Gratuitous advice for Turnbull: ignore

I’m not sure whether there is much clearance that goes on in these self-serving submissions from investment banks (hint: senior executives should take some note of the rubbish that is put out under your firm’s name) but at least Malcolm Turnbull has the smarts to ignore them.

Check out this shocker from Morgan Stanley and one know-it-all (more like, know nothing) Daniel Blake.

Evidently, all we need to do is:

  • Spend an extra $8o billion on taxpayer funded infrastructure;
  • Don’t worry about the cost because Australia’s AAA credit rating could be maintained;
  • Do something about negative gearing;
  • Do something about superannuation tax concessions.

Oh please.

In true Keynesian nonsensical style, the gap in government infrastructure spending has subtracted from economic growth, according to Dan.

Here’s a tip: when the costs of a project exceed the benefits, we are worse off.  And most of the projects on offer have negative cost-benefit ratios, in part  because of the unbelievably inflated costs because no government has been game to tackle the rackets and rorts in the large construction game, courtesy of the CFMEU and the cartel of companies that dominate this space.

In fact, we are ahead of the pack because of the government’s slowness to spend on infrastructure. 

And don’t you just love the idea of private sector crowding-in – that must be investment banking speak for large fees.  But that’s OK because Dan (is he related to Dan the Man, perhaps?) thinks the government must have clarity and vision on infrastructure, something he clearly thinks he has plenty of.  Oh please, please.

Here’s the ‘free’ advice:

Morgan Stanley has urged Malcolm Turnbull to reboot the economy with fiscal spending and a renewed debate on negative gearing and superannuation policy, saying Australia has scope to invest $80 billion in infrastructure before risking its AAA credit rating.

Global ratings agency Moody’s this morning sent out a clear warning to the incoming Prime Minister, saying that further uncertainty could dampen business confidence and add to the challenges facing Australia — which could risk the country’s AAA rating.

But investment bank Morgan Stanley highlighted infrastructure spending, along with productivity and tax reform, as key areas of focus for Mr Turnbull, arguing Australia has the room to accommodate a big economic stimulus.

A research note by analysts headed by Daniel Blake says that rather than supporting the transition away from the mining investment boom, declining public investment has stripped out 0.4 percentage points from Australia’s GDP from the election of Mr Abbott through to the first quarter of 2015.

The end of the resources boom is expected to wipe 1.6 percentage points from economic growth through next year, Morgan Stanley said.

“The Liberal Party promised an infrastructure stimulus, but delivery has fallen well short of expectations,” Mr Blake said. “Clarity and vision on the infrastructure agenda is critical.”

With net debt at just 14 per cent of GDP, Mr Blake said the country had the scope for stimulus spending of up to $80 billion, or 5 per cent of GDP, whilst still retaining the AAA credit rating.

“We believe this would catalyse consumer and business confidence and likely see some crowding-in of private investment.”

Australia’s AAA rating keeps borrowing costs low at a time when the nation’s debt load is increasing.

Meanwhile, Mr Blake urged Mr Turnbull to go back to Productivity Commission chairman Gary Bank’s to-do list of policies outlined in 2012 and Ken Henry’s tax review of 2007 in order to unlock productivity gains and drive efficiency.

He said that the federal government’s current tax reform white paper shouldn’t be abandoned, but hoped that previously ruled-out policy changes to negative gearing and superannuation were “allowed back into a genuine debate”.

This entry was posted in Uncategorized. Bookmark the permalink.

27 Responses to Gratuitous advice for Turnbull: ignore

  1. Ant

    “…saying Australia has scope to invest $80 billion in infrastructure before risking its AAA credit rating.”

    Presumably from borrowing?

    I’m no economist brainiac but if we did that and then to were to be hit with another GFC would not these clowns then be insisting on even more of the same?

    And $80 billion on infrastructure later, what would be left to infrastruct?

    We’ve done desal plants. How about monorails?

  2. Rabz

    reboot the economy with fiscal spending and a renewed debate on negative gearing and superannuation policy

    So – spend and tax, tax and spend. Rinse and repeat. Ad nauseam.

    What’s the definition of insanity again?

  3. rickw

    Morgan Stanley

    Presumably they’ve had some sway in US economic policy direction? Probably should just STFU.

  4. duncanm

    Investment banks love big infrastructure projects these days – they usually end up owning the magic-pudding user-pays boondoggles.

  5. Baldrick

    And I thought it was only Barack Obama that had family that were Keynesian.
    Turnbull too! Who knew?

  6. goatjam

    Why limit yourself to $80 billion? Surely $160 billion would be twice as good, yes? Or even better $320 billion. In fact why don’t we just spend an infinite number of bucks and we will be an infinite times better off!

    It’s happy days for all under treasurer goatjam.

  7. @SeditionaryI

    Just out of morbid curiosity, why don’t economists and the like never factor in the interest cost in the figures they give us?

    $80 Billion isn’t just $80 Billion, it is $80 Billion at X% interest over however many years it takes to pay back the $80 Billion.

    Don’t economists and the like earn enough to buy a calculator so they can tell us what the real figures are?

    That said, I am pretty sure 99.99% of economists just make s*** up as they go along and have not even the slightest clue as to what they’re talking about.

  8. Memoryvault

    That said, I am pretty sure 99.99% of economists just make s*** up as they go along and have not even the slightest clue as to what they’re talking about.

    Back when I was studying there was a standing joke that Economics
    was the only subject where the questions never changed.

    But the answers were different every year.

