Herculean effort but more to do

In The Australian today:
“One thing is clear: this budget is a herculean effort. But while it has put our fiscal position on the right track, we still have miles to go, and the path is fraught with risks.”

About Henry Ergas

Henry Ergas is a columnist for The Australian newspaper and the inaugural Professor of Infrastructure Economics at the SMART Infrastructure Facility at the University of Wollongong. The SMART Infrastructure Facility is a $61.8 million world-class research and training centre concerned with integrated infrastructure solutions for the future. Henry is also Senior Economic Adviser to Deloitte Australia. Prior to these concurrent roles Henry worked as a consultant economist at NECG, CRA International and Concept Economics. Henry's previous career was as an economist at the OECD in Paris, where amongst other roles he headed the Secretary-General’s Task Force on Structural Adjustment and was Counsellor for Structural Policy in the Economics Department.
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50 Responses to Herculean effort but more to do

  1. John Mc

    This is an excellent Labor budget. It’s what the ALP should aspire to if they want to maintain the dream of big-government social democracy, the use of keynesian deficits over the economic cycle and the notion that debt is always OK to good. The only reason they might be angry is they didn’t deliver it.

    For classical liberals, not so much.

  2. ChrisPer

    Gooooood comment John Mc.

  3. Tel

    It’s a Keynesian tax-n-spend “shovel ready” attempted stimulus budget that continues to grow the government, and grow the debt.

  4. crocodile

    This is an excellent Labor budget. It’s what the ALP should aspire to if they want to maintain the dream of big-government social democracy, the use of keynesian deficits over the economic cycle and the notion that debt is always OK to good. The only reason they might be angry is they didn’t deliver it.

    Going on history, it’s a pretty good coalition budget too. You’re living with the fairies at the bottom of my garden if you think the coalition actually do aspire to smaller government.

    Looks even shakier if the forward estimates are as correct as the last few years.

  5. .

    I want to know why a Liberal party would not take on the proposed LDP budget.

    Spending increased, as did taxes, and the left are outraged.

    You will never, ever impress the radical left that purport to be benign greens or “representing the workers” – scratch a “moderate” ALP MP and you find someone who quietly and seriously believes in Marxism or will defend Pol Pot.

    They believe in wealth taxes, income taxes over 50%, socialisation of capital and infrastructure and perpetual debt, right down to currency debasement and chartalism.

    There is nothing to lose if the Senate blocks and Abbott has to differentiate himself from the ALP.

    It is what we voted for last time anyway.

  6. Gab

    I want to know why a Liberal party would not take on the proposed LDP budget.

    I just kept thinking of the LDP’s budget as Hockey was rolling out ALP after ALP policy last night. This first Liberals budget was the time to do the hard work and the Libs have wasted it on big spending, increased taxes and some moronic medical fund that is off to the never never. This budget is certainly in opposition to the promises made by the Liberals before the election and is contrary to their signature platform of ending the profligate spending, getting rid of the debt and no new/increased taxes. And have killed off the trust they worked so hard to get from the electorate in one fell swoop.

  7. Gab

    This is an excellent Labor budget. It’s what the ALP should aspire to if they want to maintain the dream of big-government social democracy, the use of keynesian deficits over the economic cycle and the notion that debt is always OK to good. The only reason they might be angry is they didn’t deliver it.

    For classical liberals, not so much.

    This.

  8. whyisitso

    Thank you Henry for a well considered and thoughtful article. It brings a balanced approach in huge contrast to the nutters posting and commenting on this formerly sensible blog. You’ve engaged in some constructive criticism, but recognised the real efforts at reform Abbott and Hockey have engaged in to rescue the country from the disaster we inherited from Rudd/Gillard.

  9. Gab

    “The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed, lest Rome become bankrupt. People must again learn to work instead of living on public assistance.”
    -
    Cicero , 55 BC.

    The Libs have learned nothing.

  10. Ellen of Tasmania

    They believe in wealth taxes, income taxes over 50%, socialisation of capital and infrastructure and perpetual debt, right down to currency debasement and chartalism.

    When the real price of anything is subsidized, manipulated or obscured, people lack the information needed to make good decisions. Lacking the information of the real price, they can only make bad decisions.

    This dynamic–that obscuring the real price necessarily leads to bad decisions–is scale-invariant. If a parent gives a child false price information or subsidizes the cost of a choice, the child cannot make good decisions based on the distorted data: their only choice is a spectrum of bad decisions.

    The same is true of households, communities, enterprises, states and nations.

    As a result of policies that explicitly distort the price of credit and capital, we are making bad decisions as individuals and as a nation.”

