Showing posts with label economics. Show all posts
Showing posts with label economics. Show all posts

Friday, 13 July 2018

How Trump's corporate tax cuts played out in the US economy, 10 July 2018:

Evidence is now emerging of just how extraordinarily wasteful Donald Trump's trillion-dollar corporate tax cut has been as the results -- or lack thereof -- filter into the real US economy.

It's now well-established that the bulk of the tax cuts have gone into record-breaking share buybacks and increased dividends by US companies, with hundreds of billions of dollars flowing or set to flow back to investors. But not a lot of the rest is flowing into extra investment -- the raison d'etre of company tax cuts. New investment data shows US equipment investment fell in the first quarter of the year compared to the final quarter of 2017. How about wages, which are supposed to increase due to company tax cuts (at least according to Mathias Cormann)? In June, monthly wage growth in the US fell to 0.2% from 0.3% in March, lower than expected and leaving wage growth at 2.7% for the 2017-18 year. Inflation in the US was 2.8% for the year to May, suggesting US workers are actually going backwards after inflation.

US unemployment is at 4% (up a tad) — far below our own level of 5.5%. Like the Kiwis, the Americans can’t get wages to grow even with full employment — or even with tax cuts that have massively inflated the US deficit at a time of peak employment.

The fact that Trump and his GOP cronies have pushed the US budget deficit toward $1 trillion a year (remember when the Republicans were the party of fiscal restraint?) at a time of such strong employment also has implications for the stimulatory effect of such largesse. New research from the San Francisco Federal Reserve shows that fiscal stimulus is significantly weaker at times of expansion than during recessions, and that the Republican tax cuts will not meet what the paper terms the “overly optimistic” expectations of boosters. Instead of the boost to US GDP growth this year of about 1.3 percentage points estimated by the Congressional Budget Office and other forecasters, they write, “the true boost is more likely to be less than 1 percentage point,” with some studies pointing to as little as zero.....  

Read the full article here.

Sunday, 11 February 2018

In the same week Wall Street was finally spooked by the sheer weight of Donald Trump's inadequacies as the 45th US President.....

.....and the Dow Jones Index indicated that financiers and big business might be seriously worried about possibly higher than expected interest ratesrising national debt and the size of the US federal budget deficit Trump created in his first twelve months in office - he also rather unwisely performed in front of the cameras on the subject of treason.

YouTube, Time, 5 February 2018:

CNN, 5 February 2018:

 (CNN)President Donald Trump wasn't -- and, apparently, still isn't -- happy that Democrats in Congress didn't stand to applaud him in his State of the Union address last week.

"They were like death and un-American. Un-American. Somebody said, 'treasonous.' I mean, Yeah, I guess why not? Can we call that treason? Why not? I mean they certainly didn't seem to love our country that much."

So, here we are. Again.

Let's quickly define "treason," shall we?

"The offense of attempting by overt acts to overthrow the government of the state to which the offender owes allegiance or to kill or personally injure the sovereign or the sovereign's family."

Trump loyalists will dismiss all of this as much ado over nothing. He was joking! He didn't even say that it was treasonous! He was just agreeing with people who said it was treasonous!

Fine. Also, wrong. And missing the point in a major way.

The point? It's this: Not standing during applause lines for the State of the Union isn't treasonous or un-American. Not even close.

If it was, all of the Republicans in that chamber are treasonous and un-American as well because when former President Barack Obama would tout his accomplishments in office -- as Trump was doing last Tuesday night -- lots and lots of Republican legislators would sit on their hands while the Democratic side of the aisle erupted in cheers. And so on and so forth for every president before him (and after).

The Washington Post, 6 February 2018:

This isn’t the first time Trump has used the T-word as president. Just last month, he accused FBI agent Peter Strzok of treason for sending negative text messages about him during the 2016 election to a lawyer at the FBI who he was having an affair with. “By the way, that’s a treasonous act,” the president told the Wall Street Journal. “What he tweeted to his lover is a treasonous act.”

Thursday, 1 February 2018

A warning about tax cuts

Something for an Australian Coalition Government  to ponder, as it slavishly adopts the political blunders of the current US Republican Government.