  9. Edgar

    Don’t worry, it’s easy – keep easing and everything will be OK because the prudent middle class will stump up. Yes, it’s a class war we are witnessing and this time it’s the poor downtrodden middle class whose aspirations will be dashed when the credit bubble bursts.

  10. Empire

    If I was a crony, I’d be knocking on his door too. That’s Dan’s job.

    It’s Malcolm’s job to tell him to fuck off.

  11. mizaris

    It’s Malcolm’s job to tell him to fuck off.

    Hope and pray he has the balls to so do. But very much doubt that it will happen.

  12. John Comnenus

    I think Malcolm is pretty fiscally conservative.

  13. Gab

    I think Malcolm is pretty fiscally conservative.

    Yes, he and Rudd have that in common.

  14. Jim

    Governments across the country have been suckered into choosing to proceed with projects based on the advice from bankers with a vested interest in the projects proceeding, rather than economists with no vested interest in the decision.

    Why do we do economic impact assessments and not proper cost-benefit analysis when considering projects?

  15. Alfonso

    Hee, hee…Mal’s a forever QE er. There’s going to be money to be made from delusional Mal , mark my words.
    The only thing better would be Shorten.
    I reckon GSachs will volunteer to be the CO2 options market maker, as a public service.

  16. Alfred

    You should look beyond macrobusiness articles for your own ideas, Judith.

  17. Art Vandelay

    Why do we do economic impact assessments and not proper cost-benefit analysis when considering projects?

    Because people would riot in the streets when they found out that their money was being wasted on projects that have a snowball’s chance in hell of resulting in a net benefit.

    Also there are very few public servants with any skill when it comes to cost-benefit analysis. Or, indeed, any kind of economic analysis.

  18. Leo G

    Because people would riot in the streets when they found out that their money was being wasted on projects that have a snowball’s chance in hell of resulting in a net benefit.

    The people in the street never have to find out, thanks to those intangible cost and benefits, fiddle factors and confirmation biases that characterise most analysis.

  19. JJF

    cut welfare!!!!!!

    tax reform can only work if we have welfare reform

    homes worth more than $3 million should be in the assets test.

    no more dole after 6 months.

    no more blowing all your super on world trips then getting on the pension!

  20. Combine Dave

    cut welfare!!!!!!

    tax reform can only work if we have welfare reform

    homes worth more than $3 million should be in the assets test.

    no more dole after 6 months.

    no more blowing all your super on world trips then getting on the pension!

    I dont think thats on offer at all… in fact Turnbull indicates the Libs had lost their way ever since that first budget where they tried to make modest cuts.

  21. JJF

    if that’s the case Combine Dave then Greece here we come!!!

  22. no more blowing all your super on world trips then getting on the pension!

    I hope I would be allowed to finish paying off my house, CD.

  23. BREAKING NEWS

    What did the despicable christian culture do for earthlings. Well nearly recently ELECTRICICIY, ENGINES, MOTORS, TRAVEL, COMFORT, not to forget Monty Python.

  24. Gavin R Putland

    No, we don’t need to “Spend an extra $8o billion on taxpayer funded infrastructure” because any infrastructure worth building will pay for itself through the ensuing uplift in land values, without burdening any taxpayers other than the lucky landowners, who still get the after-tax portion of the uplift. Here’s Lucy Turnbull quoted by Ben Hurley in “We Spend, You Win, You Pay”, AFR (dead link):

    “You could argue that property owners are getting a windfall gain from the provision of infrastructure without making some kind of contribution from the property value rise that they enjoy,” Mrs Turnbull said. “In an ideal world, they would pay a fair and reasonable component of the infrastructure which they directly enjoy. You couldn’t argue that’s not a fair proposition.”

    We may reasonably hope that some of that wisdom has rubbed off on Malcolm.

    Judith Sloan wrote:

    Here’s a tip: when the costs of a project exceed the benefits, we are worse off.

    Not if the reason why the cost exceeds the benefit is that the stated “benefit” excludes the uplift in land values, lest some inconsiderate neo-Georgist suggest that the uplift be taxed in order to cover the cost.

    And most of the projects on offer have negative cost-benefit ratios…

    Surely that was meant to be “cost-benefit ratios greater than one”.

    In fact, we are ahead of the pack because of the government’s slowness to spend on infrastructure.

    Wrong, for two reasons.

    First, as noted above, government “spending” on infrastructure is not a net fiscal drain, but rather the closing of a local virtuous circle in which the some of the benefit is recycled in order to cover the cost. There are no losers.

    Second, infrastructure lowers internal barriers to trade and is therefore beneficial for the same reason that international free trade is beneficial, except that the same country gets both sides of the benefit. This is a giant blind spot in the vision of most advocates of “free trade”.

    And don’t you just love the idea of private sector crowding-in…

    Yes, I do. If free trade “crowds in” private investment, so does infrastructure.

    As infrastructure is primarily a State responsibility, can the Feds drive this process without resorting to special-purpose grants? Yes. E.g., the Feds can beef up their Capital-Gains Tax, and remit the CGT on each property to the State in which the property is located, on the condition that the State abolish (e.g.) stamp duty and payroll tax. Or the Feds can abolish their CGT on property and require the States to implement the appropriate reforms on pain of losing their GST shares.

  25. .

    “Spend an extra $8o billion on taxpayer funded infrastructure;
    Don’t worry about the cost because Australia’s AAA credit rating could be maintained;
    Do something about negative gearing;
    Do something about superannuation tax concessions.”

    These people do credit ratings? What a hoot.

  26. Gavin R Putland

    Mea culpa: The last two parts of my response assume that the infrastructure is funded by a tax on uplifts in land values. But in my haste, I didn’t state the assumption.

Comments are closed.