George M defends Treasury

George Megalogenis has a long piece in The Weekend Australia defending Treasury.

I not sure what this even means.

On the contrary, the much-maligned Gillard government is positively Menziean in the way its regime allocates income between labour and capital. The wages share has been below 54 per cent for the past three years.

The government allocates income to capital and labour? But moving right along.

[Treasury] should spend more time in the real world getting to know business, business told it. It should help ministers better explain policy to the electorate while maintaining its independence, ministers told it. It should learn about implementing policy, not just developing it. And it should talk more to ministers, even as it is expected to write more for them.

Help ministers explain policy – that is blowback from the RSPT debacle. The day after the RSPT was announced then PM Kevin Rudd was asked on Radio 6PR to explain what a super profit was.

A super profit will be defined as if you’ve got a company … [that’s] investing a certain amount of money what you then do do is deduct their expenses.
What you then do do also is deduct further the amount which would be collected if for example they were investing their funds in long-term bond markets. In other words what would constitute a reasonable rate of return on investment.

On his second attempt Rudd offered

Which is you have the total investment of the company, the total earnings of the company, you deduct their expenses.
And then of course you look at what would be a normal rate of return for that company if it were investing its money elsewhere, and it’s only if they go in excess of that is a super profit tax imposed.

On the third attempt

It is calculated on the basis of a company in terms of first of all, their total level of investment, secondly the revenues they earn in a given year, thirdly you remove the expenses that they generate in a given year, fourthly you then take into account what that company would otherwise earn if they were putting their money, for example, into an investment on the long term bond market, and it’s only if they are profitable using that formula, and earning super profits, that you would impose this… tax.
It’s not foreign, for example, to all those folk who are currently operating up there on the Northwest Shelf, the Petroleum Resource Rent Tax has operated for the last 20 years and on that basis huge projects, like the Gorgon project, have come into being.

Later that day a Treasury official sent an email to Wayne Swan’s office saying,

Expressions like “tax is payable only after providing a normal return to shareholders” are best avoided.

But why? The Henry Review had described resource rent as follows:

Rents exist where the proceeds from the sale of resources exceed the cost of exploration and extraction, including a required rate of return to compensate factors of production (labour and capital).

So confusion abounded.

I have to say that I’m not convinced that it is Treasury’s job to explain policy to the public. That’s what politicians do – Treasury needs to explain proposals to politicians and it is up to the politicians to ask the tough questions – otherwise they get to look like idiots on radio and TV. That tough questioning hasn’t happened the past few years – the Rudd-Gillard governments have taken what they hear at face value. They have paid the price in poor policy outcomes. It is here where I disagree with George M – he manages to turn an op-ed about government policy failure into a criticism of the coalition

The Coalition should get over itself and learn to respect the economists.

The lesson of the Whitlam government is that whenever one side sees the bureaucracy as the enemy, it knows less about governing that it realises.

No – asking tough and probing questions of bureaucrats is not a lack of respect, it is a form of rigour. I agree that viewing the bureaucracy as the ‘enemy’ leads to poor governance, but so too does complacency.

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43 Responses to George M defends Treasury

  1. Kant says:

    The Coalition should get over itself and learn to respect economists

    On this Megalogenis is surely right. The coaltion have a couple of smart economic advisers, but either they’re not listenned to or the coalition is wittingly promulgating dumb economic policies (dumping it the standout, but there are few economically rational policies on its books) in favour of short-term electoral advantage. That might be okay if the polls were close, but the coalition should be a shoo-in. But when it takes power, it will not have the moral authority to promote the economic policies necessary for long term growth. It thus risks setting itself up to be a one or two term government.

  2. JamesK says:

    George Megalogenis has a long piece in The Weekend Australia defending Treasury.

    Hardly novel.

    With friends like George and Ross, Ken never had to spin anything

  3. C.L. says:

    dumb economic policies

    Myes.

    They should be destroying the cattle industry, building toilet blocks and burning houses down.

    Why, it’s obvious.

  4. Skuter says:

    George appears to be smitten with scientism and falls victim to the pretense of knowledge…
    You showed great humility the other day with your post on forecasting. George would do well to emulate your example.
    His comment on the profit and wage shares of income is truly bizarre.
    This is part of a broader theme in this government’s attitude to Treasury and the policymaking process – that the econocrats are some kind of high priesthood that sits in Canberra pulling levers and handing down sacred policy tablets which are then faithfully implemented by the ‘representative’ parliament. This gives the politicians an alibi with which to cover their arses. Our parliamentarians have no idea what to do and so cling to this like a security blanket.
    This government actively relies on the naiveté of the public to breed this impression.
    If George was a journalist of any note (like I thought he used to be) instead of an ALP shill, he would expose this.

