I might have preferred for the Government to take a risk with the surplus in 2012/13, and perhaps to have a go at middle-class welfare, but that would have been politically too hard. It has been seen as “an intellectual defeat” to the Coalition – but is it not a fact of life with the present minority government?
Instead, we have got a modest tax levy and many spending adjustments. The levy can be justified on several grounds:
(i) 60 per cent of workers will be exempt from the levy and most of the remainder will pay $1 or $2 per week;
(ii) it is quite possible that the Australian labour market will remain very tight, with shortages of workers forecast in Queensland and WA; wage pressures will add to high food prices, so the levy and spending cuts should thus reduce pressure on interest rates;
(iii) any further cuts i(to meet new disaster relief) will be met (we are told) by further cuts in spending, not by drawing on the levy;
What is the alternative to the levy – e.g. to slug a few rich and poor public servants? How is that fairer than hitting relatively high income earners?
small typo at point (i) the $! should be a $1.
They could improve their estimates/forecasts of disaster assistance payments in future budgets.
Fred,
You identified two possible alternatives in your first sentence but then ruled them out as “politically too hard”. The problem isn’t a lack of alternatives – it’s a lack of easy alternatives for a minority government that has lost its bottle.
Thanks chumpai. Done.
Paul
Could it be that …”a…. government that has lost its bottle” is more accurately described as “a government faced with the realities of a hostile senate, the constant need to gain the support of the independents, the constant and often idealogically driven attacks by hostile print and electronic media and an opposition that is particularly adept at simplistic, crass (but often effective) one-liners (like “stop the boats”)?
“Lost its bottle”? Possibly. However the simplistic “surplus good, deficit bad” meme as the fiscal equivalent of Orwell’s Animal Farm “four legs good, two legs bad” has taken hold of the mind of the average punter to an extent that far more effective communicators than Gillard or Swan (and even more so Rudd) would have enormous difficulty shifting it to an extent that maintaining a deficit in 2012-13 would be anything short of electoral suicide. That is even more the case given that the government doesn’t have a majority in either House of Parliament and faces an Opposition led by a thoroughly unprincipled Tony Abbott who loves nothing better than glib simplistic and grossly misleading phrases that the punters internalise and accept with little if any thought or analysis e.g. “great big new tax”, “waste, debt and deficit”.
Absent a Magic Pudding, any government has only three possible ways of funding extraordinary unforeseen expenditure such as that flowing from the Floods:
(1) cut spending;
(2) raise taxes (or less damagingly impose a modest, progressive, short-term hypothecated levy as Gillard has done);
(3) borrow and run a deficit for a bit longer than originally intended.
One can certainly argue, if one ignores the practical political factors outlined above, that reliance (wholly or in part) on option 3 would be preferable given that Australia’s debt levels are tiny by world standards and that we would be borrowing to rebuild productive public infrastructure which will return many times its cost in due course. However, in a democracy no government can afford to ignore the practical political realities if it wants to survive. Gillard has chosen a mix of options 1 and 2, which may well be sub-optimal in purely economic terms. However, in political terms the levy will be gone and forgotten long before the next federal election is due, while the fact that Gillard failed to deliver a budget surplus (if she had chosen option 3) would be front and centre of Abbott’s campaign.
In any event, the spending cuts are mostly on bullshit AGW measures (e.g. cash for clunkers) that should never have been promised in the first place. They were just meaningless window-dressing to give an impression of action on climate change in the absence of a carbon tax or emissions trading scheme. As for the levy, it’s tiny and won’t in fact cause any pain at all. I reckon Gillard made the right choices.
As for Windsor etc demanding a permanent natural disaster fund, he may have a point. But Gillard should be saying that this question is best addressed in the context of a wider tax review that has been promised. Such a fund might be created from part of the revenue for any carbon tax or ETS scheme, but can only really be meaningfully addressed in that context while considering compensation to consumers, business etc for adjustment measures. Addressing the flood damage is an immediate and pressing problem that just can’t be delayed until then. Hopefully even the inept salesmanship of the current mob will be sufficient to sell that message to the Independents and Greens. I cautiously expect/hope Gillard’s package to get through Parliament and thereafter become a non-issue once people fail to notice any difference in their paypackets.
Trev,
How about we compromise and describe it as “a government that, faced with the realities of a hostile senate, the constant need to gain the support of the independents, the constant and often idealogically driven attacks by hostile print and electronic media and an opposition that is particularly adept at simplistic, crass (but often effective) one-liners (like “stop the boats”), has lost its bottle.”
