The Australian Conservatives’ budget crisis – an ideological ruse…

The Abbott government was the most extreme right wing administration federally in Australia in its short history. Abbott came to power off the back of a fractured Labor Party and a destructive force known as Kevin Rudd. After he was rolled by Tony Abbott in September 2015, Turnbull to the disappointment of many, chose to continue down the ultra right path of his predecessor in most areas. Central to this was the manufactured “budget crisis”

Much of the instability in Australia between 2007 and 2013 can be put down to the fractious relationship between Rudd and Julia Gillard, but even more so this instability can be explained by a totally unprincipled opposition leader in Tony Abbott who seemed to believe lying and bullying was the best way to power. It has now come home to roost for him.

Since his election in 2013, virtually none of Abbott’s promises which showed him up to be “reasonable” have come to the fore. Quite the opposite in fact. He  pursued an ideological agenda which demonstrated ideas far to the right of the Australian mainstream, and a wish to change a society which has been regarded internationally as the most progressive, economically advanced, socially inclusive, racially tolerant, business friendly in the world. In short, time and time again international surveys have shown Australia up as having the best lifestyle, the most equality, and being a super power in sport, business, the arts and economic performance. The Abbott government’s agenda is to dismantle all this and turn Australia into a mirror image of the US with its entrenched inequalities and its substandard and costly government services. Unfortunately, Turnbull has largely continued down this path.

If you don’t believe me look at this manufactured crisis to do with the so called “budget deficit”. THERE IS NO BUDGET CRISIS IN AUSTRALIA. It is purely manufactured by the LCP government pandering to vested interests and its inability to make urgently needed economic reforms in the interests of all Australians. Let’s take the following costs to the budget:

Abolition of the carbon tax: $7.5 billion
Abolition of the mining tax. $3.0 billion
Failure to abolished fossil fuel subsidies to farmers and miners. $12.0 billion
Superannuation entitlements to the rich. $15.0 billion

The deficit in Wayne Swan’s last budget was $18 billion. You be the judge!

Instead of targeting the poor and disadvantaged, and dismantling world leading infrastructure to make Australia a more tolerant and equal society, why doesn’t the government attack real reforms like:

– rationalising government duplication at the federal level, and between federal, state and local governments;

– getting rid of government rules which entrench monopolies and engender inefficiencies eg allow pharmacies to open anywhere including in major chain stores;

– dismantling monopolies in the media which is currently a closed shop entrenched via government regulation;

– accelerate the roll out of the NBN to help dismantle those monopolies;

– merge government back and front-office services across a variety of retail government outlets at both state and federal levels and migrate as many as possible online particularly as the NBN is rolled out and extend many of them to video conferencing;

– reversing monopolies in airports in such areas as parking and transport;

– get serious about reforming federal/state relations  by forcing the states to harmonise regulation across most area of common activities by threatening the cutting off of federal funds if the don’t comply;

– force the states to vote to increase the GST and to cover all goods including food to fund urgently needed infrastructure and the health system  (including extending Medicare to dental, disabilities  and mental health);

– remove remaining restrictions on the national water market;

– abolish paid for television and radio advertising of less than 15 minute ads during federal and state elections  and instead replace it with 15 minute and 30 minute slots for major parties paid for by the government in proportion to the last election’s vote in much the same way as Britain does today;

– substantially increase the deposit parties need to pay to get on the senate electoral ticket and require them to collect at least 250000 signatures before they are allowed to field candidates;

– set up a working party to legalise marijuana and heroin, and have it treated as a medical issue in much the same way as alcohol and tobacco is, including collecting substantial taxes from them;

– address the housing supply shortage by removing local governments’ abilities to stymie property development with no  specific framework, and

– urgently implement the national curriculum and the eHealth agendas.

There are no shortage of reform opportunities for the government to pursue which will both save substantial money and promote efficiencies across the board. Instead, the Conservatives seems intent on pursue an ideological agenda which dumbs down the population by starving the Arts boards, the ABC, the CSIRO,  and universities of funds. Real economic and structural reform it ain’t.

 

 

Europe – what a mess

In retrospect, it was a big mistake to think that the Euro could work across diverse economies, without fiscal and monetary union. But that in itself was impossible because of the very diverse ideas in Europe about economic responsible economic management and fiscal discipline. Indeed, the formation of the Eurozone encouraged all the member economies that they could have German style living standards, but without the disciplined, focussed and skilled German workforce and economy, and without the economic management which has charactarized the German government, at least for the last 10 years.

Many countries, led by the French, have believed they could run economies with very generous social benefits without the hard economic management and decision making which so charactarizes successful economies. For instance, when the last president of France hesitatingly tried to instigate mild economic reforms such as raising the retirement age from 60 to 62 there were howls of protest which forced him to back down. This does not even go near economic distorting policies like the Common Agriculture Policy (CAP), exorbitant pension and social welfare provisions, industry subsidies, and unaffordable internal and external deficits. In spite of the fact that the IMF, ECB, World Bank, and Germany have been handing out enormous bail outs to many broke countries in southern Europe, nearly all of them have been unable to fully implement them because their electorates will simply not wear them.

The only way is for the market to force it on them ie leaving the euro zone and issue their sovereign currencies. How might this work? Take Greece. Greece in the current circumstances will never pay back its debts. It will be saddled with such stringent provisions that it could remain in recession for 20 years. Time for a change in direction.