The Guardian, 27 January 2018:
Donald Trump's huge tax cuts are a threat to the stability of the global economy, the managing director of the International Monetary Fund has warned.
Christine Lagarde singled out Trump's tax reforms as one of three risks that could destabilise the current economic recovery, especially given the boom in stock markets in the past year.
"While the US tax reforms certainly will have positive effects in the short term, for the US and other countries around, it might also lead to serious risks," Lagarde told the World Economic Forum in Davos.
 "That has an impact on financial vulnerability, particularly given the high asset prices that we see around the world, and the easy financing that it still available," she added.
She was speaking shortly after the US president told Davos that his tax reforms had created "a big, beautiful waterfall" of pay rises for US workers, as American companies passed the tax cut on.
However, the IMF is concerned that cutting taxes will lead to a bigger US budget deficit, and that extra borrowing by the US Treasury will force up long-term American interest rates. As a result, it fears growth could be choked off in the longer term, making the stock market vulnerable to a sudden downward lurch.
Lagarde cautioned against people becoming too complacent about the pick-up in global growth reported by the IMF at the start of the WEF's annual meeting. The IMF raised its forecasts for global expansion to 3.9% this year and in 2019, reporting that all major economies – the US, the eurozone and Japan – are doing better.
 "I don't think that we've completed the job," said Lagarde, who fears that the growing economic inequality in many countries is creating "fractures".
"Having growth is good, improving productive is good, but [policymakers should] make sure that the results of that growth are properly allocated," said the IMF chief, adding that inequality is growing in many advanced economies, and very high in emerging markets.
In addition to financial instability and inequality, Lagarde said a third risk was the lack of international cooperation and the geopolitical risks that could be created as a result.

Thursday, 14 December 2017

Effect of proposed company tax cuts according to Australian Prime Minister Malcom Bligh Turnbull - "All boats will rise"

As households across the country began the count down to the holiday season, Australian Prime Minister Malcolm Bligh Turnbull smugly informed an ABC interviewer that as a result of a proposed cut in the company tax rate* everyone’s income will increase – “All boats will rise”.

This is another way of referring to that now legendary faux economic theory popular with right-wing politicians – the Trickle Down Effect.

This assertion is tested in an Australian Treasury working paper ANALYSIS OF THE LONG TERM EFFECTS OF A COMPANY TAX CUT (May 2016) which modelled a tax cut reducing company tax from 30 per cent to 25 per cent – presumably implemented over the 10 years to 2026-27 proposed by government.

Yes, this working paper estimates that for “a static representative household” “calibrated to match the expenditure, income patterns, and taxes faced by aggregate Australian households” real wages will rise if all other factors in the economy remain unchanged.

So it seems that Turnbull's claim is genuine - or is it?

What Turnbull fails to say is that this “real” wage rise will probably be a paltry est. 1.0-1.1% in total, will take at least 20 years to achieve and will only come about if the average individual also works longer hours.

Based on ABS May 2017 All Employees Average Weekly Total Earnings and an optimistically estimated average annual wages growth of 1.9 per cent; at the end of those 20 years an average worker will have received a total wage increase of est. $851 to $929. Spread out over those 20 years that works out to between 81-89 cents a week extra in his/her pay packet as a direct result of the Turnbull Government’s company tax cut.

Because in real life these company tax cuts are staged and, each stage would have a lag time, no-one is going to see 81-89 cents in their pay packets anytime soon. Indeed a great many people will probably never see this meagre increase at all as the real wages of many low-skilled workers haven't increased alongside higher-skilled workers for the last seven years and there is no indication as to if or when this trend will end.

Over this same twenty-year time period any increase in company income as a result of a 5 per cent cut in the company tax rate would result in millions to one billion plus being added to the bottom lines of a significant number of medium to large corporations. With such savings being just as likely to be diverted into bonuses paid to senior management or paid as dividends to shareholders as they are to being reinvested in a business.

Once more proving that tax cuts for industry, business and those individuals wealthy enough to incorporate their landholdings/investments, have what is essentially a neutral outcome for rest of the population.

Company tax cuts will hardly stir the water beneath those metaphorical boats belonging to ordinary workers.

Therefore this classic illustrative meme still stands under the Turnbull Coalition Government:

Something to remember when it comes time to vote in the next federal election.

Wednesday, 4 October 2017

More evidence that the far-right in politics and industry are determined to drive working class Australians into generational poverty?

Wage fraud, wage freezes, cuts to penalty rates and companies scrapping enterprise agreements will reduce the retirement savings of millions of workers by $100 billion by the time they retire, a report has found.

The report, the Consequences of Wage Suppression for Australia's Superannuation System by the Australia Institute's Centre for Future Work, says the government will pick up more than one third of the cost, equivalent to $37 billion in lost taxes due to lower super contributions and higher age pension payouts.

It estimates that three million people, or one in four workers, have experienced some form of wage suppression, which will adversely impact their super payout.

The author of the report, Jim Stanford, describes wage suppression as an economic "time bomb". He says while individual families are grappling with the immediate impact of wage cuts, the long-term impact when they retire is yet to play out.