Well, yes Ken, but the frustrating thing is that no-one seems to be trying. What’s worse is that the public debate has degenerated into a tribal screaming match along the lines “you’d have to be a hard-hearted bastard to oppose the flood levy”.
As I noted here, I have immediate personal motivations for my opposition to the levy/cuts package. I’ve just applied for public housing and I was told by the woman at the Public Housing Office that it could take years before I’m offered a place. Not weeks, not months but years. In that context, I think it’s an absurd disgrace that the Federal government’s contribution to Queensland’s recovery from the floods is coming from cuts to the National Rental Affordability Scheme when there are programs – such as the first home buyer subsidy scheme and negative gearing – which contribute to making rents unaffordable that could and should have been cut first.
And while it’s personal interests that motivate me to make that argument, I’m not the only one affected by it (see Chris Middendorp at the National Times for more on that).
Paul
I agree that the cuts to the National Rental Affordability Scheme are the major unequivocally bad decision in Gillard’s package. It’s not only a betrayal of fundamental Labor values (presumably to appeal to the middle class and aspirational marginal seat voters) but bad policy in itself. With rents at prohibitive levels through much of Australia, lots of workers and families are simply being priced out of any reasonable housing.
I was on a radio panel program this morning with Vicki O’Halloran, CEO of Sommerville Community Services and was talking to her about the affordable housing cuts before the show. She reckons the phenomenon of the working poor is a very real one in Darwin. Many families with both parents working and earning a combined income around $70,000 are coming in needing social welfare assistance because the combination of rent and high general cost of living in Darwin means they just can’t make ends meet. I’m sure Gillard/Swan could have found more middle class hollow log expenditure areas to cut instead of rental assistance and other affordable housing measures for low income earners. The baby bonus is one middle class welfare measure that springs readily to mind.
Bad policy mostly born of a refusal to acknowledge that what we have in this country isn’t a “housing affordability crisis” but a classic Eco 101 example of a housing shortage created by market failure. But that’s wandering too far off-topic.
Paul @7 – It’s probably worth taking a closer look at what’s happening with the National Rental Affordability Scheme (NRAS) before you get too excited. If it wasn’t going to get past 35,000 dwellings by 2013-14 then the govt has identified an underspend rather than made a cut.
NRAS offers “financial incentives to the business sector and community organisations to build and rent dwellings to low and moderate income households at 20 per cent below-market rates for 10 years.” Government can’t spend the money they’ve budgeted for unless somebody takes up the incentives and builds the houses.
According to the recent announcement:
In July last year the Australian’s Nicola Berkovic reported:
Paul
Probably a fair compromise. If it’s of any solace there are many many of us who feel totally alienated by the changes wrought in our country over the past 20 years or so, no matter the political persuasion of the government. Cuts to the Rental Affordability Scheme would be but the latest manifestation.
I read a Peter Martin blog a few weeks ago that claimed that our national public infrastructure deficit is of the order of $600 billion dollars, which puts the current obsession over government debt in some sort of perspective. As it does with the oft-lauded record of the Howard government.
Ken, I don’t know why you’re speaking disparagingly about the national obsession with balancing budgets. It’s a damn good thing except where it isn’t. It isn’t good – or has downsides when either
1) it leads governments not to invest in infrastructure that’s justified because it would increase their borrowing. That’s what borrowing is for.
2) it prevents countercyclical action in sufficiently severe downturns.
Here the obsession is a very good thing, leading the pollies to have the right debate which is “if we want to rebuild, the resources that will have to go into rebuilding will require us to sacrifice some current consumption. What will it be?”
More generally – I find it intriguing that the government does the street theatre of progressive taxation on one off things like this, but is far less committed to progressive taxation more generally – having watered it down for decades as a matter of ‘efficiency’.
“What’s worse is that the public debate has degenerated into a tribal screaming match”
This isn’t surprising — when was the last time you heard something intelligent and explained well that came out of either Gillard’s or Abbott’s mouth? Gillard’s tactic seems to be the reverse of Rudd, which is to not explain anything at all (apart from saying it is a good idea), and Abbott just says anything, since that appears to be a winning political strategy for him (although it will no doubt come back and haunt him once/if the Libs win next election — I’m sure he’ll have fun trying to balance the budget every year if, say, China slows down). So if all you have is valueless statements, then what other type of debate could you have?
