The budget crisis is real, it’s serious, and we ignore it at our children’s peril

In The Australian today:
“With Clive Palmer, Labor and the Greens combining to destroy the government’s budget, it is important to understand just how serious our fiscal crisis is.”

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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72 Responses to The budget crisis is real, it’s serious, and we ignore it at our children’s peril

  1. Stephan

    Plenty of ways to address the shrinking revenue base too – without raising income or company taxes, or even the GST. Both sides have been putting this off and Abbott probably won’t be any different, he’ll just keep tinkering around the edges in the most ineffectual and unfair way that will still allow the changes to pass.

    By the looks of things he’ll still blow it and lose the next election though, bless his black Catholic heart.

  2. Bruce of Newcastle

    Paul Kelly said the same thing last week. I regard him as centre-left based on various comments he has made over the years, although he tries very hard to be above politics.

    Perhaps the centre-lefties will now listen, since he’s well regarded across political spectrum. We really do have an enormous problem. Ignoring it, like Shorten is doing, and opposing any attempt to fix it, is suicidal for our country.

  3. Bruce of Newcastle

    I’ll add that more taxes are not the way to fix the budget either.

    All that will do is deter economic activity. We are already at the maximum we can go for absolute tax take. If taxes are increased as a proportion of GDP, a recession will occur and GDP will fall because of the disincentive effect. So the proportion might rise but the absolute amount collected will not.

    It has to be cuts. Public service salaries have exploded, as has the size of the public sector. Start there.

  4. Andrew

    Can anyone explain why we need 20% more seat warmers when the banks (in a similar function) need about 60% fewer? at Fed level they could cut 100k without life being affected.

  5. egg_

    Per the ‘Carbon’ fred, any cuts to revenue should be balanced by cuts, cuts, cuts, as they were promised/expected (by mandate) – is that not what a good bookkeeper ne Treasurer does?

    Looking at you, Hockey.

  6. Stephan

    All that will do is deter economic activity. We are already at the maximum we can go for absolute tax take. If taxes are increased as a proportion of GDP, a recession will occur and GDP will fall because of the disincentive effect. So the proportion might rise but the absolute amount collected will not.

    Ah, yep. I guess the majority of the OECD countries with larger tax/GDP ratios than us must have immediately gone into recession after passing ~27% and stayed there all these years, and their absolute tax take must’ve been in decline since. I do admit being surprised I haven’t heard more about this multi-decadal collapse of the most of the world’s largest economies though.

    See, it doesn’t do much good to make up hysterical arguments that can be debunked at the drop of a hat.

  7. struth

    We have definitely crossed a point as a nation from paying for a government to provide infrastructure and services to a free and independent people to being subservient and controlled by government.
    When ministers tell us they “cannot find savings”……we accept it.
    The government and public service , institutions have been working on this for some time as we all know.
    Isn’t it funny that when government supply a service, or fix a bit of road or build a school hall, the signs cannot go up quick enough to let us all know that it’s the work of the government.
    When they waste money and go into debt, …….it’s WE are in dept.

  8. struth

    Stephan, if you are new on this blog, welcome.
    However, reading what you post this morning I would hazard a guess you haven’t worked in the private sector very much and /or are quite young.
    An institutional education and not a life one is spewing forth from every word.

  9. Stephan

    Public service salaries have exploded, as has the size of the public sector.

    PS salaries have grown modestly because of overly common promotion to executive levels, that is a systemic problem but hardly an ‘explosion’. However, the size of the public service has fallen proportionally to Howard-era levels.

  10. Stephan

    An institutional education and not a life one is spewing forth from every word.

    To me this is code for ‘damn yer fancy evidence, what we want is good ol’ right-wing common sense around here’. In other words, Pol Pot-era anti-intellectualism. Anyway I have family members in the public service who constantly complain of endemic uselessness so I have some idea.

  11. Stephan

    Thanks for the welcome though struth. I’ll try not to wear it out (too late).

  12. egg_

    PS salaries have grown modestly because of overly common promotion to executive levels, that is a systemic problem but hardly an ‘explosion’. However, the size of the public service has fallen proportionally to Howard-era levels.