Centre for Future Work at the Australia Institute, Jim Stanford, Ph.D., The Consequences of Wage Suppression for Australia’s Superannuation System, September 2017, excerpt from Summary:

Wages and salaries in Australia’s labour market are exhibiting their weakest growth in the history of the relevant statistics. Hourly wages are growing at less than 2 percent per year, and real wages (adjusted for consumer price inflation) are stagnant or falling. The unprecedented stagnation of wages reflects many factors, including chronic weakness in labour demand and the erosion of traditional wage-setting institutions (such as minimum wages and collective bargaining). But it also reflects, for millions of Australian workers, the aggressive efforts by employers (both private- and public- sector) to deliberately suppress wages below normal levels. These wage-suppression strategies take many forms: from the imposition of temporary wage freezes, to the unilateral termination of enterprise agreements, to the outright theft of wages through below-minimum payments. These pro-active measures to suppress labour incomes, breaking the normal link between labour incomes and labour productivity (which continues to grow at over 1 percent per year1), impose great harm on affected workers, their families, government budgets, and Australia’s macroeconomic performance.
There is another important consequence of these wage suppression strategies that is often not sufficiently understood by workers, employers, policy-makers and regulators: their flow-through impact on Australia’s retirement income system. When workers’ wages are unduly suppressed, then the normal flow of employer contributions into their superannuation accounts is also constrained. They will have smaller superannuation balances when they retire, and will consequently experience a lasting reduction in post-retirement incomes. Moreover, governments will share a significant portion of the resulting damage: they will collect less in taxes on superannuation contributions and investment income, and will pay out more in means-tested Age Pension benefits (since workers’ superannuation incomes will be smaller). These significant, lasting consequences from wage-suppression strategies should be documented and considered. They provide a powerful motive for all stakeholders to challenge employers’ wage-cutting initiatives. They also should be of direct concern to superannuation trustees and administrators – since the capacity of the superannuation capacity of the superannuation system to provide decent, secure retirement incomes for its members is being undermined by this growing pattern of wage suppression.
This report presents results from several quantitative simulations of the impact of wage suppression on superannuation entitlements of affected workers, their long-run retirement incomes, and corresponding fiscal effects on government. The report considers several specific scenarios, corresponding to different instances of pro-active wage suppression strategies that have been experienced by Australian workers in recent years. It traces through the impact of those policies on workers’ wages, superannuation accumulations, and retirement incomes. The simulations also describe the spill-over impacts on government (arising from reduced taxes collected on superannuation contributions and investment income, and increased Age Pension payouts). The simulations confirm that:
* Wage suppression undermines superannuation accumulations by automatically reducing employer contributions. Moreover, the damage is compounded over time due to the subsequent loss of investment income.
* Even temporary wage restraint measures (like temporary wage freezes) have lasting negative impacts on superannuation balances, by altering the trajectory of a worker’s wages for the rest of their career.
* The most dramatic instances of wage suppression – the termination of enterprise agreements by employers, and resulting large wage reductions as workers are placed back on minimum award conditions – can reduce the superannuation balance of a retiring worker by as much as $270,000.
* More modest wage suppressing policies (such as temporary nominal wage freezes, producing real wage reductions that are then sustained through a worker’s remaining years of service) reduce retirement superannuation balances by $30,000 or more.
* Government bears a share of the resulting losses, through both reduced tax collections before affected workers retire, and increased Age Pension payouts after they retire. In the worst-case scenarios, governments can experience fiscal losses of over $50,000 per worker (in real 2017 dollar terms).
* Millions of Australians have been confronted with one or more of these forms of wage suppression from their employers, so the aggregate impacts across the economy are enormous. Based on plausible estimates of the number of workers confronted with each form of wage suppression, the aggregate loss of superannuation balances on retirement (if the pattern of wage suppression is maintained) could ultimately exceed $100 billion (in real 2017 dollars) by the time affected workers retire, and the aggregate fiscal cost to government could reach $37 billion (in real 2017 dollars)………..
1 A recent Department of Finance research paper on productivity trends confirms that labour productivity continues to grow at typical historical rates – advancing at an annual average rate of 1.8 percent over the last five years alone. See Simon Campbell and Harry Withers, “Australian Productivity Trends and the Effect of Structural Change, “ August 28 2017, PublicationsAndMedia/Publications/2017/ Australian-productivity-trends-and-the-effect-of-structuralchange


Monday, 11 September 2017

No sign of an increase in employees' share of Australian economic growth

Financial Review, 6 September 2017:

Wage growth is showing no sign of the increases the Reserve Bank of Australia is banking on, with average employee compensation going backwards and hourly pay growth at record lows.

