14 May 2014

Hockey's Mean Budget Is Full Of Contradictions

By John Quiggin

The Coalition's first budget combines lavish new spending and harsh cuts. It's the product of a government that lacks a coherent economic agenda, writes John Quiggin

If you want to get a feeling for the mess of contradictions, meanness, trickiness and tribalism that is the Abbott-Hockey Government’s first budget, it's worth looking at two of the biggest decisions it contains.

The first is the massive cut of $7.5 billion to foreign aid, repudiating commitments made in Australia’s name by the previous government. The second is the proposal for a $20 billion fund for medical research, notionally financed out of co-payments made by sick people for visits to the doctor.

The $20 billion is an "aspirational" number, to be reached over six years or more, while the $7.5 billion will be realised over the four year period of the forward estimates, presumably with further "savings" into the future.

So, these measures will roughly cancel out. In the context of a supposed budget emergency, the fact that the government has room to play with billions of dollars of discretionary spending is striking.

In announcing the fund, Hockey made the rather grandiose suggestion that it might lead to treatments or even cures for "dementia, Alzheimer’s, heart disease or cancer". This seems implausible. The US National Cancer Institute alone has a budget of $US5 billion a year and, while there has been some worthwhile progress, the War On Cancer declared by Richard Nixon 40 years ago is far from won. So, in all probability, our money will make a marginal contribution to the continuing global research effort. The direct benefit to Australians will be modest at best.

Nevertheless, the switch in priorities reveals a lot about the world view of Abbott, Hockey and the people who surround them. The budget takes money from "people like them" (the poorest of the poor) and uses it to do good works for "people like us", researching diseases feared by middle-aged people in the First World. This kind of meanness and tribalism has characterised just about every decision taken by the current government.

Then there’s the trickiness of tying this noble-sounding piece of public good research to a leftover item from the market liberal reform agenda of last century, the idea that a co-payment for Medicare visits will somehow control health costs for the community as a whole, rather than merely shifting the costs from the healthy to the sick.

The notion of "hypothecation" (tying a particular revenue source to a corresponding outlay) is generally regarded by economists as meaningless. Still, in contexts like the Medicare levy it does no harm to remind people that they are paying for health services through their taxes (though the total costs are much more than the levy).

On the other hand, using what is in effect a tax on visits to the doctor to "fund" medical research is just a stunt. And while this is the biggest, the budget is full of stunts like this: presenting cuts to education spending as increases because universities are allowed to raise their fees, wrapping up a (justified) increase in the top marginal tax rate as a "debt reduction levy" and so on.

But above all, this is a budget full of contradictions, reflecting the different politics of the two men most responsible for it, and the approaches to politics that they represent.

Abbott is a man of three-word slogans, with little concern about a coherent approach to policy, particularly as regards economics. The three word slogans "axe the tax", "paid parental leave" and so on are his version of John Howard’s "core promises". He’s happy enough to make and abandon general assurances like "no cuts to health and education", but he’s not really interested in an economic reform agenda.

Hockey is a cipher, but his statements reflect the long standing orthodoxy of the political elite. Governments need to cut spending, particularly on "entitlements" reduce taxes and sell assets. Since the electorate doesn’t agree with these priorities, the only time to do this is years away from an election. The inconvenient feature of this timing is that it requires a rapid repudiation of the promises used to gain office, and the way to deal with this is to discover a "crisis" or "emergency".

Combine the two and we get a mixture of draconian, probably unsustainable cuts, and lavish expenditure on luxury projects. Exactly the same mix can be seen in Queensland, where Treasurer Tim Nicholls plays the role of Hockey the budget-cutter, while Campbell Newman lashes out on a massively expensive new office building for the government, "financed" by manipulations of the kind we saw on Tuesday night.

Unfortunately for Abbott and Hockey, the public has grown tired of the kind of theatre exemplified by Commissions of Audit, horror budgets and so on. But, with nothing much better on offer from Labor and the Greens, they may well switch to the vaudeville of people like Clive Palmer.

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Dufa
Posted Wednesday, May 14, 2014 - 12:45

Thanks, Prof. Quiggin. Food for thought, as always.

The Budget robs the poor to reward the rich and powerful and, with lies and dissembling, it further distorts the role of government. It is easy to see where this is going.

You state: "The notion of "hypothecation" (tying a particular revenue source to a corresponding outlay) is generally regarded by economists as meaningless." Yet Abbott and Hockey use this technique to undercut public analysis of their pea and thimble tricks.

In the lead up to the Budget, questions about the massive 'diesel rebate' subsidy to mining companies were easily deflected by repetitive reference to the miners' 'off-road use' of fuel. This was enough to stop questions from simple minded ABC commentators. But less than 25% of the value of fuel levy revenue is spent on roads - is a just another rort.