  5. Skuter says:

    What JamesK and C.L. said…

  6. Jc says:

    “On the contrary, the much-maligned Gillard government is positively Menziean in the way its regime allocates income between labour and capital. The wages share has been below 54 per cent for the past three years.”

    What the flying fuck?

    George must have taken an overdose of stupid pills that day.

  7. Jc says:

    Manny

    You’re falling for the same mistake George did when od’ed on the stupid pills.

    We’re not talking about da opposition.

    Stay focused please.

  8. Skuter says:

    George must have taken an overdose of stupid pills that day.

    That day????

    It has become quite a regular occurrence, I thought? Comes with territory being one of the 30 odd percent that still supports these fools unconditionally…

  9. Skuter says:

    George must have taken an overdose of stupid pills that day.

    That day????

    It has become quite a regular occurrence, I thought? Comes with territory being one of the 30 odd percent that still supports these fools unconditionally…

  10. grumpy says:

    Ol’ George is hedging his bets. He loves the lefties but wants to be ready when their plans fall in a hole as they always do. He lets Ross Gittins and Jessica Irvine lead the charge so he avoids most of the backdraft when it comes.

  11. Jc says:

    Skuter

    I don’t quite the talking point Alliance apologists keep coming up about the libs. Sure there are sme jawdropping policies we’ve seen from the free market perspective.

    However we know the Coalition’s important policies at this point in time and they appear to me t o be reasonable and market driven.

    These policies are basically the dismantling of nearly all of the Alliance’s policies such as the NBN, mining tax and the carbon tax to stop da global warming.

    These are significant reforms in anyone’s book and go enough for me.

    And they are positive too. Very positive in fact.

  12. James - Seddon says:

    Although I visit the Catallaxy site fairly often for a bit of a read, and perhaps for a bit of amusement at some of the robust dust-ups that seem regularly to occur between the free-marketeers and the resident leftoids, I rarely ever post.

    But this is just too much for me to ignore. Linking to Megalogenis? Whatever were you thinking?

    The bloke is a soft wet lettuce. He’s never smelt a Labor program or policy he didn’t like; and as for Gillard, he’s probably the last remaining “journalist” in the history of the universe who seems to think she’s doing a reasonable job.

  13. Rabz says:

    Wouldn’t the megalosaurus be better placed spruiking such drivel via the lerve meeja?

    Sack ‘im, Rupe. You know it makes sense.

  14. Rabz says:

    “On the contrary, the much-maligned Gillard government is positively Menziean in the way its regime allocates income between labour and capital. The wages share has been below 54 per cent for the past three years.”

    Err, right. There I was thinking the ‘regime’ was allocating millions of taxpayer’s dollars per day on interest payments on the debt they’ve so criminally and casually run up over the last four years.

    Thanks Megs for teh enlightenment!

  15. RCon says:

    There was a time when I’d head straight to George’s column in the weekend oz, however he seems to be heading for Mike Steekte land, hopefully he doesn’t follow Dunlop into bitterness.
    Usually a fine writer.

    Love the idea it is government wot allocates it, too :/

  16. kevin says:

    For the opposition it would be difficult NOT to see the Treasury as an enemy whilst Henry had anything to do with it.

  17. John Comnenus says:

    I think Megalo has always liked the policies of big spending, big borrowing, high taxing omnipotent government. Given his surname he might like to go to Greece and see how they end up.

    By the way can anyone explain to me what a structural deficit is and how Howard et al blew the surplus before it accrued – according to meganomics.

  18. Skuter says:

    I don’t disagree with you at all JC…
    I will say though that most of the coalition’s troubles with credibility on economic matters would disappear if Hockey and Turnbull were dispatched to the back benches…if they don’t like it, tell em to contact the CPSU.
    There are some talented younger members in coalition ranks. I’d say they’d be much stronger if Robb was moved to shadow treasurer, Cormann to finance and Fletcher into communications. Kelly O’dwyer, Scott Ryan, Josh Frydenberg, Jamie Briggs – all can be better utilised.

  19. Winston Smith says:

    What Skuter said.
    Hockey and Turnbull need to go. Turnbull is a loose cannon and he’s in Julias pocket.
    The fact that TA won’t do this when he’s got shed loads of time before the next election, says to me “Not decisive, Tony.”
    Chuck out the flotsam and jetsam, Tony. You cannot afford to have a rubbish crew.

