Open Forum: April 30, 2016

Posted in Open Forum | 1,222 Comments

Colossally out of his depth – no idea what is going on

obama clueless

The first-quarter number presented a political and PR problem for the White House, coming just as President Obama appeared to be trying to burnish his own legacy overseeing the economy since the global financial crisis of 2008.

Two stories of Keynesian ignorance and the consequences, one in America and the other in Australia.

First the US. Obama will look long and hard for a positive legacy but the only one I can think of is how good it will feel when he leaves office so that we can finally stop knocking our heads against the wall. An incompetent narcissist means he screws things up but believes he’s a policy genius. Which now comes to this: White House struggles to explain weak economy as Obama boasts of job growth.

The White House labored Thursday to explain a first-quarter economic report showing the weakest growth in two years, even as President Obama was trumpeting his mastery of the economy in a New York Times Magazine interview.

The Department of Commerce reported that U.S. gross domestic product rose 0.5 percent in the first quarter of 2016, the third straight sluggish start to a year. Consumer spending and business purchases both fell, continuing trends that could have ominous implications for Hillary Clinton’s presidential campaign as she tries to claim the mantle as Mr. Obama’s successor.

But this at the end is really the pièce de résistance:

The president told a group of college journalists Thursday that his record on the economy is among his proudest achievements.

Delusional beyond imagination. No one, absolutely no one, will defend Obama’s economic management, least of all any Democrat who wishes to hold onto their office or Hillary in trying to become his successor. If you want more on his pathetic efforts to get others to see the world in the same deluded way you can try this.

And then there’s the Australian story, told today in The Oz. Treasury forecasts have been complete nonsense for years on end, because they are made by Keynesian who really believe, bless their naive souls, that public spending leads to faster growth and increased employment even though it never has. From the story:

In May 2011, the economy had emerged from the global financial crisis growing rapidly.

Commodity prices had surpassed pre-crisis levels and were on their way to new highs, while investment in the resource sector was rising rapidly.

Treasury predicted in that year’s budget that the economy would expand by 24.5 per cent over the next four years, or by almost $350bn. Had it done so, by now there would be massive surpluses with enough left over for big tax cuts.

In reality, the economy has grown by only 14.1 per cent or $200bn, with about a third of that flowing to the government as tax.

They, of course, believe that the part of the rise in GDP between 2009 and 2011 caused by stimulus spending is the same as economic growth. Can’t be helped; that’s how they think. But they are WRONG and the damage they are doing will be immense and lasting. But they will never understand why because they will never understand the pre-Keynesian theory of the cycle.

Posted in American politics, Classical Economics, Economics and economy | Leave a comment

Australia has the world’s best central banker

The headline reads, RBA’s Stevens says it’s time for government to step up on growth and this is the point:

Stevens says central banks have done all they can to boost economic growth and, eight years after the global financial crisis, it is time for governments to do more.

And if you missed the message, here’s a bit more:

In a speech in New York last week, he said central bank intervention was effective at heading off a potential catastrophe after the Lehman collapse but always­ had limited ability to accelerate the recovery. Rate cuts bring only a short-term boost to activity. He said the fall in global interest rates, which has been under way since 2007, reflected more than the actions of central banks.

Nothing left for central banks to do. And here is a bit of financial artistry that sets out the central point:

Financial assets are just paper claims on the flow of real returns from business investments or, in the case of government bonds, on the ability to tax those real returns. “If the real economy can’t perform to provide real returns to capital, there is nothing to back higher yields on financial assets.” Stevens says the lack of profit in the real world is the cause of the global stagnation, and central banks are powerless to change that. The growth potential around the world has fallen, he says.

That is so exactly right and I don’t think you can hear it said anywhere else. We are in a fiscal mess which cannot be fixed by adjusting interest rates up or down, although pushing them up would at least do some good. And even when he shifts onto the fiscal side, he is precisely right but you have to pay attention to the words he uses.

Stevens acknowledged that years of slow growth were jeopardising the “social compact” in many parts of the world. He urged government­ to take advantage of record low interest rates to embark on infrastructure projects that would raise construction activity­ and lift productivity. The critical issue was good governance to ensure the right projects were built and managed to add value, he said, not lack of money.

Projects that add value are, unfortunately, almost never the projects chosen by governments since there is no profit and loss statement nor any serious means to ensure more value is created than is used up. But at least he understands what needs to be done, but has much more faith than I ever will in the decision making processes of government to get that kind of result.