    So it’s top heavy?
    Overpaid officers are the most vulnerable during razor cuts.

  13. struth

    You quote articles from left wing newspapers as evidence?
    Get a life.

  14. struth

    “Pol Pot-era anti-intellectualism”

    Have you granted yourself intellectual statis?
    As I said, institutional, not life.

  15. Stephan

    So it’s top heavy?
    Overpaid officers are the most vulnerable during razor cuts.

    From what I’ve heard from insiders (no, not ABC), it’s the useless overpaid hangers-on who are the last to go during cuts, and the decent workers who are likely to be pissed off. Efficiciency dividend hasn’t worked either. Their management and promotion cultures are stuffed, cuts won’t change that.

  16. struth

    So if we completely cut the funding to the ABC, a government department , and closed it down, do you think that would solve the culture and management problems there, or not?

  17. Stephan

    So if we completely cut the funding to the ABC, a government department , and closed it down, do you think that would solve the culture and management problems there, or not?

    I think that’d be sending ourselves further down the path to idiocracy when we’re already at a decent trot. The ABC is, as a whole, a pretty decent instrument for public education in a sea of otherwise vapid commercial garbage. A slightly louder average applause for lefties on one panel show might be an acceptable cost for that kind of benefit.

  18. candy

    “Back Catholic heart” as Stephan above says, is more about religious vilification of Tony Abbott than anything to do with the economy. You see these kinds of comments all the time on the blogs of left leaning publications and so on, although that’s a pretty tame one.

    Re the public servants, the salary, the hours, the conditions, all the entitlements of many various types of leave, it’s the Holy Grail of jobs. Protected species and very very angry with any conservative government that dares to make changes. The ATO is currently very upset about working another 9 minutes per day, to 5:00 pm instead of 4:51 pm. I mean really, how miserable can they be?

  19. egg_

    cuts won’t change that

    Helps the budget.
    Next.

  20. JohnA

    Henry usies 20.5% of GDP for the cumulative deficits, but should it not be measured against Budgeted revenues, to measure the affordability of all this RBA printing of currency.

    Weimar Republic and Zimbabwe look out – your inflation records may be challenged!

  21. JohnA

    Darn – typo.
    usies = uses

  22. Stephan

    Re the public servants, the salary, the hours, the conditions, all the entitlements of many various types of leave, it’s the Holy Grail of jobs.

    I’d love a public service job if only most of them weren’t in bloody Canberra.

  23. struth

    ” The ABC is, as a whole, a pretty decent instrument for public education in a sea of otherwise vapid commercial garbage.”

    An education in how to show your political enemies fucking dogs.

  24. egg_

    ” The ABC is, as a whole, a pretty decent instrument for public education in a sea of otherwise vapid commercial garbage.”

    Crap, SBS carries far more docos – and ads!

  25. struth

    Stephan obviously lives OFF private sector payments and does not contribute.

  26. Tel

    …instrument for public education…

    Intended to be read in the Orewllian dialect I presume?

  27. struth

    Stephan, with your superior intellect, can you please answer my question.
    If you defund the ABC and close it down, would it or would it not, fix the promotional culture and management problems of that department?
    Yes or no?

  28. Elizabeth (Lizzie) B.

    bless his black Catholic heart.

    Stephan, as if your mindless economic vandalism and your public-teat sucking ambitions haven’t done you enough damage around here, you now show exactly what a nasty little pratt you are with an unwarranted piece of attempted vilification; which fails. Every thread, you fail.

    If this was the Open Forum I might have a go at imagining some of your very special personal features.

  29. Stephan

    If you defund the ABC and close it down, would it or would it not, fix the promotional culture and management problems of that department?
    Yes or no?

    Struth, if I ran you down in a stolen APC on the way to rob centrelink, I would certainly have fixed any personal or professional problems you might’ve had. It doesn’t necessarily make for a good outcome though, does it?

  30. Stephan

    If this was the Open Forum I might have a go at imagining some of your very special personal features.

    Yes, I understand a generous endowment is indeed cause for insult in parts of tribal Africa. Didn’t know that cultural meme had made its way here, though.