  20. JC says:

    No, sorry Skuter I didn’t think you were disagreeing. Sorry if I gave that impression.

  21. adrian says:

    why is it that many in the media think their are a group of homogeneous people called economists and that they all happen to agree with the government?

  22. Skuter says:

    why is it that many in the media think their are a group of homogeneous people called economists and that they all happen to agree with the government?

    Excellent point Adrian. Of course, to ALP supporters, any economists who disagree with the government’s ‘visionary’ agenda are racist redneck tea partiers in the pay of big oil or big tobacco and are secretly or otherwise funded by the IPA, Rupert Murdoch and/or the Koch brothers. Hence they are extremists that safely can be ignored.

  23. Adrien says:

    On the contrary, the much-maligned Gillard government is positively Menziean in the way its regime allocates income between labour and capital. The wages share has been below 54 per cent for the past three years.

    I believe this means that the writer is attempting to lend conservative credence by associating Robert Menzies corporatist approach (the then economic orthodoxy of the post-FDR world) with Ms Gillard’s attempt at recapturing her blue-collar constituency by bribing them re-asserting same.

  24. Adrien says:

    Adrian – why is it that many in the media think their are a group of homogeneous people called economists and that they all happen to agree with the government?

    Because they have no interest, hence no knowledge, of the field in question? For my part I’m staggered by them. They regard themselves as scientists but appear to be unable to agree on anything.

  25. cohenite says:

    “They regard themselves as scientists but appear to be unable to agree on anything.”

    Unlike climate scientists who have conjured up an implacable reality impossible to disagree with.

  26. Peter Patton says:

    On the contrary, the much-maligned Gillard government is positively Menziean in the way its regime allocates income between labour and capital. The wages share has been below 54 per cent for the past three years.

    Another U.Syd PE graduate circa 1980?

  27. Adrien says:

    Unlike climate scientists who have conjured up an implacable reality impossible to disagree with.

    Not only has it proved possible to disagree with but it appears you can refute it, confirm it, base a religious cult on it or use it as an excuse to form a militia without knowing any real facts at all.

  28. Tom Valentine says:

    An increasing labour share means that real wages have been growing faster than productivity-a recipe for increased unemployment.

  29. kelly liddle says:

    “carbon tax to stop da global warming”

    “1.1 Establish a $10.5 billion Emissions Reduction Fund

    The Fund will commence operation in Year 1 with an initial allocation of $300 million, increasing to $500 million in Year 2, $750 million in Year 3 and $1 billion in Year 4. The total allocation under the fund to 2020 will be over $10.5 billion, including $2.55 billion over the first 4 years of operation.”
    http://www.greghunt.com.au/Pages/Article.aspx?ID=2267

    You just don’t seem to get it please stop complimenting the opposition on their bad policies just because they are less bad. Australian governments state and federal have around $300 billion in debt. Do you think that bad policies are going to pay that off without major pain?

    And if treasury has anything to do with it we will be like Greece based on their projections (being so wrong). “Australia’s projected net debt position, across all Government’s is estimated to be 1 per cent of GDP compared with 48 per cent of GDP for the OECD.” That is for year 2010 and done in 2009. “During the first half of the 1970s budget surpluses averaged 1.7 per cent of GDP, while in the second half, there were budget deficits averaging around — 1.6 per cent of GDP. By 1979-80, net debt was around 4.7 per cent of GDP” Which now makes me think that anyone who said Whitlam was bad well at least he could balance a budget and makes the current crowd look decisively bad. “Net debt reached 10.4 per cent of GDP in 1985-86. It took only three years (from 1986-87 to 1989-90) to reduce net debt by around 6 percentage points of GDP” So does anyone think our current government can do such a thing as ALP governments have done in the past.

  30. Neil says:

    So does anyone think our current government can do such a thing as ALP governments have done in the past.”

    NO. I noticed you mentioned the Hawke/Keating govt but forgot to mention what the debt was when they were thrown out

    http://www.budget.gov.au/2006%2D07/bp1/html/bp1_bst13-01.htm

    Table 3 showed it was rapidly increasing and peaked at 18.5% of GDP. If Howard was not elected in 1996 there is no way Labor would have brought this debt under control. Furthermore it took 11 years to pay it off.

    If our current debt is so small and manageable let us see Labor pay some of it off. Should be easy according to ALP supporters.

  31. cohenite says:

    kelly liddle; you are exactly right; Hunt is a nice fellow but a complete dickhead when it comes to AGW. The choice is between irredeemable lunatics like the greens and milksops on the coalition side who are quite frankly gutless, with one or 2 exceptions, and have been taken in, to varying degrees, by the AGW scam.