The economy's overall wages bill rose a modest 0.7 per cent in the June quarter and 2.1 per cent for the year, according to the latest national accounts figures, but fell per non-farm employee by 0.3 per cent on a quarterly and annual basis.

The data, released by the Australian Bureau of Statistics on Wednesday, suggests that while more people are getting into work, with 240,000 jobs created over the year, the jobs are also lower paid on average.

Capital Economics chief economist Paul Dales said the wage figures were even worse when broken down to average employee compensation per hour.

Annual growth in compensation per hour fell over the June quarter from 1.1 per cent to negative 0.3 per cent, the weakest growth in almost 25 years.

While the hourly figures are volatile, the Reserve Bank last year cited strong compensation growth per hour as a cause for optimism in the face of persistent low wage growth.

Mr Dales said that "there is no evidence whatsoever that wage growth has started to rise as the RBA expects".

Professional and technical services, covering engineers and IT workers, as well as health care drove the overall growth in the nation's wages bill.

History of monetary compensation for number of hours worked - 1985 to 2015

Saturday, 19 August 2017

Quotes of the Week

“I am the world’s greatest person”
[US President Donald J. Trump28 January 2017]

“Common sense tells you that when you have an industry that pays less than others, employs more young people than others, and has a much higher level of underemployment than others, it is not really in need of policy that will have 10,000 young people working for less than the minimum wage and for which the employer will not only not have to pay them, but will be given $1,000 from the government.”  [Greg Jericho writing in The Guardian, 6 August 2017]

“That the era of deregulation is exhausted should no longer be an issue. Free market fundamentalists rebounded from the global financial crisis with a remarkable ease, treating it like a mere flesh wound. But almost a decade later, the game is up. The twin business strategies of suppressing wages and side-stepping taxation obligations to benefit those at the top of the wealth distribution curve is no longer acceptable. The economic and political damage is too great. The other 90% are joining the dots. They are many and they are angry.” [Lawyer Josh Bornstein writing in The Guardian, 27 July 2017]

Saturday, 5 August 2017

Quotes of the Week

“These days, it's not just leftie troublemakers who doubt that benefits going direct to big business will trickle down to the rest of us, it's every punter in the street.”  [Economics Editor at The Sydney Morning Herald, Ross Gittins, 24 July 2017]

“Six months into his presidency, Donald Trump is saddled with a stalled agenda, a West Wing that resembles a viper’s nest, a pile of investigations and a Republican Party that is starting to break away.”  [Journalists Julie Pace and Jonathan Lemire writing in The Washington Post, 29 July 2017]

“This White House is broken, perhaps beyond repair. It can’t do anything right. It can’t issue executive orders that are enforceable. It can’t pass legislation. It can’t prioritize the president’s agenda. It can’t get anybody on the same page. In a normal White House, all of those things flow from an empowered White House chief of staff who can execute the president’s agenda and most importantly tell him what he does not want to hear. And none of that is happening.”  [Author Chris Whipple quoted in The Washington Post, 31 July 2017]

“Yeah. He’s like a conveyor belt for bad overseas ideas.” [Journalist Richard Chirgwin tweeting about Australian Prime Minster Malcolm Turnbull on 2 August 2017]

“By August 2 2017, we will have used more from Nature than our planet can renew in the whole year…..This means that in seven months, we emitted more carbon than the oceans and forests can absorb in a year, we caught more fish, felled more trees, harvested more, and consumed more water than the Earth was able to produce in the same period.” [World Wildlife Fund quoted in the Independent on 2 August 2017]

Sunday, 21 May 2017

Trumponomics and media in the United States of Dystopia

"President Trump spoke with @TheEconomist about Trumponomics and every answer is bananas
[Professor of Economics and Public Policy at the University of Michigan Justin Wolfers on Twitter, 11 May 2017]

Who thought that Anthony John Abbott when he was Australian prime minister was the most ill-intentioned, ignorant  and embarrassing leader of a nation to have ever existed to date in the developed world during the 21st century?

Well he now pales in comparison with Donald John Trump (pictured above).

Excerpts from the transcript of The Economist interview with the U.S. President on 4 May 2017:

Another part of your overall plan, the tax reform plan. Is it OK if that tax plan increases the deficit? Ronald Reagan’s tax reform didn’t.
[President Trump] Well, it actually did. But, but it’s called priming the pump. You know, if you don’t do that, you’re never going to bring your taxes down. Now, if we get the health-care [bill through Congress], this is why, you know a lot of people said, “Why isn’t he going with taxes first, that’s his wheelhouse?” Well, hey look, I convinced many people over the last two weeks, believe me, many Congressmen, to go with it. And they’re great people, but one of the great things about getting health care is that we will be saving, I mean anywhere from $400bn to $900bn.