Posted in Australian Story, Economics and economy | 22 Comments

Cross Post: Marcus – Super tax will cost more than it raises

Increasing the tax on super contributions is yet another ill-conceived ‘budget fix’ idea which attempts to tax our way to prosperity.

The whole point of super is to decrease people’s reliance on aged welfare (which currently amounts to $60.7 billion of spending annually – or 1 in every 7 dollars spent by the federal government). The more super is taxed, the greater the disincentive to save and the more people will rely on welfare in their retirement (shocking stuff, I know). Given that our population is ageing and that around 80% of retirees receive a full or part pension, discouraging even more people from funding their own retirement is something we can ill afford. However, this is precisely what is going to happen, regardless of whether Turnbull or Shorten wins at the upcoming election.

Turnbull out-lefts Labor

Incredibly, it’s Turnbull who wants to tax harder here:

The Turnbull government is preparing to trump Labor in the budget by cracking down harder on high-income superannuation tax concessions to raise four times as much as the opposition’s policy.

Labor has promised to cut the income threshold for more heavily taxing contributions from $300,000 to $250,000. The Coalition now plans to cut it to $180,000.

This has been on Turnbull’s agenda or some time. In November 2015, Turnbull was thinking about changing the super contribution tax rate from a flat 15% to a 15% discount on the contributor’s marginal income tax rate, which would have impacted all workers earning over $36,000 per year:

Current laws apply a 15 per cent tax on all super contributions, which means the advantages are greater for someone paying the top marginal income tax rate of 45 per cent while there is no incentive to save for those on low incomes. Those earning more than $300,000 already pay a 30 per cent contributions tax.

Deloitte Access Economics directo­r Chris Richardson suggest­ed a rebate of 15 per cent, which would see a worker on the top marginal tax rate pay 30 per cent tax on contributions while a worker on the 32.5 per cent income tax rate would pay 17.5 per cent on contributions.

All workers earning more than $36,000 a year would pay more tax on their regular super contrib­utions, according to modelling obtained­ exclusively by The Australian, highlighting the risks of pursuing the new approach.

However, now that Turnbull has lost too much of his political capital, his super policy has evolved to simply taxing the ‘rich’ – as outlined by Rebecca Weissner in her brilliant article in the Quadrant:

So the news from the bunker that the Turnbull government is toying with doubling taxes on concessional superannuation contributions, raising them from 15 to 30 per cent for those earning more than $200,000 a year*, is troubling indeed. Such a tax grab, on top of existing taxes, would effectively mean that for every dollar savers put aside to support themselves in retirement in forty years time, they could pay around $2 in taxes, adding together the impost on contributions and in particular the impost on the earnings of their deposits over that lengthy period.

Rebecca then crunches some very sobering numbers:

The system already punishes savers. Take a couple who turn sixty-five this year and are entitled to take a full pension. On average, a sixty-five-year-old man will live to 83.7 years and a sixty-five-year-old woman will live to 86.8 years, meaning they will require support for 972 weeks at the couple’s rate of $1307 per week and the single person’s rate of $867 per week for a further 161 weeks, a grand total of $657,559 even without allowing for future pension rises. And this does not take into account the cost of the Commonwealth Seniors Health Card, which is often even more valuable to pensioners and therefore even more costly to taxpayers, giving pensioners access to cheaper prescription medicines, government-funded medical services and other government concessions.

For a couple to get just the same income as the pension through their own savings they would need to have jointly saved at least $1,000,000 in superannuation. What sort of incentive is that to save? If a couple who work, pay taxes and save end up with exactly the same income as a couple who have never worked or paid taxes or saved, one has to wonder for how much longer people will bother to save for their retirement. Yet not only would they end up with the same income as their feckless friends, they are also currently required to pay taxes on the savings which merely replace the pension.

Will Australia be better off overall?

This is the question that should be first and foremost on our politicians’ minds on this issue. Regrettably, it’s not.

Let’s start with some key numbers:

  • The aged pension will cost $60.7 billion this financial year.
  • The average annual aged pension is therefore about $24,280 (i.e. made up of full and part pension recipients).
  • On these numbers, it would take around 62,000 of these people (i.e. about 15.5%)** – or people about to become one of these people (think about that for a moment) – to either partly or fully give up on funding their own retirement before the increased aged pension costs alone would equal the tax raised.

Would 15.5% of people earning over $180,000 really do this? Nobody knows and it would be foolish to rely on any government/treasury ‘modelling’ in this respect (remember the mining tax?).