If Greece, without warning, announced that henceforth the Greek currency would be in drachma, and all international debts would be written off,  then there would be short term pain, but eventually the market would kick in (probably 18 months to 2 years), and the Greek economy would begin to recover. There would undoubtedly be a 50% plus devaluation against the euro, which would make Greek exports cheaper, and imports more expensive. It would also allow the Greek central bank to recapitalise the Greek Banks by printing more Drachmas. This, though, would all end in disaster if it were not accompanied by drastic economic reforms to the social welfare system, collection of taxes and other charges, removal of distorting government subsidies of various kinds, reform of the legal system and a crackdown on the corruption which so distorts the efficient running of the Greek state.

Within five years, the Greek economy will recover, the debts will be written off, and the competitive advantages of Greece will start to kick in in a much more  growth friendly environment than before. The low growth, deficit cutting and low investment environment which ios the consequences of the European bailouts, will be delivered via a market mechanisms and will not therefore be the subject of the political vastitudes currently underway in Greece.

No-one though sees this as pain free. It is not. It will be very painful indeed, but in the medium term it will be less so than 20 years of recession, and it will give hope to a population sadly lacking in it, especially the young. It is somethingthe population and government can galvanise around, and on which it could build a prosperous future.

It is also something the other southern European governments such as Spain, Italy and Portugal would also likely copy once the benefits become apparent. The French, well they will remain French, and keep their heads buried in the sand, even though the economy distorting welfare state, government subsidies, the CAP, and unreformed labour, capital and distribution markets are worse than almost anywhere in the EU, and France’s economic performance reflects that. They should also take the economic medicine, and return to the Franc. But they won’t of course!

The devilish dilemma which is the Euro zone.

It seems to be going from bad to worse in Europe, not necessarily in the economic conditions, but with the political impasse which is accompanying them. The EU basically has two options as a way out of this self imposed mess: the breaking up of the Eurozone and a return to individual currencies, or further and complete economic and political union.

The first is really not an option at all. Just to give you one example of what this would cause. In Greece, as a microcosm of the breakup, individuals and firms are taking their money out of banks and either putting then abroad, or literally hiding their euro notes under their beds. They would be doing this for rational economic reasons. If Greece left the Euro zone, the country would convert back to the drachma , with an almost certain immediate devaluation of at least 50%.  For those who had left their wealth in euros this means a doubling of their wealth in equivalence in drachmas.  But what about those who cannot do that: those on social security, those who own property in Greece, those who own businesses. They will all suffer a substantial, perhaps fatal, loss when compared to the rest of the world. Let alone the rash of writs which undoubtably will occur as people and firms seek to cover their losses in the courts.

These effects would be multiplied 100 times if the break up occurs all over Europe, leading to a worldwide depression even worse than that in the 1930s.

The second alternative is futher economic and political union. The problem with this is that voters are simply not buying it. In all democratic tests of this throughout the euro zone over the last two years, the voters in all countries are living in denial. The economic and political medicine they need to take for their survival simply is unacceptable.

God help us all if there does not emerge a sense of reality very soon, because everyone will be affected, even in prosperous, “bullet-proof “Australia.

What does Gillard do now?

With the leadership battle behind her, Julia Gillard now needs to assert herself, not only over her party, but also over Tony Abbott. One of Rudd’s greatest weaknesses was he appeared like the nerd in the playground versus the school yard bully Abbott. Perhaps it was his ambiguous background, but he certainly appeared to be intimidated by Abbott’s relentless populists attacks.

Over the last week or so Gillard seems to be showing she is made of sterner stuff. Not only has she comprehensively outmanoeuvred Rudd (probably a legacy of her labor roots), but she has bought time to re-assert herself in the minds of the electorate. The new assertiveness, and toughness, will need to be constantly displayed though.

When you think about Abbott, he should be nowhere in the polls. Not only is he outside the Australian mainstream in terms of social policy, but he also shows no competency in terms of economic or nation building policies. So why is he ahead?

Simply, Gillard’s Labor have been unbelievably bad in the business of politics. To get back from this, she needs to:

  1. shuffle her front bench. That does not mean “do nothing” as the Rudd apologists are advocating. Carr and McClelland would have been gone under any prime minister. Simply they are incompetent, and should go to the backbench. With chief headkicker Mark Abbib now gone (is this the first sign of Julia standing up to the “faceless men”?), it allows her to refresh her front bench. I’d move Swann to Foreign Affairs and put a good communicator like Combet into treasury. Pity Lindsay Tanner is not still around, as he had outstanding communication skills. She should take the opportunity to refresh the front bench with talented , young, competent individuals,
  2. she needs a competent Prime Ministerial staff. They frankly have been appallingly bad. It is interesting that when Gillard was painted into a corner while defending the attack from Rudd, she clearly took the reins of the campaign against him, and it was some of the most effective politics of her primeministership. She needs a hard head in there. She does not have it at the moment,
  3. she needs to take the Murdoch press head on. Far too often they get away with lies and distortions which are simply wrong. This needs to stop. The only way to do this is to every day challenge their distortion, however tedious that may be, and
  4. explain the government’s economic agenda. Not in terms of popularism, but in terms of the economic merits of the arguments. Keating in particular did this, and got major reforms through. To treat people as morons might look good in the popularist world of Tony Abbott, but it does not win elections in the long-term.
For all the goings on and instability in the last months, the ALP is only 47 – 53% points behind in the polls. Effectively, a 3% points deficit. A remarkable outcome in many ways, and should be able to be made up over the next 18 months provided the government concentrates on competent government and doesn’t descent into Abbott’s populist realm. Having said that though, all distortion needs to the challenged and repudiated whenever it arises.