  31. egg_

    Yes, I understand a generous endowment is indeed cause for insult in parts of tribal Africa. Didn’t know that cultural meme had made its way here, though.

    SfB clone, non?

  32. Elizabeth (Lizzie) B.

    A slightly louder average applause for lefties on one panel show might be an acceptable cost for that kind of benefit.

    Presume you mean Q & A, which is swamped by lefties in both audience and, especially, in the panel, which is usually 4 or 5 to 1.

    I suspect you wouldn’t really know a leftie or a left or leftish viewpoint, so brainwashed are you about what constitutes ‘appropriate’ thought. How does it feel, Stephan, to be so owned?

  33. Andrew

    Sorry, we expel Nazis and other white supremacists but bigotry solely on the grounds of private religion is ok here?

  34. Elizabeth (Lizzie) B.

    “Generous endowment?”

    Goodness me, would I be so crude, or so wrong? Give me credit, please.
    Yes, the flight to the britches does sound rather like SfB, Egg.
    I would be looking for the web feet and hands, an evolutionary development in true swampies.

  35. Stephan

    I suspect you wouldn’t really know a leftie or a left or leftish viewpoint, so brainwashed are you about what constitutes ‘appropriate’ thought. How does it feel, Stephan, to be so owned?

    My existence may be funded by the state, but I am my own man.

  36. Elizabeth (Lizzie) B.

    OK ‘own man’. Let’s get you back on to the point of the thread and not lead it astray:
    What is your view on a budgetary crisis, including massive debt levels, and what would you do about it?
    You’ll be voting Labor or Green no doubt, so what are your expectations there?

  37. Stephan

    What is your view on a budgetary crisis, including massive debt levels, and what would you do about it?

    Our debt levels aren’t ‘massive’ or even a worry, it’s grown concerningly rapidly, but we were on the path back to surplus by 2018-2020 by either side’s spending forecasts. Abbott’s budget, for all it’s retarded cuts in important areas, only slowed spending by .3% or so of GDP over Labor’s intentions. Pathetic.

    Having said that, I would have fixed up the MRRT and gone with he recommendations of the Henry review. I would have phased out negative gearing, instituted land and inheritance taxes, and taxed superannuation progressively like normal income. Boom. Massive surplus and fairer tax system, discouraging rent-seeking. After Gonski, the NDIS and more funding for scientific research and higher ed, we’re about stable at 30-34% tax/GDP. Fine.

  38. sabrina

    There is an interesting article in the Age today where different economists offer differing opinion about the budget crisis. Most are economists in the business except one academic – Jacob Madsen who calls for more investment in education and R&D.

    Henry’s argument in his column is right though, this continued deficit budgets can not go on for ever, even if there is not a crisis now.

    Henry

  39. Stephan

    I’m not sure I expect Labor to grow a spine and do any of this though, they’re almost as indentured to vested interests as the Libs. It’s mostly irrelevant what the Greens want, unfortunately.

  40. Zulu Kilo Two Alpha

    phased out negative gearing

    Paul Keating tried that one, and ended up reinstating it.

  41. Stephan

    “Australia is not facing a budget or a public debt crisis right now”

    - AMP Capital chief economist Shane Oliver.

  42. Infidel Tiger

    “Australia is not facing a budget or a public debt crisis right now

    Exactly what they said in Greece, Spain in Ireland.

    A debt crisis comes on faster than a dodgy prawn curry.

  43. Infidel Tiger

    phased out negative gearing

    There’d be no need for negative gearing or tax minimisation of any sort with a fair tax rate of 20%.

  44. James in Melbourne

    It’s mostly irrelevant what the Greens want, unfortunatelythank this country’s lucky star.

    Fixed it for you, Stephan.

  45. Leo G

    Ah, yep. I guess the majority of the OECD countries with larger tax/GDP ratios than us must have immediately gone into recession after passing ~27% and stayed there all these years, and their absolute tax take must’ve been in decline since. I do admit being surprised I haven’t heard more about this multi-decadal collapse of the most of the world’s largest economies though.
    See, it doesn’t do much good to make up hysterical arguments that can be debunked at the drop of a hat.