  11. whyisitso

    “The budget should be balanced,

    Gab expects Hockey to achieve a balanced budget in his first year, after 6 years of extreme profligacy from R/G? Fairyland stuff. Last night Hockey outlined a sensible path towards getting back to a balanced budget.

  12. Gab

    Gab expects Hockey to achieve a balanced budget in his first year

    No chance of that happening under this government, no chance for another seven or more years even though the LDP has demonstrated it is possible in one or two years. Keep burying your head in the sand while your hands are free to wave those Liberal pom-poms.

  13. Senile Old Guy

    whatisit:

    Last night Hockey outlined a sensible path towards getting back to a balanced budget.

    Idiot. The cuts are trivial; there is a boatload of more spending; real cuts are pushed to after the next election, so are entirely speculative. And more taxes splurged on roads and medical research.

  14. crocodile

    Gab expects Hockey to achieve a balanced budget in his first year, after 6 years of extreme profligacy from R/G? Fairyland stuff. Last night Hockey outlined a sensible path towards getting back to a balanced budget.

    Spending down 0.2% over four years. Sensible path my arse.

  15. Tom

    I want to know why a Liberal party would not take on the proposed LDP budget.

    Aaaaaaahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahaha!!!

    You’re kidding, Dot. The LDP are mortal enemies of this rabble. Joe Hockey would make an excellent Finance Minister in the Hollande government.

  16. Mayan

    Another LiBor budget.

    I prefer to call them LIBOR rather than laberal, since it brings to mind collusion to the detriment of public.

  17. Big_Nambas

    Very disappointing Budget, no where near enough cuts and spending curbs. The biggest problem is that even this piss weak Budget will NOT get Senate approval.
    Where is the pain I’ve been promised over the last few months?
    I was hoping for a tough Budget and then a Double dissolution Election so we could fix up the Senate, you know get rid of the loonies and allow some adult government.
    As a self funded retiree I expected some pain, I get nothing from the Feds now and that wont change. The only cost to me is fuel tax as it costs $800.00 to fill my motorhome I’ll be paying plenty, but as a believer in user pays I don’t object a road tax.

  18. Big_Nambas

    Sorry, I don’t object to a road tax.

  19. crocodile

    I want to know why a Liberal party would not take on the proposed LDP budget.

    Because they never have. Not likely to begin now.

  20. Demosthenes

    When the real price of anything is subsidized, manipulated or obscured, people lack the information needed to make good decisions. Lacking the information of the real price, they can only make bad decisions.

    Liberty quote.

  21. H B Bear

    Pulling $80bn out of Commonwealth health and education spending over the next 10 years isn’t to be sneezed at. Clearly Gonski and KRudd’s hospital deal are both for the high jump after one round of funding if the Libs get back in 2016.

    Hopefully Hockey is setting up the States for the biggest hospital hand pass in history – to get the Feds out of schools and health altogether. He is starting to use the line, “We don’t run a single school or hospital” which is promising. State taxation will need to be increased, either by vacating some income tax power or forcing an increase in the GST. The GST is about the only way to get tax out of vast segments of the Australian economy as one by one governments have bought off sectional interest groups.

    Health and education continue to be the fastest growing expenditures with virtually nothing to show by way of improved outcomes for either of them.

  22. Z

    And I voted for this crap…………..
    LDP from now on

  23. .

    whyisitso
    #1304875, posted on May 14, 2014 at 8:32 am
    Thank you Henry for a well considered and thoughtful article. It brings a balanced approach in huge contrast to the nutters posting and commenting on this formerly sensible blog. You’ve engaged in some constructive criticism, but recognised the real efforts at reform Abbott and Hockey have engaged in to rescue the country from the disaster we inherited from Rudd/Gillard.

    No, I have engaged in constructive criticism. You continue to kneepad and obfuscate for these champagne socialists cloaking themselves in a conservative mantle.

    You also cut and run from questions about the raison d’être of the LNP.

    “Real efforts of reform”

    Like what? More spending? More taxes?

    Hockey and Abbott are implementing ALP policies as reforms.

    You’re an unhinged nutjob now, whyisitso. You’re not in touch with reality anymore.

    Come back to the real world please.

  24. egg_

    The budget should be balanced

    By the proles carrying a massive weight on each shoulder?

  25. Chris

    Hopefully Hockey is setting up the States for the biggest hospital hand pass in history – to get the Feds out of schools and health altogether.

    Somehow I can’t see Hockey or Abbott cutting the federal government funding of primary and high school students and telling the states to look after it instead. That would really annoy their voter base.

  26. .