What we do know for certain is that if you give anyone enough incentive to take something for free, they’ll cheerfully take it. People earning over $180,000 aren’t simply going to let the government take $1.5 billion of their money each year. If you really think this would happen, then you need your head read.

Need more convincing? Then go ahead and conduct your own social experiment. All you have to do is set up a stall in a shopping centre, place a chunky pile of $100 notes on a table and attach a note to each one saying ‘free gift – one per person’. Then, sit back and observe what happens. By all means, do a pop quiz on the incomes of those who take up the offer (and those who don’t!). For extra fun, observe the nature of the ‘queue’, how it is formed and the schemes people come up with to land themselves more than one note.

The hidden costs

The raw numbers above don’t even begin to factor in the overall economic impact of:

  • taking $1.5 billion (or whatever the final number really would be) of spending power out of the hands of these people annually and giving it to the government to redistribute through the public service.

I have no doubt you can think of more hidden costs that Turnbull’s policy would result in. The bottom line is that, when you add them all up, the long term welfare and productivity costs would comfortably dwarf the short term revenue drippings raised by the federal government. I say ‘drippings’ because the latest forecast budget deficit for 2015-16 is around the $40 billion dollar mark.

A simple choice

Trickle down may sound ‘unfair’ to some. However, it’s the only sensible option when you consider the tried and failed alternatives of ‘progressives’, communists, socialists and totalitarians – such as the gravitationally challenged ‘trickle-up’ and ever-cheerful ‘no trickle at all’ (the latter is often a consequence of the former).

Using fruit picking as an analogy, governments generally have three options when it comes to matters like this:

  • encourage and reward people who take on the effort and risk of climbing the tree to pick as much fruit as possible;
  • encourage people to scavenge at the bottom; or
  • shoot anyone who climbs the tree.

The first option is consistent with evolution and results in the most good fruit being picked – fruit which is ultimately shared. The second and third options (often used together) feed envy, foolishly fight evolution and result in less for everyone. They also result in no-one being willing to climb the tree and everyone being left to fight for scraps.

That Shorten and Labor would choose to aggressively tax superannuation comes as no surprise. As for Turnbull, I’ll leave you to figure out which of the Liberal party’s principles his policy is consistent with:

We Believe:

In the inalienable rights and freedoms of all peoples; and we work towards a lean government thatminimises interference in our daily lives; and maximises individual and private sector initiative.

In government that nurtures and encourages its citizens through incentive, rather than putting limits on people through the punishing disincentives of burdensome taxes and the stifling structures of Labor’s corporate state and bureaucratic red tape.

In those most basic freedoms of parliamentary democracy – the freedom of thought, worship, speech and association.

In a just and humane society in which the importance of the family and the role of law and justice is maintained.

In equal opportunity for all Australians; and the encouragement and facilitation of wealth so that all may enjoy the highest possible standards of living, health, education and social justice.

That, wherever possible, government should not compete with an efficient private sector; and thatbusinesses and individuals – not government – are the true creators of wealth and employment.

In preserving Australia’s natural beauty and the environment for future generations.

That our nation has a constructive role to play in maintaining world peace and democracy through alliance with other free nations.

In short, we simply believe in individual freedom and free enterprise; and if you share this belief, then ours is the Party for you.


(*) Rebecca’s article is the first I have seen which says that the new super tax would apply to incomes over $200,000. For the purpose of this article, I am working with the $180,000 figure used by sites such as The Australian and Sky News.

(**) i.e. $1.5 billion divided by $24,280.

Posted in Cross Post, Taxation | 51 Comments

The Daily Bolt

This is quite worth watching, and the thing is that I imagine there will be many similar excerpts from The Daily Bolt that will be worth watching day after day right through to the election. Not being among those who take pleasure in seeing the Libs crash and burn with Malcolm at the helm, this editorial comment on Turnbull v Abbott fills me with great foreboding. But for a change, there is the kind of feedback being run at those narrow-cast Members of Parliament who took their lead from the ABC while ignoring the people who actually wished to see the Coalition succeed. I fear there will be a good deal of repenting in leisure among the 54.

Posted in 2016 election, Media | 31 Comments

Guest post: David Leyonhjelm’s alternative budget

This year’s budget provides an opportunity to return Australia to a path of fiscal responsibility. Rather than promising everyone some candy, the government needs to win back its credibility by demonstrating a clear plan to return the budget to surplus and pay down its debt. Credibility was lost when the Government went to the last election promising no cuts, only to propose cuts in the 2014 budget, and by promising responsible budgeting while presiding over a worsening budget deficit.