But the main game is the GST. This radically regressive "tax on everything" hits students, pensioners, employees and retirees on fixed incomes much harder than rich business owners. The way it is collected means it is effectively hidden from view. The exemption for business means that even small business owners have little trouble avoiding it, at least for major purchases. An efficient tax plucks the goose without too many quacks, so the economic commentariat see the GST as an efficient tax. To sell it to the mugs, the politariat labels it a State tax and squeezes the States to make sure they demand more from it. The GST is not a State tax, it is raised by the CofA as consolidated revenue and paid to the States in lieu of their right to raise income tax, forgone in the national interest about 1942. Its nominal hypothecation is completely illusionary. But this is how an increase will be sold.

Perhaps our few remaining political economists could put their minds to a simple and authoritative explanation that may assist better informed public analysis?

MJoanneS
Posted Wednesday, May 14, 2014 - 15:50

Why do you feel the need to take cheap shots at the Greens who have forced governments to be progressive on many fronts?  It makes you just another cheap suit.

Ant..
Posted Wednesday, May 14, 2014 - 16:18

Clearly there is a class of individual and/or organisation where the age of entitlement does not apply the untouchables. You know the major contributors to the LNP that carry out the dastidly deeds on their behalf.

Clearly the age of entitlement ran out for the Australian Car Industry with Ford, Holden and Toyota soon to close down manufacturing but did that set the stage for other interests clearly not.

Hockey says Australian Business has to survive without government assistance  unless of course you are a Farmer or Miner which in both cases the age of entitlement still applies.

So who exactly is doing the heavy lifting because from where I sit the Budget 2014 is simply smoke and mirrors and the only time you are likely to get a nice warm feeling is when Hockey pisses in your trouser pocket.

 

This user is a New Matilda supporter. djm
Posted Wednesday, May 14, 2014 - 18:46

MJoanneS, the Greens deserve criticism for playing cheap "opposition for opposition's sake" politics. Much like they did with Rudd'ss ETS, they are opposing something imperfect but almost wholly aligned with their values rather than accept it and seek improvements once it has passed.

Imagine where progressive politics in Australia would be if the Greens had passed the ETS...

billabong
Posted Wednesday, May 14, 2014 - 20:03

"...nothing much better on offer from Labor and the Greens..."?

The Prof. and DJM are sour on the Greens. Well, the CPRS wasn't gonna make enough difference to where we were going on climate, so it deserved to be ditched. Where would we be if it had passed? Without any history of having tried a carbon price system, of which the Greens can be proud. Starting out in an area new to the public it was, wisely, not  a massive shift, but it still exposed a deep, almost pathalogical fault line in the Aust. polity when it comes to long-term policy and collaborative action with (internal and external) others over existential issues. The Greens also were crucial in getting us the successful Clean Energy legislation, that Abbott is now wrecking (the CEFC, ARENA, etc.) - and Denticare for all kids. Not bad for a small party. How many who slag the Greens have ever looked at their policies?

Regarding budget contradictions, while Hockey/Abbott preen themselves on funding med. research science, they are diligently undermining and decapitating the CSIRO, Australia''s premier scientific research outfit. How does that make sense?

MJoanneS
Posted Wednesday, May 14, 2014 - 20:47

I would suggest those who think the 'Greens were wrong to vote down Rudd and Turnbull's ETS go and read Shitstorm then get back to us.

chrisdoonan
Posted Wednesday, May 14, 2014 - 22:20

The Greens have been the only political party in Australia that stand for anything like integrity

ChrisWarren
Posted Thursday, May 15, 2014 - 10:58

Unlike John Quiggin’s claim, in fact, the Coalition's first budget does represent a coherent economic agenda.  And it is an agenda to be imposed on society as a consequence of Keynesian stimulus to paper over the GFC. 

The supposed high levels of stimulus (public debt) were introduced to ward-off recession in the expectation that future growth would supply enough bounty to pay off the debt.  This is the Keynesian fancy often proffered by capitalist economists who wave their Nobel prizes around to court acceptance.

[In fact the so-called Nobel prize in economics is not a real Nobel prize but a limpet certification manufactured after the Nobel structure had achieved credibility through other disciplines].

However, when Keynesian stimulus failed and growth was still below trend and increased debt was not addressed – what to do?  This is the context in which Abbott’s savage budget has a clear coherent agenda.

Criticising Abbott’s “contradictions, meanness, trickiness and tribalism” totally misses the point.  This is a sociological critique when the real problem is structural.

The real agenda for Abbott is the old story.  Protect capitalism by reducing the share of wealth going to wage and salary earners, small businesses and pensioners while increasing the share flowing into capitalist enterprises.  In 2014 this plays out in the form of company tax cuts, trivial tax increases for the mega rich, and destruction of entitlements for the rest.  It also resides in the theory of flat taxation embedded in the mania for GST.

