(1) The Prime Minister has spread the pain, announcing at the National Press Club the deferral of about $1bn in infrastructure projects deemed less urgent than the work needed in Queensland, along with swags of cuts and delays to carbon abatement projects, many of which should not have have been introduced in the first place. Yet the waste in pink batts and the Building the Education revolution programs dogs the Gillard government, even as it offers up real spending cuts. Taxpayers know a levy may not have been needed if the $42bn stimulus against the global financial crisis had been more efficiently managed.
The Australian editorial 28/1/ 2011.
(2) I love a sunburnt country, A land of sweeping plains, Of ragged mountain ranges, Of droughts and flooding rains.
Exceptionally brief extract from Dorothy McKellar’s poem "My Country".
(3) Australian fiscal policy on a trend basis is veering toward being out of control and will be exacerbated by the National Broadband roll-out plus the flow-on and fall-out from policy errors in the various ‘revolutions’ of 2010 (pink batts, building education, asylum seekers, flu pandemic, $950 individual tax refund). Monetary policy has had to adjust for poor fiscal policy placing pressure on the non-mining states of New South Wales and Victoria. If the Gillard-Rudd-Greens government were a stock it would be on our avoid list. The Liberal coalition would be held on an underweight basis, but we would be inclined to move to market-weight if Mr Hockey were elevated to Kevin Andrews’ portfolio of Families, Housing and Human services where his talents could shine. Malcolm Turnbull could then move to Shadow Treasurer with special responsibility for National Broadband and Paul Fletcher could move into Communications and Broadband.
Ecinya Insights article 13/1/ 2011.
HEAD NOTE COMMENTARY
(1) A clear summary of the folly of poor fiscal concepts badly executed. Von Mises (Austrian economist of note) refers to this as ‘Misallocation of resources’.
(2) The official enquiry will discover lots of mistakes all of which will have been covered in a report that never saw the light of day. These reports will cover water management, prescient weather forecasts, and the grab by state governments of developers’ funds from buildings built in areas prone to flooding.
(3) Our governments, Federal and some States, have been behaving badly since the Federal election of 2007 when spin replaced substance, and emotion was put to work in the service of politics.
THE FLOOD LEVY
The flood levy should not be looked at in isolation. It is poor economics because it preys upon our collective concerns about what is happening to a large number of our fellow citizens allowing the government to take the soft option of raising a new tax. Individually the pain is not great, costing most single taxpayers between $1 and say $10 each week, with the latter being a person expected to pay it anyway, in good conscience. However, the aggregate impact is something like $1.8 billion and this is another billion or so that can be badly administered, contrasting eloquently with the ease of collection. One wonders aloud whether people who have generously donated time and money should have been forewarned that a tax was coming as well. The concept of ‘shared sacrifice’ is oft defensible, but not when the money is recklessly spent, or just plain wasted.
The other ‘soft option’ aiming to be accessed by the Federal government is, of course, the mining ‘royalty’ tax.
Once upon a time when Hawke, and Keating and Peter Walsh (look him up on google) and Howard and Costello walked the land, fiscal responsibility was sacred, a priority, an essential. This enabled a harmonious blending of things like tax reform, reducing government waste, industrial relations policies that worked, to manifest themselves. This meant that the Reserve Bank was not so pressured and interest rates could be appropriately set, not too high, not too low. Australia’s economic credibility established over the Hawke- Howard years has enabled the mining resources boom to take place as we were perceived to be a nation where fiscal policy would be relatively stable and predictable. When expediency overtakes principles danger lurks.
THE NUMBERS
It is early days and the numbers are, understandably, a little hazy and rubbery at this stage. Courtesy of today’s Financial Review they go something like this –
- COST: $5.6 billion comprising rebuilding Queensland $3.9bn, rebuilding other states $1bn, personal financial assistance $600m, business and farmers assistance $120m.
- FUNDED BY: The levy $1.8bn, infrastructure delays $1bn, spending cuts $2.8bn… total $5.6 billion.
The spending cuts –
- Cash for clunkers $429m, Green car fund $234m, Carbon capture $250m, Solar flagships $250m, Solar hot water $160m, Other green programs $365m… total $1.7 billion (45% of the total).
- Other spending cuts: Regional infrastructure $350m, Capital development pool, $299m, Rental assistance $264m, Education $88m, Adelaide transport $56m….. total $1.059 billion.
The big revelation is that the Federal government can so easily find almost $3 billion of spending cuts that can be immediately activated. With the axing of so many greens programs, will the pay-off to now be an accelerated move towards a poorly conceived carbon tax?
THE ECINYA SOLUTION (needs work)
A fund is established administered by a small section of the Australian insurance industry that issues 4% DREADs, the interest of which is tax free in the hands of recipients. The fund board would have a number of government appointees. The initial capital could be the $3.8 billion government savings outlined above less the $2 billion proposed to go immediately to the Queensland government.
Dreads are Disaster Relief Emergency Aid Debentures.
THE TERRORISM INSURANCE ACT 2003
A public update on this act is probably now appropriate. When established by the Howard-Costello government the structure was designed to collect $300 million from a levy on insurance policies to be supplemented by a line of credit underwritten by government of a further $1 billion, and a $9 billion indemnity also from government. How much has been collected? How much is in the bank? How much has been spent, and on what?