That all goes into tax reduction. Tremendous savings.

But beyond that it’s OK if the tax plan increases the deficit?
It is OK, because it won’t increase it for long. You may have two years where you’ll… you understand the expression “prime the pump”?

We have to prime the pump.

It’s very Keynesian.
We’re the highest-taxed nation in the world. Have you heard that expression before, for this particular type of an event?

Priming the pump?
Yeah, have you heard it?

Have you heard that expression used before? Because I haven’t heard it. I mean, I just… I came up with it a couple of days ago and I thought it was good. It’s what you have to do.

Yeah, what you have to do is you have to put something in before you can get something out.

So you would have a bigger deficit, a stimulus, to prime the pump that would lead to faster growth?
So I happen to think that 3% is low. But you can’t do it if your companies are leaving the country because taxes are too high. Now, I’m going to do something there too. If our companies leave the country, number one they’re leaving for numerous reasons but one of the big reasons is the taxes are so high. When they leave—go back to trade for a second, when they leave the country, go to a certain country wherever it may be, and they fire all their workers in the United States and on the assumption they build cars or air conditioners or whatever they’re building, and they open a plant someplace else and then they send the air conditioner or the car into our country with no tax, that’s not going to happen anymore. They’re going to have a very large tax to pay, in the vicinity of 35%.
Now when you do that, number one they're not leaving the country anyway. So we’re not leaving. I don’t know if you saw what’s happening. Ford has announced massive expansions in the United States. General Motors cancelled a big plant in Mexico and a big plant in Europe. They’re all cancelling plans because I told them, I said… I get along with them great. But I said, “Look, we don’t mind if you leave the country. You can build all you want out of country, I hope you enjoy your plant. But when you build your car, you’re going to have a 35% tax when you bring it back in. And if your numbers work, we wish you well. But that’s what you’re going to have. You’re going to have a 35% tax.”
So I mean, I have, it has, I haven’t been given massive credit for it yet, but I have been given some because I just see polls out in Michigan and different places, that really are affected by this, have been unbelievable, you know, much bigger than election day. But that’s not a tax increase, that’s no tax. In other words, all you have to do is don’t leave and you won’t have a… but we’re bringing our taxes down so low that you won’t even need the barrier because the taxes are so low, that people are going to stay.
The other thing, just in case we… I believe it could be anywhere from $4trn to $5trn outside, you know don’t forget we’ve been talking about $2.5trn for four years now. I’ve been using $2.5trn, the same number we’ve all been using for years. Well, you know, it grows. I think it… I wouldn’t be surprised if it was $5trn but, you know, we’re close. We’re letting that money come back in. And that has two barriers which you have to watch. It’s got a barrier of the tax, which we will take care of. We’re going to make it 10%. Now it’s 35%...

Sorry, 10%? The repatriation taxes?
The repatriation. Inversion. The corporate inversions, which is a disaster, with the companies leaving. But they want to bring back their money. Number one, the tax is too high but the other thing that’s too high is the bureaucracy.

I have a friend who said even if you wanted to bring it back in you can’t because you have to go through so many papers, so many documents, so many…

You have to do… Steve, they told me you’ve got to sign books and books of stuff, you pay millions of dollars in legal fees and they almost don’t allow you to bring it back in.

Can I ask you a question about the politics of tax?
It should be like one page.

Excerpts from the transcript of a Time interview with President Trump, published 11 May 2017:
For instance I don’t watch CNN. I don’t watch MSNBC. Scarborough used to treat me great. But because I don’t do interviews and stuff and want to … He went the other way. Which is fine. He’s got some problems. But I don’t watch the show anymore. It drives him crazy. I don’t watch the show.
I do watch Fox in the morning, and their ratings have gone through the roof because everyone knows I’m watching Fox. But they’re pleasant. And if I do something wrong they report on it. I don’t mean they – if I do something wrong. But it’s really, honestly it’s the most accurate.
CNN in the morning, Chris Cuomo, he’s sitting there like a chained lunatic. He’s like a boiler ready to explode, the level of hatred. And the entire, you know the entire CNN platform is that way. This Don Lemon who’s perhaps the dumbest person in broadcasting, Don Lemon at night it’s like – sometimes they’ll have a guest who by mistake will say something good. And they’ll start screaming, we’re going to commercial. They cut him off. Remember?
I’ve seen things where by mistake somebody they bring in a guest and it turns out to be a positive. And they go, I mean they get just killed. The level of hatred. And poor Jeffrey Lord. I love Jeffrey Lord. But sometimes he’s sitting there with eight unknown killers that nobody ever heard of. And CNN actually is not doing nearly as well as others. They’re all doing well because of me. But it’s not doing as well as others that are doing better actually. But Fox treats me very fairly. MSNBC is ridiculous. It’s just bad.
It’s an ability I never thought I’d have. I never thought I’d have the ability to say, they’re doing a big story on me on CNN and I won’t watch it. And it’s amazing, it doesn’t matter. But it really, the equilibrium is much better. As far as newspapers and things, I glance at them. They’re really dishonest. I mean they’re really dishonest……
You see a no-talent guy like Colbert. There’s nothing funny about what he says. And what he says is filthy. And you have kids watching. And it only builds up my base. It only helps me, people like him. The guy was dying. By the way they were going to take him off television, then he started attacking me and he started doing better. But his show was dying. I’ve done his show. … But when I did his show, which by the way was very highly rated. It was high highest rating. The highest rating he’s ever had.