    The budget should be balanced by freezing spending at a minimum, ranked rationalisation, asset sales predicated by rationalisation eliminating duplication, implementing efficiencies, top down cuts and as a last resort, efficiency dividends.

    If there is anything over, it can be given as a tax cut, along with a raft of microeconomic reforms.

  27. .

    Chris
    #1304989, posted on May 14, 2014 at 10:20 am
    Hopefully Hockey is setting up the States for the biggest hospital hand pass in history – to get the Feds out of schools and health altogether.

    Somehow I can’t see Hockey or Abbott cutting the federal government funding of primary and high school students and telling the states to look after it instead. That would really annoy their voter base.

    No, it wouldn’t.

  28. Bern1

    “Herculean effort”
    Hercules was strong.What are you Joe?

  29. manalive

    The scrapping of the Seniors Supplement for Health Card holders ($876.20 & $1320.80 p.a.) will force those at the margin to dip into savings which will force them eventually onto a part pension; no doubt this has been thoroughly modelled and will represent a net saving.

  30. viva

    Predictably Cats think the budget is too soft and Labor lite.

    That’s easy for armchair pols to say. National culture change away from benefits takes time. If they cut too hard they might forfeit power and the vandals would return in fury. Softly softly catchee monkey.

    Roads are better than school halls as they are productive infrastructure. There’s nothing wrong the governments building roads that are needed FFS.

    As someone who has benefited greatly from the fruits of medical research I am loathe to slag off the Research Future fund. I just wish we had more of a start up culture like Israel has in the medical technology field.

  31. Chris

    No, it wouldn’t.

    Direct federal (only) government funding of non government schools is on average around $4500 per student per year. It’s around $1000 per student per year for government schools. So if the federal government just removes all of the funding and tells the states to pick up the slack the non government school sector is going to be squealing because they know the states are not going prioritise any extra funding to non government schools.

  32. .

    Viva

    They could have frozen the budget.

    They could have cut 40 bn like the LDP said.

    They could have cut 60 bn like the COA said.

    Instead, they have increased spending.

    By spending more, the budget isn’t soft at all. Its a hard edged monolith that leans on the rest of the economy.

    Cutting spending by 0.22% from Wayne Swan’s last projection in the previous budget? Come on?

    Its pathetic.

    As someone who has benefited greatly from the fruits of medical research I am loathe to slag off the Research Future fund. I just wish we had more of a start up culture like Israel has in the medical technology field.

    If they really cared about medical research, they wouldn’t require drugs to have clearances. It would be the choice of the patient once they sign a waiver.

    You’re not going to get a start up culture with a sovereign wealth fund like that. There will be ethics committees, research councils, ministerial minute, all kinds of crap to stop innovation.

    Don’t Garvan, UNSW (Kirby), JCSMR (ANU) etc do a good enough job anyway?

  33. .

    Chris
    #1305026, posted on May 14, 2014 at 10:44 am
    No, it wouldn’t.

    Direct federal (only) government funding of non government schools is on average around $4500 per student per year. It’s around $1000 per student per year for government schools. So if the federal government just removes all of the funding and tells the states to pick up the slack the non government school sector is going to be squealing because they know the states are not going prioritise any extra funding to non government schools.

    So what? You think only the Federal government is capable of raising that revenue?

    The all up cost is roughly 14k per private student and 20k per public.

    They should end the funding. More money via GST and state taxes would come in after equivalised income tax cuts were made. Any deals can be made by the state. Who is going to complain about tax cuts or making the states spend less on head office and giving more to schools so more is spent on each student in the public and private system? No one.

    The Federal funding has a bizzare origin. It was a stupid promise Menzies made to the Catholic schools after they were forced by a bullying NSW government to fix up their toilets (which was an unnecessary waste).

    Seriously.

    The Fed Ed. Dept. is as useless as a chocolate teapot, anyways.

  34. viva

    By spending more, the budget isn’t soft at all.

    Dot I presume the spending you refer to is on roads and the medical research fund (are those jet fighters included in the spend you cite?)

    The government justifies infrastructure spending as a way to transition the economy from mining start ups to broader employment opportunities. Isn’t spending on needed infrastructure (not just make work either) a legit govt. activity even for libertarians?

  35. .

    If they want to spend 80 bn on roads, fine.

    Then what about the other 338 bn dollars? Utterly necessary defence, law and order, public goods or infrastructure?

  36. brc

    As someone who has benefited greatly from the fruits of medical research I am loathe to slag off the Research Future fund. I just wish we had more of a start up culture like Israel has in the medical technology field

    A worthy goal. Now, how do you kickstart innovation? Build up a giant government department with a billion dollars to waste in flying first class to conferences around the world?

