The contradictions of the Abbott Government

In a new federal government which has mostly been a huge disappointment, Joe Hockey stands out as being closest in it to a rational politician. Too often, the government has tended to prioritize a “tea partiest” social reform agenda (driven mostly by Abbott himself), while often eschewing the urgently needed economic reform agenda, which has always been the hardest, and most important area to tackle in Federal politics.

Abbott seems ready to implement a baffling array of side issues, long being championed by the looney right in Australia, like the Institute of Public Affairs, who are well outside the main stream, but who nevertheless are listened to by the ideological, ultra conservative, mostly conservative Catholic, cabinet of Abbott. To list them all would take up more space than desired, but just consider these:

  1. apparently it is now “ok to be a bigot” (according to the chief Law Officer in the land George Brandis), no matter how this might offend others or diminish their space under the Australian sky;
  2. nobbling the ABC, with apparently the eventual intention of selling off, at least parts of it, to News Limited;
  3. bringing back the British honors system (what a joke!);
  4. insisting on implementing the most expensive paid parental leave scheme in the world (and most eschewed to the rich);
  5. refusing to consider a free vote on gay marriage; and
  6. dismantling a website developed by the Federal Department of Health to inform consumers of the the most fattening and least fattening foods and have that reflected in food labeling – a very effective way of tackling the obesity epidemic  and one fought tooth and nail by the fast and packaged food industries. The fact that this was traced back to the assistant Minister for Health’s senior staffer, who happened to be a former lobbyist for these said industries, did not concern Abbott one iota. It is difficult not to contrast the behavior of Barry O’Farrell and Abbott and his ministers. The Abbott Fedral Government seems to be more captive of vested interests than any in living memory – and it has not even been in office 12 months yet.

Joe Hockey, on the other hand,  has exhibited mature leadership in not pandering to the nay sayers in the face of closure of smoke-stack and un-economic industries like cars, alumina and uncompetitive manufacturing. He has tabled a visionary process to funnel Superannuation monies into new infrastructure builds by effectively bribing the states to sell off their mature infrastructure assets and then put the proceeds into new start-up programs in return for the Federal government providing 15% of their cost. Now 50% of Super Funds go offshore, because they do not want to invest in start up infrastructure projects, but are more than prepared to invest in mature assets with proven revenues.

This will revolutionize the way infrastructure is financed and built in this country, at a time when construction in the mining industry is winding down. A sensible, common sense, and economically rational way of tackling this problem.

 

Bad Trade Deficits Typically Indicate Insufficient Saving

Comment on Economist article by Scott Sumner (January 2, 2012) “Bad Trade Deficits Typically Indicate Insufficient Saving”

It is important to realize the impact of policies relating to savings in Australia. Since the late 1980s Australia has had a national superannuation scheme in which every employee is required to put 9% (soon to go to 12%) into a tax protected savings pool. These are then invested (under specific guidelines) into a variety of income generating investments, about one-third of which are offshore. The size of this fund far exceeds the Singaporean model, and its investments are market driven, rather than government directed as in Singapore. In Australia also because there is so little government debt, financing of external deficits are largely done through private banks and are generally “income related” as opposed to financing recurrent expenditures.

The effect of this is that through enforced lifetime savings Australian retirement incomes are substantially funded, and the Australian economy has access to a multi trillion investment pool which it would not otherwise have. It is interesting to note that Australia is one of the few places in the world where retirement benefits for federal public servants past and present are fully funded via a future fund.

The superannuation pool also turns “the man in the street” into shareholders as much of this savings pool is invested in the stock market. It is not an accident that all mainstream media in Australia is obsessed with the performance of shares, in my view more than anywhere in the world.

There are many reasons for the Australian economic success story, but amongst the raft of economic reforms carried out in the last 30 years, the Australian superannuation model is one of the most important.