    By way of comparison the ALP’s Clean Energy fund will cost $13 billion by 2015:

    http://www.andysrant.com/2011/10/exclusive-the-8-dire-visions-of-our-future-from-the-ghost-of-clean-energy-future.html

    Good old Andy. But is there anyone in politics who has the courage to get up and say wind and solar, and renewables generally, are a pile of shit and the spivs and ratbags pushing them a bunch of parasites.

  32. Econocrat says:

    When I worked at Treasury, I had two EL2 managers that had to become “Senior Advisors” – not because they had any subject matter knowledge – but because they were illiterate and had to be prevented from managing anyone or anything because they were causing staff to leave.

    George’s headline statement, however, reflects the key project of Treasury: altering the profit share from capital to labour. Who else had that project?

    Bogus analysis is par for the course at Treasury. Whenever you propose raising taxes to redistribute income, say that Pareto optimality means that it’s a welfare gain. Ignore the tax wedge and that you’re not actually going to compensate anyone.

    There should be a Commission of Inquiry into the 2010 Pre-election Economic and Fiscal Outlook (PEFO). Everyone in Treasury knew that the quantity and volume estimates provided by the big mining companies for the MMRT were overstated by more than 25 per cent, meaning a 6$-7 billion hole in the Governments numbers, however, Ken Henry happily assured that independents that the Government had a better fiscal position than the Opposition.

    George and Ross would struggle to to produce copy but for the backgrounding by Treasury.

  33. kelly liddle says:

    cohenite

    I think your representation of Greg Hunt is a bit harsh and correponding with him he at least does read what is sent to him. Being a party system it is difficult to know what an individuals true opinion is. The solar thing is just handouts. Yes I agree the ALP policy is much much worse but to me that is no excuse for the Coalition. Another thing is that with the Coalitions buying of carbon reductions there is some wiggle room for good policy regarding energy use and security (saving energy to save money using tax breaks for investments). The only way to see if this happens is wait until they are elected.

  34. John Comnenus says:

    I for one will not help the Liberal Party until they ditch AGW totally. I might slip over the border to help an AGW denying Nat though.

  35. entropy says:

    George must have taken an overdose of stupid pills that day.

    He certainly makes a habit of it. For example, he was once married to Anastasia Palaszczuk, now an MP and current Qld Minister for Transport and the latest iteration of one of the many ALP dynasties up here, likely to be one of the few left standing after the next election and thus very likely to be the next opposition leader.

  36. cohenite says:

    kelly liddle; too harsh on golden boy Greg, who did his honours thesis on carbon trading; nah.

  37. Captain Queeg says:

    I’ve always laughed when hearing the government trying to explain super profits. The problem is those asking the questions generally don’t understand it either.

  38. Fisky says:

    If our current debt is so small and manageable let us see Labor pay some of it off. Should be easy according to ALP supporters.

    Labor’s debt is always “small” and “manageable”…until it isn’t. When was the last time the ALP consistently balanced the budget over a full term? Ben Chifley? Andrew Fisher? They had two years under Hawke and then it was back in the red.

  39. Gowest says:

    That one about 54% to labour had me going for a while until Tom explained it in plain english – seems George suffers from the same problem as his economic peer group in Canberra – Speaking in tongues. No wonder so many think the Treasury are out of touch.

  40. Fox says:

    GM and GillRudd have all just tricked themselves into believing they are always the smartest in the room and that with a bit of silly jargon they can cover up the fact that they don’t know what they are talking about.
    I’m afraid none of them have the character to snap out of it.
    Thanks for reading such rubbish for me.

  41. Simon says:

    I think GM is working on the assumption that an ever diminishing audience may be rectified by playing the same tune louder. This year hacks like George still trying to delve into the history books to find governments as economically retarded as this one will made laughing stocks of. If anyone mentions Chifley or Menzies again in the context of a modern sophisticated market driven economy I think I’ll nurt myself. Why don’t we nationalise the banks and bring in universal conscription George? I’m sure it will stimulate the economy and stave off GFCII just like the Pink Bats and $900 dole payments did. Dingbat…

  42. Jay Santos says:

    “…It’s not foreign, for example, to all those folk who are currently operating up there on the Northwest Shelf, the Petroleum Resource Rent Tax has operated for the last 20 years and on that basis huge projects, like the Gorgon project, have come into being…”

    The North West Shelf was specifically EXCLUDED from the PRRT.

    How stupid is this Labor government and its leaders?

    The PRRT also killed almost all onshore oil & gas exploration in Australia.

    If that was the plan it worked beautifully.

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