* Major deficits are forecast for subsequent financial years, so unless there is a big iron ore price rise there will not be the ability to hand goodies out in preparation for a May 2025 election. The goodies have been handed out a year early, which underlines the need for an early election.
* The huge looming rise in commercial construction costs will seep into home construction costs next year.
* The ‘Made in Australia’ campaign and the backing of critical minerals and green hydrogen are high-risk commercial strategies. If the government waits until May, then the risks involved in these strategies will become much more apparent as other countries are heading in similar directions.
* The US is full of uncertainty, particularly in 2025 when there is a risk Donald Trump will become president, which could create considerable problems for an ALP government. Neither Trump nor Joe Biden carries US certainty and are part of the US risk profile of waiting until May.
* At this stage, the horrors of the industrial relations bill are not fully understood, and in particular those working as casuals don’t understand their current 25 per cent cash premium could end. The full implications of a union representative being in every enterprise creates a nightmare for family businesses. The restrictions to the gig economy will harm a great many people.
The industrial relations legislation is not due to be operational until August 26, and it would be very easy using regulations, lack of action and other means to make sure there are no fundamental changes for anyone in 2024.
But, in 2025 the horrors will become much more apparent, so it is not a good time to have an election.
To defend themselves, the Coalition will of course point out all the above points.
One of the greatest weaknesses in the ALP’s position is homeownership is being taken away from a generation of people to be replaced by rentals.
The Coalition is uniquely placed to make it possible for those in their twenties and thirties to buy dwellings, and would need to be a cornerstone of their policies.
The fact Chris Bowen has now embraced gas as an important part of the renewables aims, plus the power subsidies, curbs a Coalition energy attack, but overall government energy policy will still leave openings for the Coalition.
And, there is, of course, the migration mess and the rise in boat arrivals as a result of the mistakes in handling detainees.
But, a 2024 election win is a much easier task than winning an election in 2025, when Tuesday’s budget will start to unravel.
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Drumgold's woes are not over
Five Australian Federal Police officers are suing the ACT government for almost $1.5 million over allegations by former chief prosecutor Shane Drumgold that they “acted disgracefully” in seeking to pressure him not to prosecute the alleged rape of Brittany Higgins.
Lawyers for the five officers have sued both the government and Mr Drumgold personally over his allegations against them, which included that they had sought to mislead him as to the strength of the case against Bruce Lehrmann and bullied Ms Higgins.
They also say Mr Drumgold wrongly accused them of “consistently and inappropriately” interfering with his conduct of the prosecution, extending over one and half years.
The allegations were made in a letter Mr Drumgold sent to ACT police chief Neil Gaughan on November 1, 2022, expressing concern over “some quite clear investigator interference in the criminal justice process”.
The letter sparked the Sofronoff inquiry into police and prosecution conduct in the Lehrmann case, which largely exonerated police and found that Mr Drumgold’s assertions were baseless.
Each of the five applicants – Detective Inspector Marcus Boorman, Commander Michael Chew, Detective Superintendent Scott Moller, Detective Senior Constable Trent Madders and Senior Constable Emma Frizzell – was identified by name in the letter.
In a statement of claim released by the Federal Court on Wednesday, the officers say Mr Drumgold knew or ought to have known that the imputations in the letter were false and unsupported by evidence.
The officers are suing for a total of $1.415 million in damages and economic loss, with Mr Boorman’s claim the highest, at $250,000 for general damages, $85,000 for aggravated damages and $80,000 for economic loss.
One of the AFP officers previously told The Australian the letter had “destroyed careers and destroyed people’s lives”.
“When you’re in a profession where integrity is pivotal, if you lose your integrity, if it’s suggested that you are corrupt or you’ve trying to pervert the course of justice or influence something, it just goes against the grain,” the officer said.
The officers are also suing over Mr Drumgold’s release of the unredacted letter to a journalist from the Guardian, purportedly under FOI legislation but which in truth, they allege, he had no right to hand over.
The letter, containing the DPP’s suspicions of impropriety against the named police officers and Senator Reynolds, was released without any consultations or redactions. The FOI application was determined and executed within four hours of being considered for the first time.
The claim alleges that unauthorised act by Mr Drumgold amounted to misfeasance in public office because it was “done maliciously by Mr Drumgold, in that he knew he had no valid power to release the letter and … harm to the Applicants was reasonably foreseeable.”
The allegations by Mr Drumgold “went to the heart of each applicant’s role and standing as a police officer” and led to the establishment of the Sofronoff inquiry, which in turn exposed them to further reputational harm.
Earlier this year the ACT government apologised to former Liberal minister Linda Reynolds and paid $90,000 in damages and legal costs over accusations by Mr Drumgold in the same letter that the senator had engaged in “disturbing conduct” that included political interference in the police investigation.
The Sofronoff inquiry found that suspicions Mr Drumgold formed during his early interactions with the investigators “predisposed him to see non-existent malignancy in benign interactions between the police and the defence at the trial”.
Mr Drumgold complained police were speaking with the defence at the trial during adjournments. However, it was not surprising police felt deep antipathy towards the DPP since the feeling was mutual, the Sofronoff inquiry found.
“Mr Drumgold did not seem to appreciate that mutual trust is a two-way street. It was he who, at the first opportunity, formed the baseless opinion that the investigators were improperly trying to thwart a prosecution.
“This inquiry has thoroughly examined the allegations in Mr Drumgold’s letter. Each allegation has been exposed to be baseless.”
Late in giving his evidence, Mr Drumgold “finally resiled from his scandalous allegations,” inquiry chair Walter Sofronoff noted. Mr Sofronoff said that “any official writing a letter of that kind would also know that copies of the letter would have to pass through many hands and that there was a real risk that it would be made public”.
“In fact, it was with the help of Mr Drumgold himself that the letter defaming others made its way into a newspaper.”
Mr Sofronoff found no police acted improperly: “The evidence before me showed that the investigators consistently acted in good faith and conducted a thorough investigation … Nobody suggested to me that the investigation was flawed in any way.”
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Also see my other blogs. Main ones below:
http://dissectleft.blogspot.com (DISSECTING LEFTISM -- daily)
http://antigreen.blogspot.com (GREENIE WATCH)
http://pcwatch.blogspot.com (POLITICAL CORRECTNESS WATCH)
http://edwatch.blogspot.com (EDUCATION WATCH)
http://snorphty.blogspot.com/ (TONGUE-TIED)
https://immigwatch.blogspot.com (IMMIGRATION WATCH)
https://awesternheart.blogspot.com (THE PSYCHOLOGIST)
http://jonjayray.com/blogall.html More blogs
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Evelyn Rae, a conservative Australian political commentator
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My son Joe at ANU
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