Nicholas – Your comment about borrowing to invest in infrastructure reminds me of your proposal for independent fiscal policy.
I wonder if one of the reasons political parties have adopted the balanced budget norm is the widespread fear that if governments are allowed to borrow for infrastructure they will use it to secure political rather than economic outcomes. Nobody trusts cost-benefit analyses by the public service or consultants hired by the public service.
So in an effort to signal that projects are economically justified, governments turn to things like PPPs where private sector investors must put capital at risk. This signaling is expensive.
Would it make sense to have an independent authority whose job was to scrutinise infrastructure projects?
I welcome all comments. It is nice to see such positive responses.
As Ken says, government had 3 options: run up debt; cut spending; or raise one third in taxes.
I reject “cut spending” because it has a potentially worse macro-economic outcome and may be bad for equity.
I discourage the “run up debt” option because it is political suicide and could be dangerous (if it raises interest rates and Gillard are later blamed for it).
This leaves me with the innocuous option of raising one-third in taxes. As Ken says, Gillard has probably “made the right choices”.
Nicholas, you raise some important long range issues by suggesting that borrowing is good when it leads to justified infrastructure and prevents counter-cyclical action. Ideally I agree with both propositions but is it too late? I suspect the macro-economic responsibility may have slipped away and Gillard now says “we must pay for ourselves” (presumably because of fear of short term inflation and poor management). So she is giving up!
Nicholas
I said that the “surplus good, deficit bad” meme was “simplistic” not wrong. That isn’t disparaging the aim to balance budgets, just pointing out that there’s more to good fiscal management. Moreover, later in my comment I explained what I meant by observing that there were types of spending that might justify prolonging debt and deficit, especially when Australia’s debt is so tiny anyway e.g. “borrowing to rebuild productive public infrastructure which will return many times its cost in due course”. Perhaps I could have explained my point at greater length, but I don’t really see how my comment could reasonably have been interpreted as “speaking disparagingly about the national obsession with balancing budgets”.
Given the budget is always in conditions 1) & 2) as given by Nicholas – it’s never a good thing to balance the budget. I thought he was being facetious but given Ken’s response (both Club Troppo veterans) I’m not so sure.
I should add Rob Oakeshott has floated the possibility of Infrastructure Bonds for a discussion rather than the levy.
conrad @13,
I don’t think either Abbott or Gillard should be held entirely responsible for the tribalism stuff: the tribalism originates elsewhere in news reporting and the blogosphere. Abbott is a willing collaborator with the right-wing commentariat. Gillard you might, grudgingly, consider a hostage to them.
the right debate .. is “if we want to rebuild, the resources that will have to go into rebuilding will require us to sacrifice some current [my emphasis] consumption. What will it be?” – Nicholas @12
But are you sure that’s the right debate? Surely as long-lived infrastructure it should be paid for from future consumption. It’s tomorrow’s taxppayers, not today’s, who primarily benefit from it. That’s the nub of the argument here.
Well… article #1 from Tony Abbott:
I can’t help feeling that having someone tell you to donate with a gun at your head doesn’t feel like real charity. There’s no doubt billions of very deserving people in this world, I just don’t feel comfortable with the idea of Julia Gillard deciding who they are on my behalf.
But on the subject of infrastructure in Queensland, let’s just take a little moment to think about how we got here. Back in 1974 there was a big flood in Brisbane, which was no great surprise because there had been big floods roughly every 35 years going back to the 1800’s and no doubt the Aboriginals had seen them for thousands of years before that. The cycle of roughly every 35 years is commonly named Bruckner’s Cycle after E Bruckner who documented it in 1890 but some argue that Sir Francis Bacon observed a 35 year climate cycle as far back as 1625. Climatologists use a 30 year sample period precisely for the purpose of averaging out this cycle.
So in 1974 the people of Brisbane fully expected another flood and the government of the day decided to heroically step in with plans for Wivenhoe Dam and the BOM in Canberra even made a report about the flood and about the potential for Wivenhoe to prevent floods.
http://www.bom.gov.au/hydro/flood/qld/fld_reports/brisbane_jan1974.pdf
Sure enough, the BOM in 1974 predicted exactly what did happen. How about that. They retained the water for too long and the dam became virtually useless for further flood mitigation.