    Using the tax/GDP in OECD countries and Australia to compare taxation from the point of view of taxpayers is false reasoning- I’d say something of a joke. Take OECD member Luxembourg for instance. It has twice the per capita GDP of Australia. Poland on the other hand, has half the per capita GDP of Australia.

  46. candy

    “Australia is not facing a budget or a public debt crisis right now”

    There’s near a million on Disability and the assorted carers, plus an ageing population, and Shorten/Palmer promising to increase all welfare including corporate welfare. Plus opening up the borders again.

    So we wait to see the Green/Labor plan.

  47. Stephan

    Exactly what they said in Greece, Spain in Ireland.

    A debt crisis comes on faster than a dodgy prawn curry.

    Those countries can’t control their own currencies through monetary policy. We don’t have that issue, so we don’t face any appreciable risk of a similar default-style collapse.

  48. Mick Gold Coast QLD

    From Stephan at 10:48 am:

    ““Australia is not facing a budget or a public debt crisis right now”

    - AMP Capital chief economist Shane Oliver.”

    Aw gees, that’s convincing Stephan.

    On the impending interplanetary financial melt down in 2007, warning of the looming life threatening epidemic:

    “…” – AMP Capital chief economist Shane Oliver
    “…” – Ross Gittins
    “…” – the Wombat Whisperer, a public servant
    “…” – Glenn Robert Stevens, a public servant
    “…” – Bernie Fraser, a public servant
    “…” – John Edward, very rich psychic medium

    and also from Stephan at 3:48 am:

    “Abbott … bless his black Catholic heart.”

    Ignorant, ill mannered fool.

  49. egg_

    Yes, the flight to the britches does sound rather like SfB, Egg.

    He seems to be feeling a little cocky this morning?

  50. Jannie

    Stephan, you are half baked. Shut up and learn something.

  51. Elizabeth (Lizzie) B.

    There is an interesting article in the Age

    A bad start, Sabrina.

  52. Elizabeth (Lizzie) B.

    Those countries can’t control their own currencies through monetary policy.

    Monetary policy alone is not going to get us out of deep budgetary strife, Stephan. That’s naïve.

    You’ve completely outed yourself as a closet Greenie anyway. Splash back into the swamp and stop wasting people’s time here.

  53. struth

    Stephan, you are not your own man. Other people fund your existence.
    You are in fact a burden.
    You can, and as a lefty , would be, delusional.
    Harbouring delusional thoughts of self granduer, (usually in the intellectual and compassionate) is a lefty trait, so amply exhibited by your good self. But don’t let the facts get in the way of this psychosis.
    Looking constructively at oneself, is not a lefty trait.
    Now fer a bit ‘o that ol’ right wing common sense.
    If we close the ABC, regardless of whether you think it is a good thing or a bad thing( which was not my question, ) would it or would it not solve the cultural and managerial culture now in existence.

    Yes or no.

    If you comprehension and reading skills are not at a level to be able to answer a simple question, could you at least let me know what institution has failed in educating you in the basics, yet has brainwashed you so completely toward the left.
    I am a taxpayer from private enterprise, and part of the real “own men” and “own women” that paid these arseholes for doing this to you.
    We are not so much angry at you, as you are young and I can actually tell that you will most likely end up thinking right wing. But that’s a way off yet.

  54. incoherent rambler

    I can actually tell that you will most likely end up thinking right wing. But that’s a way off yet.

    FIFY

  55. stackja

    Stephan writes like some one else. Who?

  56. struth

    Their waz also a foo spellun mistakes and a kwestshon mark or too left out.
    But thanks, IC

  57. struth

    Who ever Stephan is, he has doubts about his beliefs and I think he suspects he may have been , or still is, in an insulated environment and taught bullshit by insulated, detatched from real world public servants.

  58. wreckage

    Ah, yep. I guess the majority of the OECD countries with larger tax/GDP ratios than us must have immediately gone into recession after passing ~27% and stayed there all these years, and their absolute tax take must’ve been in decline since. I do admit being surprised I haven’t heard more about this multi-decadal collapse of the most of the world’s largest economies though.