With Australia’s taxes already internationally uncompetitive, the plan must be based on spending cuts. However, the only way to make cuts politically palatable is to share the load. The government must convince the community that if everyone takes a small haircut now, larger and more painful cuts will not be required in future.

Such a plan would set the agenda for the election, leaving Labor with the task of proving it is not irresponsible. An economic narrative based on curing the deficit disease before it becomes life threatening would be compelling. And unlike with the 2014 budget, obstructionist crossbench Senators would be irrelevant — the key vote would be at the ballot box, not in the Senate.

The government will never win the vote of those who care nothing for responsible budgeting, demand ever more government spending, and subscribe to tax-the-rich rhetoric. But if it can gain the support of the remainder, there are more than enough votes to win the election.

The responsible thing to do

In his budget speech, Treasurer Morrison should commit to paying off the Government’s credit card, starting with a balanced budget in 2016-17. Our economy is growing at a healthy 3 per cent and unemployment at 5.7 per cent is as low as can be expected given our labour laws. And while commodity prices are lower than what we enjoyed over the last decade, they are higher than they were at any time between 1983 – when the Australian dollar was floated – and 2006.

An increasing debt burden does a disservice to the next generation. And a rising debt to GDP ratio, if not reversed, is a recipe for eventual Greek-style default and disaster.
A big job

Commonwealth Government revenue per person this year is around $16,500, while its spending per person is $17,900. Hence, we have a significant budget deficit.

Spending has been increasing relentlessly for decades and there has also been no let up in taxation. We now tax smokers, drinkers, high income individuals, corporations, capital gains and retirement savings more than most other countries in the developed world. As a result our overall tax burden is high by international standards, even ignoring the tax-like nature of Australia’s compulsory superannuation contributions.

If we do nothing, bracket creep will boost revenue per person over the next three years to around $17,400, while spending will remain at around $17,900. Thus we would still have a sizeable budget deficit, spending would remain bloated, and our tax burden would be even heavier. This cannot continue. We need wholesale change, beginning with balancing the budget in 2016-17.

Spending cuts will be noticed

To balance the budget in 2016-17, the Commonwealth Government needs to cut spending by $1,400 per person. This amount could not be taken from you without you noticing. Everyone needs to take a haircut.

However, the cuts required should be put in context; real spending per person only needs to return to the levels of 2007-08, which represented the height of the big spending Howard era. 2007 was hardly a year when Australians starved in the streets. All it requires is unwinding Kevin Rudd’s spending splurge in response to the Global Financial Crisis.
Continue reading

Posted in Budget, Economics and economy, Guest Post, Rafe, Taxation | 29 Comments

Guest Post: Terry Barnes – One in the eye for Simon Chapman from the Royal College of Physicians

My recent Catallaxy post on the federal government’s hush-hush e-cigarette policy and regulatory review set a cat amongst a few pigeons in the public health and pro-vaping worlds.

So let’s hope Simon Chapman and his team of “unbiased’ public health proseltysers take good note of this latest scientific validation of the worth of e-cigarettes as a harm reduction agent and alternative to the deadly weed for smokers.  Indirectly, it’s a damning indictment of the Australian public health and medical lobby’s head in the sand attitude to tobacco harm reduction.

It isn’t me, or Big Tobacco, or (shudder) the IPA talking up e-cigarettes and the harm reduction value. It is the UK Royal College of Physicians, a highly-respected scientific and clinical learned college.

The Royal College of Physicians was founded in 1518 and is the London-based professional membership body for physicians, with over 32,000 members and fellows across the globe – about 20 per cent of its members are outside the UK.

The College’s expert clinicians and researchers know what they’re talking about.  They didn’t make these pronouncements lightly, or without carefully evaluating the scientific evidence.

I’m betting Professor Chapman and other Australian public health usual suspects will try to say the RCP’s report is rigged, a scientific fraud, and somehow manipulated by Big Tobacco.  But we’re talking about one of the most respected associations in the Western world, and an association to which many Australian physicians belong as well as being the parent of the Royal Australasian College of Physicians.  These aren’t fly-by-nighters with a product to peddle.

Here’s the full Royal College of Physicians statement, just released, and the link to the RCP report is https://www.rcplondon.ac.uk/projects/outputs/nicotine-without-smoke-tobacco-harm-reduction-0

Read it and learn, Simon.