Stranger still, although Wivenhoe Dam was very much intended as primarily flood mitigation when it was designed and built, if you go to the official website now you get a completely different story.
http://www.seqwater.com.au/public/catch-store-treat/dams/wivenhoe-dam
And strangest of all is that despite Wivenhoe not being intended primarily for flood mitigation, and despite the additional Wolfdene Dam never actually getting built (although it was on the plan back in 1974), Queenslanders were encouraged to give up their “Queenslander” style of house (up on stilts to ride out a flood), in favour of a flood-susceptible concrete slab bungalow. Who would come up with such a crazy idea? Isn’t that exactly what government *should* be doing, giving the best advice and overall coordination and guidance?
Instead of giving any good advice, what they do is hide things. Like the way the Wivenhoe operations manual has been half blacked out to ensure no one reads the all-important tables of how much water should be released under what conditions. Anna Bligh seems to believe those are design diagrams, far too security sensitive to be released to the public — but since she forgot to black out the table of contents, I doubt anyone will believe her come next state election.
So in my mind, the obvious alternative to the levy would be good governance and good management. Where we find such things is anyone’s guess.
Contrary to my general principles on these matters (opposed to progressive taxation, big government etc) I think there is too much political and ideological posturing in the criticism of the levy.
Big money has to be spent, all the options are second best (the best options were all preventive with the 20/20 vision of hindsight) but nobody is going to go broke as a result of the levy.
Unfortunately for Gillard Labor, the levy comes in the context of so much wasteful spending by Rudd Labor, as well as a final admission much of the ‘Green’ programs initiated or mooted to date are really more of the same. Inheriting a strong balance sheet and ongoing surplus, Labor had the opportunity to respond to the GFC by using that as temporary stimulus, but instead acted like kids in a lolly shop and hence their deeper political problem now. They’re simply seen as incompetent wastrels that want to max out the nation’s credit card, albeit with the inevitable tax hangover to follow for us all. The flood levy rings the alarm bells on that and needs no spruiking from the Opposition to gain traction now. A tight majority just exacerbates their predicament.
Overall my conclusion is that Labor was really and L-Plate Govt that after a long period in Opposition, needed to be acutely aware of the dangers of unleashing all the usual suspects with their pent up claims on the public purse, particularly their rent-seekers and middle class welfarists. They didn’t do that and are paying the penalty for it now. This is certainly no Govt of the calibre of the Hawke Keating era and that’s increasingly apparent to the electorate. Simply put, unlimited wants, limited means to satisfy them all and that’s their hard yards now.
In fairness to the concept of the levy, this hits the current generation instead of taking the Bush/Obama road of running the national debt up to the skies and leaving it to the children and grandchildren.
What about the general principle of responsibility for one’s actions? Here we are handing more money to the same people who failed the first time round. Every time we reward failure, we merely entrench the system of failure.
Sure there’s an enquiry in the works, a closed-door self-assessment with the predictable result that no one could possibly be to blame. We know the outcome of these enquiries because they always deliver the same outcome. That will quietly tick over in the background, deliver a report and everyone is supposed to just sit home happy, none the wiser about what actually happened.
If I saw a genuine public enquiry with full disclosure and some sense of accountability suggesting that people in positions of responsibility really got held responsible for what they delivered, and a sense of genuine quality improvement then I’d be comfortable paying for that.
More importantly, the political backlash of financial hardship can’t be swept under the carpet for someone else to deal with. Mistakes were made, and these kind of mistakes hurt. It’s very important for the learning process that the hurtiness is brought as close to the mistake formation as possible (both in time and in space).
Yes I didn’t want to say too many things at once, but the next thing was to say that people who deliberately place themselves in danger should be prepared to wear the consequences. Still there are degrees of culpability.
Imagine the ongoing dramas over this flood damage. eg a household was planning an interstate career move. Dad had taken up the new job while mum is readying their home for sale and then… Worse still, a contract for sale has been signed with a settlement date agreed and then.. Both vendor and purchaser(who customarily took out insurance cover upon contract signing) now find neither policy covers rising water as per usual. Sorry folks, that was special risk and you didn’t ask us about that. Meanwhile all current home sellers above the flood line are loudly advertising that fact to prospective purchasers. We haven’t heard the last of all these sob stories.