Monday, 13 February 2017

Make no mistake - Trump is placing all national economies in jeopardy once more

In the midst of The Great Depression (a decade long severe global economic downturn triggered by the 1929 Wall Street stock market crash) the U.S. Government enacted the 1933 Glass-Steagall Act which tightened banking and financial sector regulations.

At the urging of the same financial and banking sector in 1999 a bipartisan agreement saw the introduction of the Financial Services Modernization Act which repealed large parts of the Glass-Stegall Act and the Bank Holding Company Act.

In the wake of another crisis generated by the American sub-prime mortgage melt-down, aptly titled The Global Financial Crisis, the U.S. Government in July 2010 enacted the Dodd–Frank Wall Street Reform and Consumer Protection Act to reimpose stricter regulations.

Now we hear that Donald Trump is moving to roll back the Dodd-Frank reforms. In particular the Volker Rule against banks using depositor funds for speculative bets on their own account and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a hedge fund or private equity fund - practices thought to have exacerbated The Global Financial Crisis.

The Sydney Morning Herald, 4 February 2017:

US President Donald Trump moved to chisel away at the Obama administration's legacy on financial reform, announcing a series of steps to revisit the rules enacted after the 2008 financial crisis and setting the stage for a showdown with Democrats over the future of Wall Street regulation.
After a White House meeting with the executives, Mr Trump signed a directive calling for his administration to identify potential changes to provisions of the Dodd-Frank Act, crafted by the Obama administration and passed by Congress in response to the 2008 meltdown….

Most Australian families have memories of The Great Depression which hit this country hard and all will be able to recall the ripple effects from The Global Financial Crisis, so it is not unreasonable to fear that what this erratic and ignorant American president does in relation to U.S. banking and financial sector legislation has the potential to send the world spinning into yet another American-generated global economic crisis.

Forewarned is forearmed and this time around everyone would be wise to closely follow reputable newspapers and economic commentators to see which way the wind blows as the United States once more enters dangerous waters.

Thursday, 21 July 2016

Counting the coins as we wait for the 45th Parliament to commence

Before Malcolm Turnbull (as prime minister of a government in the third and final year of its first term in office) called a double dissolution election, the last Dept. of Finance Australian Government General Government Sector Monthly Financial Statement due was for May 2016 and, this revealed an underlying cash balance for the 2015-16 financial year to 31 May 2016 which was in deficit to the tune of $34,860 million.

total government revenue - $360,209 million of which $340,866 million was taxation revenue
total expenses - $388,061 million leaving a shortfall of $27,852 million
public debt interest - $14,101 million
net government debt - $284,657 million.

The June figures are yet to be published and it will be a case of track the Dept. of Finance website for the next three years as the Liberal-Nationals Coalition fails yet again to reign in its own discretionary spending.

Meanwhile Prime Minister-elect Turnbull - in an election so close that by 18 July 2016 only 13 of 150 House of Representatives seats have been officially declared - held an evening of champagne and canapés with a who’s who of Liberal and National MPs and senators at The Lodge in Canberra on 17 July.

The food included Pialligo ­Estate’ smoked salmon on rye toasties with horseradish cream, Moroccan lamb rissoles with harissa yoghurt, vegetable samosa with mint relish, roast beef en croute with stilton cream and tomato chutney, Vietnamese prawns with chilli jam and chicken satays.

I sincerely hope that Mr. Turnbull personally paid for use of The Lodge that night and for all catering and security at this event, as he didn’t become the official tenant again until after the Governor-General swore him in on 19 July 2016.

Mr. Turnbull's reportedly in excess of $1 million donation to the Liberal election campaign may possibly have brought him government but it could never buy the allocation of taxpayer funds for his private victory party.