For example, the recent attack on pensions, delinking them from wages and tying them to CPI, is an old story that can be found in Howard’s “Audit Commission”.  The present underlying agenda – to increase the GST – via cuts to State budgets, continues the old story from John Hewson’s Fightback fiasco, well campioned by the then 'Mad Monk'.

Abbott’s budget is noting but cutting taxes on Capital and boosting the incomes of Capital-lieutenants, while cutting incomes of everyone else and increasing their taxes.  This is how Thomas Piketty’s scenario is proceeding in our little bit of the world.

The reason for all this, is the failure of Keynesian capitalism; so, obviously, Keynesians can only claim there is no context – just “meanness” etc etc.  This is false.  The meanness, trickiness and the tribalism is deliberate and driven by the realities of capitalism.

However Quiggin did make one salient point: 

“But, with nothing much better on offer from Labor and the Greens, they may well switch to the vaudeville of people like Clive Palmer.”

We need a new agenda founded on the progressive elements in the ALP, Greens, trade unions, and community organisations.  We need cooperative enterprises, and taxes on foreign exchange to fund the world capitalist have always promised since Chifley but never delivered.  If you want to have a Light on the Hill, you better find a way to turn it on.

EarnestLee
Posted Thursday, May 15, 2014 - 23:41

The Government's true colours are unmasked.

We thought they were just jerks but they have again proven they are jokes and hypocrites.

In a time of Economic Crisis they gave the Reserve Bank 11 billion to play the FOREX market.

Now they find 20 billion to waste on Medical research and this they will pinch from sick people. 

Watch the blatant propaganda as the servants tell their masters they have no value. Good old Goebbels re-education " the age of entitlement" is over.

If so, start at the top. Scrap all Parlimentary allowances until the emergency is over and share the sacrifice by going onto the old age pension.

Only then will Abbott, Hockey and Co. have any credibility.

adamant
Posted Saturday, May 17, 2014 - 10:29

Chris, a positive constructive approach to curing the ills caused by the GFC fas not been canvassed.  What is Hayek's non-Keynesien solution to the financial collapse caused by his idiocy ?  Will he take responsibilty for the social consequences of this ideology when the whole structure is destroyed ?  You might see this as an opportunity to stick it up the poor and make a lovely bed of roses for yourself, however I believe that will bring a thunderclap.

DrGideonPolya
Posted Sunday, May 18, 2014 - 11:42

This was certainly a mean and heartless budget but Professor Quiggin is utterly incorrect in suggesting that the Greens have "nothing much better on offer".

The anti-coal, anti-gas, pro-environment, pro-renewables, pro-peace, pro-human rights, pro-education, pro-science Greens have vastly better policies than the pro-coal, pro-gas, anti-environment ,  pro-war, pro-Zionist, US lackey, grossly human rights abusing, anti-education, anti-science Coalition and the similarly intellectually and morally deficient dominant Right faction of the Australian Labor Party that has become an Alternative Liberal Party, Another Liberal Party , an Apartheid Labor Party, an Apartheid Israel-backing Labor Party, an American Lackey Party, an Anti-science Labor Party, an Anti-environment Labor Party.

The heartless Coalition budget is so cruel and wanton that it makes the neoliberal, anti-environment and human rights -abusing Labor Right look good.

The good thing about this cruel  budget in so blatantly further impoverishing  the already poor and further enriching the already rich (see Gideon Polya, “Australian Coalition Government sacrifices key industries while committing  hundreds of billions of dollars to carbon pollution & war”, Countercurrents,  10 February, 2014: http://www.countercurrents.org/polya100214.htm ) is that it has so deeply offended so many "fair go" Australians - especially the recurrent 6-month duration zero safety net for unemployed young Australians - as to already make "One Term Tony" a reasonable prediction.

Decent Australians who believe in a "fair go" for the young, Humanity and the Biosphere will vote 1 Green and put the Coaltion last..

Astroarthur
Posted Monday, May 19, 2014 - 06:01

I wish to add something if I may please. I am a registered nurse who works the public health sector and have done so for over 40 yesrs. I have looked after the average Aussie for all that time, a person who gives and works and is generally pretty stoic

For years of hard work they see a stress and anxiety free retirement as a reward for working hard and paying taxes.

they are also a proud person and will generally go to the doctors when they are really sick. I can see a lot of people dying as a result of these new infringements.

if garret is held responsible for a few deaths from the insulation fiasco lets see abbott and hockey wear the same noose for repercussions from their policies

 

ChrisWarren
Posted Monday, May 19, 2014 - 13:24

adamant

I suggest that increasing cooperatives and taxing foreign exchange (and derivatives) is a constructive positive approach.

This has nothing to do with Hayek. You can get better economics out of Shakespeare.

I do not see this as an opportunity to stick it to the poor, or to make a lovely bed, and I resent that imputation.