    Or perhaps you provide generous tax concessions for R&D, streamline the approval process, change the company laws to allow for more flexible structures for workers and payment in equity rather than cash. Perhaps you work with big medical markets like Asia and the US to reduce trade barriers. Maybe you find a way to allow a flourishing high-risk capital market to be formed, without taxing andregulating the bejeesus out of it.

    Australia is an overpriced, overregulated environment positively hostile to entrepreneurs. Ask yourself why any smart medical researcher who wanted to get rich would relocate to Australia, and why any promising student would want to stay here.

    The answer – in every case- will lead back to the government getting in the way.

    There is a reason why mining is about the only industry to really take off in this country – and it’s not about having more dirt. It’s because mining was able to get off to an early start and create a beachhead against the legion of taxers and regulators. Even then they have to spend significant capital and time fighting them off the barricades. Trying to get a new industry to take hold without those battlements is futile unless the fundamental business environment changes.

  37. Infidel Tiger

    As someone who has benefited greatly from the fruits of medical research I am loathe to slag off the Research Future fund. I just wish we had more of a start up culture like Israel has in the medical technology field

    God people are stupid. By the time that find is active and mark my words it never ever will be, LaborGreen will be back in power. It will be squandered on researching the effects of climate change on gay aborigines who have recently separated from their life partners.

    The budget is a complete joke. In fact it’s a disgrace.

    Staples and Stutters are unserious people and worse they are liars.

  38. Chris

    Who is going to complain about tax cuts or making the states spend less on head office and giving more to schools so more is spent on each student in the public and private system? No one.

    I think the non government school sector will complain because they know that over time (no matter what promises are made) the state governments will prioritise funding to state government run schools over non government schools. Whereas in the federal government they have significant political support for direct funding.

  39. Ant

    Inevitably this budget, with Hockey copping a shellacking on blogs like this plus an equally punishing assault from the left, will be seen to have struck the “right balance”.

    Keep it up guys, lest the Left starts to believe their own BS.

  40. egg_

    viva
    #1305060, posted on May 14, 2014 at 11:07 am

    Oh contraire; ‘tough guys’ are respected:

    “Because leaders’ political survival depends on their followers’ support, we might expect that leaders who are more successful in bringing peace and prosperity to their nations will remain in power longer, yet the opposite appears to be true. Democratic governments appear to offer their citizens more peace and prosperity than autocracies do, but autocratic leaders stay in office roughly twice as long as leaders in democratic nations. One of the conclusions of The Logic of Political Survival is that in many cases good policies are detrimental to political survival, whereas bad policies often enhance political survival.”

    The Logic of Political Survival

  41. egg_

    “Staples and Stutters”

    That’s a kkkeeper.

  42. .

    I think the non government school sector will complain because they know that over time (no matter what promises are made) the state governments will prioritise funding to state government run schools over non government schools. Whereas in the federal government they have significant political support for direct funding.

    Um,

    They already do.

    Parents sending kids to private schools don’t want lower income tax rates?

    This is loopy stuff, chris.

  43. hammy

    I agree with most of the commenters here – this is an appalling budget, replete with broken promises. Abbott has had it. The new Senate will reject the budget and Abbott will be sacked by Cosgrove if he attempts to remain in power without Supply.

    There will be an election early in 2015, which Abbott will suffer the biggest defeat ever in a federal election. Of course he may well be dumped before then and Turnbull resurrected. But even he won’t be able to save them. I’m pretty chuffed that our side will be back in power in time to present the 2015 budget.

    And I’m pretty good at forecasting.

  44. .

    I’m pretty chuffed that our side will be back in power in time to present the 2015 budget laundry list

  45. Infidel Tiger

    Hammy, I can only agree with your analysis.

    Good work.

  46. Notafan

    Hammy, are you the guy that stated categorically that Andrew Bolt’s show would not return in 2014?

  47. Senile Old Guy

    I agree with most of the commenters here – this is an appalling budget, replete with broken promises. Abbott has had it. The new Senate will reject the budget and Abbott will be sacked by Cosgrove if he attempts to remain in power without Supply.

    I think you should quit while you’re ahead.

    Abbott will be dumped by his party before Cosgrove gets a chance.

  48. .

    When the facts change, change your forecasts. The earlier the better!

    It’s like destocking cattle. The earlier you do it, the better, despite the initial gripe you may have.

  49. hammy

    Hammy, are you the guy that stated categorically…

    I’m the guy that correctly forecast O’Farrell’s resignation before any of you lot.

  50. JC

    Kero

    Your predictions are worthless because you’re always predicting doom and fail on the right. Eventually one of those things will happen.

    Get the white robe and sunnies off as you’re no guru.

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