Tuesday, 7 June 2016

Statistics that Team Turnbull hope voters won't notice

The Guardian, 4 June 2016:

Australian Bureau of Statistics data released over the past few days shed a stark light on private sector business investment and company profit trends over the past few years. It shows that rather than being anti-business, investment and profits boomed under Labor, and rather than being pro-business, they have collapsed under the Coalition.
Here are the facts.
In the two and a half years since the 2013 election, company profits have fallen 11% to their lowest level since 2010. This has occurred with the global economy registering decent growth and interest rates at record lows. In the six years of Labor government to 2013, company profits rose 28% despite the global financial crisis which plunged the world economy into a deep recession.
On business investment, the credentials of both sides of politics are even more extreme. Since the September 2013 election, private sector capital expenditure has fallen a thumping 26% and the outlook for the next year is for a further fall of between 5% and 10%. The fall in business investment is set to be more severe than during the early 1990s recession.
Under the previous Labor government, business investment rose a robust 67% to reach a record high proportion of GDP. It seems the policy settings which included the carbon price and mining tax did nothing to discourage the private sector from going out and investing.
Labor being anti-business with its emphasis on better health and education, and the Coalition being pro-business with its planned tax cuts.

Don’t believe the journalist? Still convinced only conservatives understand business? Then check his facts at 5676.0 - Business Indicators, Australia, Mar 2016 – data from 1994 to 2016.

Sunday, 15 May 2016

Action hero Scott Morrison of the Turnbull Coalition Team sends dispatch from Coalition Campaign Headquarters 2016 (CCHQ 2016)

This is what Labor’s Shadow Treasurer Chris Bowen stated on 10 May 2016 as reported by SBS News:

The ritual election costings debate has begun with shadow treasurer Chris Bowen promising Labor will release four and 10-year costings of its policies.
But the bottom line won't be revealed until the latter part of the campaign, "after we've announced the last bulk of our policies", Mr Bowen told the National Press Club on Tuesday.
"That will enable us to say more about the trajectory back to budget balance," he said.
Labor would stick with the independent Parliamentary Budget Office for its costings, rather than submitting policies to Treasury, Mr Bowen said.
"They are well resourced, competent people and if there is a dispute between the Treasury and the Parliamentary Budget Office as to costings, that does not automatically mean that the PBO is in some way in error," he said.
Mr Bowen also said while Treasury was an arm of the government, its secretary was not a political play thing and he would work with the Abbott-appointed head John Fraser.

This is what Chris Bowen also clearly stated in 10 May 2016 media release:

Labor is the only party setting the economic agenda.

If elected, we will:

*Deliver an economic statement within three months of being elected to protect Australia’s AAA credit rating.
Implement our productivity-enhancing economic agenda, including our plan to deliver once-in-a-generation school reforms, lifting educational outcomes and boosting GDP.  
*Deliver our $10 billion infrastructure facility which will create approximately 26,000 jobs and add around an extra $7.5 billion to Australia’s GDP every year.
*Reform negative gearing and Capital Gains Tax, stimulating new housing construction and putting the great Australian dream back within reach of working and middle-class  
* Making record investments in the renewable energy sector preparing our economy for a less carbon-intensive world.

As for any possibility of a minority government after 2 July 2016, SBS World News Radio reported on 10 May 2016:

Voting preferences dominated discussion across all major parties.
It stemmed from Greens MP Adam Bandt raising the prospect of forming an alliance with a minority coalition or Labor government in the event of a hung parliament.
Prime Minister Malcolm Turnbull, whose party has ruled out governing with the support of the Greens, used the occasion to warn of a return to a past political scenario.
"Why would we run the risk of having another Labor-Greens independent government, another hung parliament, which is plainly in contemplation of the Labor party, it is plainly in the enthusiastic contemplation of the Greens, and we know what the price will be: people smugglers back in business, much higher taxes even than those already contemplated by Labor and a much higher carbon tax even than that already contemplated by Labor."
Bill Shorten, too, appeared quick to quash the idea.
"Every time you see a Green politician saying they are against the Liberals, then why are they making it easier for the Liberals to get elected in the suburbs and regions of Australia. Or, can I put it another way to Mr Bandt and the Greens, tell them they are dreaming. No deals with Labor about forming a coalition."

This was Treasurer Scott Morrison of the Turnbull Coalition Team in a media release sent from Coalition Campaign Headquarters 2016 (CCHQ 2016):
Image @latingle

As journalist Laura Tingle observed on 11 May; Is the government just a little panicky here?