    It’s not the fault of anyone here that you’re pig ignorant of global affairs, is it? Nice false dichotomy, too: either it causes total and continual economic collapse, OR it has no downside whatsoever! I really hope you’re not in a position where you have to make strategic decisions… or any other kind, frankly.

  59. Stephan

    Struth, if NATO nuked Israel and Palestine off the map, it would solve their mutual cultural problems. But would it have lead to a putatively desirable outcome?

    Sometimes there really just are silly questions.

    could you at least let me know what institution has failed in educating you in the basics, yet has brainwashed you so completely toward the left.

    I don’t think I was notably left-of-centre until at least after my undergraduate degree. I still don’t think I’m that far left, pretty moderate as far as most sane people go.

    and I can actually tell that you will most likely end up thinking right wing

    Yeah, money often seems to turn people into self-interested backyard tyrants, I’ll see how I go at getting the money first.

  60. struth

    Ok, it’s going to take longer than I thought or may not happen at all.

    He’s got it bad.

  61. Stephan

    It’s not the fault of anyone here that you’re pig ignorant of global affairs, is it? Nice false dichotomy, too: either it causes total and continual economic collapse, OR it has no downside whatsoever! I really hope you’re not in a position where you have to make strategic decisions… or any other kind, frankly.

    Wreckage, your logic is exactly that. I’m not saying an ‘excessively’ high tax/GDP ratio could have no deleterious effect on growth or other economic indicators, merely that Bruce’s assertion that we would ‘go into recession’ if we increased ours is not borne out by the experience of the numerous other developed countries who have done exactly that – and been overall, and to all outward appearances, none the worse for it.

  62. struth

    ” – and been overall, and to all outward appearances, none the worse for it.”

    So ignorant.
    Never paid tax in his life I reckon.
    Anyway, I’ve had my time with him, lifes too short.

  63. wreckage

    Those countries can’t control their own currencies through monetary policy. We don’t have that issue, so we don’t face any appreciable risk of a similar default-style collapse.

    So, you admit that it can be a problem, then assert that because we have a tool to mediate the problem, the problem magically and completely vanishes. I hope someone other than yourself handles your finances, kiddo, because you are genuinely and worryingly shit at risk assessment. Might be an idea to go for an arranged marriage, too.

  64. wreckage

    and been overall, and to all outward appearances, none the worse for it.

    Yeah, the last 5-10 years have been smoooooth sailing, baby. Smooth like butter. Smooth like Cate Blanchet’s flawless complexion. Smooth like Cate Blanchet dipped in butter.

  65. Stephan

    I hope someone other than yourself handles your finances

    If you saw the state of my ‘finances’ you’d see it doesn’t exactly take an accountant to handle. Knowing you’ll be homeless if you make a few too many frivolous purchases takes most of the decision-making away.

    Yeah, the last 5-10 years have been smoooooth sailing, baby.

    Cate Blanchett notwithstanding, I believe most of the countries in question had their tax regimes in place long before the GFC, were growing fine then, and have grown since the GFC. Silly to throw in such an obvious extraneous variable.

  66. stackja

    Liberty Quotes
    No statement should be believed because it is made by an authority.
    — Robert Heinlein

  67. stackja

    Liberty Quotes
    Democracy is the theory that the common people know what they want, and deserve to get it good and hard.
    — H. L. Mencken

  68. wreckage

    since the GFC. Silly to throw in such an obvious extraneous variable.

    It was a variable, with no cause, and nothing did, or could have, worsened it or reduced its scope. Gotcha!

    If nothing else, you’re providing me with some chuckles. Bloody hell, if you ever so much as take out a home loan, have someone else run the numbers for you. ANYONE else.

  69. Economists are queuing up to call “bullshit” on Henry’s hysterics.………

  70. 2dogs

    we were on the path back to surplus by 2018-2020 by either side’s spending forecasts

    Yes, but the ALP have just blocked in the senate savings measures which the ALP themselves had developed and had put into their own forecast.

    Shameless wreckers.

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