As my last scenario shows, there’s an overaching theme to all this when you consider true public compensation for all things that go bump in the night is fiscally impossible, if we are not to wear some huge tradeoffs. It’s also extremely arbitrary and really relies on the divine whims of elected kings with our wallets, thereby encouraging moral hazard.
Take the loss of life and physical injury with this flood. Truth is it’s most likely matched or exceeded by the road toll during the same period and yet no special measures or levy is being proposed for those victims. There’s no level playing field here, just like losing your small business/employment to larger competitors, yet if a Mitsubishi falls over, out comes Bert Kellys cow with our dough. Same with victims of crime levies. Sounds good in theory but inevitably the howls arise over the inadequacy of such payments for serious victims.
We all need to understand the proper role of Govt and our politicians in such circumstances(ie in a private property/enterprise system) The proper role for Govt is the immediate rescue and safety of the citizenry in the face of calamity or disaster and then the repair and replacement of public infrastructure only. The rest is left to the individual players and their pre-existing choices and concomitant consequences. If insufficient there is always the level playing field Social security system to fall back on. To the extent that we arbitrarily roll out Bert Kelly’s cow for concentrated tragedy or things that go BIG bump in the night, that lessens the capacity of the underlying social safety net. We all need to appreciate that fundamental axiom of good Govt cf private charity and assistance.
It might be worth discussing how it was a classic Eco 101 example of market failure, if there weren’t, you know, conflating factors. Such as zoning laws, land release policies, negative gearing, subsidies for property purchases …
In Labor’s defence, it is a good idea.
Paul;
Tribalism is as old as … well … tribes. It’s part of human nature to be one-eyed supporters of your own mob.
???
Expensive housing in Australia is “market failure”!!!
Amazing. Please check out the entire raft of taxes on housing, plus the decline in investment in NSW since the developer’s levy was upped in 2003.
If spending in Queensland is truly worthwhile, it is simply a matter of prioritising and then giving across the board cuts where it isn’t necessary.
Where is the QLD budget in this discussion? How much fat they THEY have? A decade plus is a long time to be in Government.
What about people who are misled and told that they are not in danger? They are not completely innocent because they could go and check for themselves, however the people doing the misleading were considered officials and experts at the time and it really is not possible for every citizen to check and re-check every official statement.
Councils are given considerable power over people’s lives in terms of planning approvals with insane minutiae about exactly what sort of fence you can have how big your awnings can be, on and on. This power is wielded without a shred of responsibility and whatever goes wrong they just throw hands in air and say, “More funding!”
In the case of the Victorian bushfires, homeowners were actively thwarted from clearing the trees next to their houses — the very trees that ultimately brought doom on their heads. The volunteers of the Rural Fire Service were forced to be answerable to all sorts of procedural desk jockeys 100 miles away from the areas of concern and thus prevented from hazard reduction burning (the old “wait for the perfect day” trick, but the perfect day never comes). The RFS volunteers are the same people who know their backsides are going to get cooked should a disaster happen. The decision-makers are sitting in a no risk situation, even after an enquiry the public never got access to key details like documented decisions, who made them, where and why. There never will be an open government for this very reason — too bloody risky for the people in charge. You can forget your Government 2.0 pipe dream, all the technology is in place, none of the willpower.
I don’t see how we can ever achieve good governance with our current methodology. We really desperately need a mechanism to reunite cause and effect.
Government distribution of charitable goodwill is far from arbitrary. They are in the business of vote buying so they will work hard to get the most voter return for their buck (errr your buck). High profile media events are a prime candidate, marginal voters who could easily swing are always in consideration, shoring up political allegiances (such as those pesky balance of power independents) is only good sense. Ever since America’s Mayor stood proudly at “ground zero” talking tough to reporters while the workers behind him stuffed their lungs with Asbestos dust, the world of power has understood with crystal clarity that image trumps deliverables — ergo ignore deliverables.
Car accidents are easily solved, we just lower speed limits, introduce some additional revenue raising efforts and dump random concrete crap into the middle of a few more roads (all anonymously of course so no one knows who to get cranky at). The purpose of transport is not to actually move from A to B or anything, you know that don’t you?
Bicycle accidents are easily solved too, simply force everyone to wear inconvenient helmets and create cycle paths down the side of roads where people can park their cars. With these measures in place, a lot less people get interested in cycling so there are less cycle accidents — case closed!
Don’t worry, Tel, you will be reassured to know that those very same local councils are still making life difficult for people trying to rebuild.