Tuesday, 7 April 2015

As we approach the Abbott Government's second set of Budget Papers due in May 2015 - a timely reminder of how far we are going backwards

Sky News on 3 April 2015 telling Australia what social media commentators have known since December 2013:

In the year ended 30 June 2013 the then Labor Federal Government reported total revenue of $338.7 billion, total expenses of $381.4 billion (est. 25.1% of GDP) and a fiscal balance deficit of $28 billion. Net government debt and net interest payments on that debt stood at stood at 10 and 0.5 per cent of Gross Domestic Product (GDP) respectively.

The Abbott Coalition Government was sworn in on 18 September 2013.

In the month Tony Abbott took hold of the reins of government the Department of Finance listed Australia’s net debt at $174.5 billion and an underlying cash balance (deficit) of $22.9 billion projected to fall to $18 billion by 30 June 2014.

The Abbott Government reported total revenue of $374.6 billion, total expenses of $415.2 billion (est. 26.2% of GDP) and a fiscal balance deficit for the year ended 30 June 2014 of $42.2 billion. At that time net government debt stood at 12.5 per cent of GDP and net interest payments at 0.6 per cent.

In February 2015 and just on halfway through the Abbott Government’s term in office, the Department of Finance listed net debt at $254.9 billion and an underlying cash balance (deficit) of $40.4 billion projected to fall to $40.3 billion by 30 June 2015. At which time net government debt is expected to be 13.9 per cent of GDP and net interest payments at 0.7 per cent of GDP.

So why did budget deficit and public debt increase so dramatically in those first nine months and why is it barely decreasing to date?

Well, there have been signposts along the way and the most obvious place to start is with the borrowing spree that Treasurer Joe Hockey went on almost from Day One of the Abbott Government.

By 4 December 2013 (after less than 3 months in office) Abbott Government borrowings were averaging in excess of $203 million a day. At 30 June 2014 borrowings stood in excess of $351 billion and the 2014-15 budget papers predicted that borrowings will be 23.3% of GDP by 30 June 2015.

Then there was the $8.8 billion grant to the Reserve Bank in October 2013 and the loss of est. $2.9 billion over the 2015-16 and 2016-17 financial years due to the repeal of the Mineral Resources Rent Tax.

Add to this the cost of The War On Terror conducted Abbott-style, which is conservatively estimated to cost $400 million in this year alone for troops deployed in the Syria region, plus the $5.3 million a month cost of an ongoing and inevitably fruitless search for a long gone commercial aircraft.

Throw in the approximately $4.7 million spent on the prime ministerial fleet of bomb-proof cars (which will be stationed around the country for Abbott's convenience) and the est. $250 million reportedly being spent on a new VIP aircraft sometime this year primarily for the prime minister's use .

Factor in the cost of servicing political egos found in the Dept. of Finance lists of parliamentary entitlements paid and the additional expense of VIP flights for political elites.

Add the est. $2.4 billion in tariff revenue foregone due to international trade agreements signed since 2013, along with the est. $86 million spent on two royal commissions into 'pink batts' and trade unions.

Pour in the mix that $400 million plus reportedly spent on hosting the G20 Summit in 2014.

Then toss in a reported $1 billion in public service redundancy payouts expected to flow from the Abbott Government's 'restructuring' of government departments and downsizing of the public service between September 2013 to 2016-17.

Insert the increasing costs of immigration detention and the in excess of $2 billion in contracts awarded in early 2104 for the management of two overseas detention centres. This equates to these contracts costing over $420 million annually. The National Commission of Audit's February-March 2014 report states the projected detention costs for all centres over the forward estimates currently exceeds $10 billion.

Top it all off with the unfair 2014-15 federal budget, which for all the ideologically driven pain it intended to inflict was expected to only save $27 billion over a four-year period and which has now been effectively gutted by the Abbott Government is a desperate grab for some degree of popularity.

Combine all of the above with Prime Minister Abbott's recent conversion to a 'debt is good' philosophy and it is easy to see why government finances are mired in red ink. With the non-Treasury document being circulated by the Treasurer, the March 2015 Intergenerational Report Australia in 2055, predicting net government debt could be as high as 60 per cent of GDP in forty years' time.

Now Tony Abbott has abandoned his 'debt and deficit disaster' rhetoric he has decided that the real budgetary crisis is actually federal government spending. Spending is probably the slowest growing line item in all the aforementioned figures, nevertheless Abbott was quoted in The Australian on 2 April 2015 as stating;even with the changes that we’ve already made, we’re still heading for government spending at around 31 per cent of GDP".

If all this sounds a mite confusing, remember one of the features of budget predictions and economic outlooks produced by the Abbott Government to date is that rarely do all of the documents contain the same basic assumptions or numbers. Since September 2013 creative writing not reliable economic policy appears to be the order of the day.