Terry Barnes is a policy consultant and Australian lifestyle economics fellow of the UK Institute of Economic Affairs
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Posted in Guest Post, Take Nanny down | 10 Comments

The 2016 John Bonython Lecture with Ayaan Hirsi Ali

The CIS is delighted to welcome back to Australia our good friend and brave women’s rights activist Ayaan Hirsi Ali.

Ayaan will be speaking in Melbourne for one night only, to deliver our annual John Bonython Lecture on Thursday, 12 May 2016.

Somali-born Ayaan is the founder of the AHA Foundation which works to bring an end to honour killings and related violence around the world; a former member of the Dutch parliament; and author of best-selling books Nomad, Infidel and Heretic: Why Islam Needs a Reformation Now.

She joins us to share her thoughts on the current challenges faced by liberal democracies in an era of jihad and mass migration.

Event details:

Date: Thursday, 12 May 2016

Time: 6:00pm – 7:30pm

Where: The Melbourne City Conference Centre, 333 Swanston Street, Melbourne VIC 3000

Cost: $50.00

Bookings are essential at www.cis.org.au/events or by calling (02) 9438 4377

Please note that this is a ticketed event and a postal address is required upon registration. All bookings are transferable but non-refundable. If you wish to transfer a booking you must advise the organisers of the name change at your earliest convenience by calling (02) 9438 4377 or email [email protected]

Media enquiries: Karla Pincott | [email protected]

Posted in Cultural Issues, Gratuitous Advertising | 10 Comments

The Fairness Industrial Complex

I have long wanted to write something about the political co option of the word “fair” but have struggled for time and ideas.  And then I read this wonderful piece by Murray Walters in Quadrant.

The Fairness Industrial Complex.

Brilliant.  Funny.  On the money.

Basically, what he said!

Posted in Uncategorized | 9 Comments

Economic suicide: Australian energy policy proposals

Labor’s carbon emission proposals move Australian policy closer to the edge of insanity.  Not content with the prosperity busting program of Mr Turnbull and his environment minister, Greg Hunt, the ALP is proposing the total wipe out of our most precious asset, low cost low sulphur coal.

The Government has a program that requires 23 per cent of electricity to come from renewable energy, with about 15 per cent of this from subsidised wind and solar.  That notional target is likely to be exceeded since there is no cap on the amount of solar subsidised by cross charges on other forms of electricity, and indirect budgetary support programs like the $10 billion Clean Energy Finance Corporation will give additional impetus.

The Government’s program is part of the Australian voluntary target announced for last December’s Paris climate conference involving a 26-28 per cent reduction in greenhouse gas emissions.

Labor is trumping this.  They propose a 45 per cent reduction in emissions by 2030 with electricity to comprise 50 per cent renewables.

Aside from the direct focus on energy, Mr Shorten is also seeking to amplify the policy, first established by the Howard Government, of stealing farmers’ property without compensation to prevent emissions from land clearing.  Barnaby Joyce arched up at this – and so he should since in a previous life in Opposition he had provided estimates that the expropriation of farmers for carbon sequestration had cost them $200 billion.

The ALP has commissioned “GIGO” modelling by Warwick McKibbin which estimates this result in a loss of GDP at a mere 0.12 per cent – less indeed than the government’s program.  This defies any credibility.  We are regulating coal based electricity out of the market and substituting it with something that costs three times as much.  There is no prospect that the renewables will become competitive with coal.  And the high cost renewable energy operates on nature’s program, and is therefore unreliable and requires additional costs for back-up and transmission.

Mr Shorten has sugar-coated his policy with funding promises to the Climate Change Authority, the Australian Renewable Energy Agency and assorted direct losers around the nation.

One astonishing aspect of the decision is that the electricity industry wholeheartedly supports it.  Australian Energy Council (AEC) Chief Executive, Matthew Warren (recruited from the ‘clean energy’ generators association) in a press release said “The energy industry has backed an efficient, national and market-based approach to emissions reduction for the past decade, and today’s plan is a step towards that objective.”

Origin Energy and Alinta, (both of which own coal and gas generating plant) provide respectively the Chair of the Deputy Chair of the AEC and presumably endorse the industry association’s views.  If so, they may not be quite as naive as might be imagined.  Black coal and gas interests see the ALP plan as offering them some advantage since it will force the more intensive carbon dioxide emitting brown coal plant to subsidise other coal plant because it involves an emission intensity trading scheme.  The rope sellers figure that the profit reaped from selling the means of hanging their competitors is good business – and they reckon that same rope will not be used to hang themselves.

Maybe they are right.  But energy users, and the economy in general, will be certain losers should the proposals progress.

Posted in Uncategorized | 33 Comments