Always check the data yourself

This morning Rod Sims – head of the ACCC – had an op-ed in the AFR. This comment jumped out at me:

Second, Australian governments usually spend the inflated tax revenue as the money comes in. Prior to our current run of budget deficits Australia ran budget surpluses due to high commodity price inflated revenues. These surpluses, however, were usually structural budget deficits; that is, once you substitute more normal commodity prices for the then current abnormally high commodity prices, our budget was actually in deficit.

Hmmmmmm. The nice thing is that statement can be easily checked. The RBA has commodity price data. So I thought I’d plot the Index of commodity prices (All items; US$).

Checking Sims

Well that story might explain the last three years of the Howard era, but I’m not convinced that Sim’s story stands up to much scrutiny.

Update: Same graph now in A$.

Checking Sims 2

Somehow “blaming” the Howard era budget surpluses on the mining boom still doesn’t work.

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33 Responses to Always check the data yourself

  1. Zyconoclast

    It’s Abbott’s fault?

  2. Snoopy

    If Sims is making misrepresentations selling his shtick, who do we lodge a complaint with? Will state fair trading departments be interested?

  3. Neil

    According to the graph the mining boom did not start until 2004. Costello had already produced 7 surplus budgets from 1996-2004. So how does Sims explain the Costello surplus budgets before the mining boom started?

  4. Andrew

    Does anyone expect anything serious to come from Sims or the ACCC?

  5. a happy little debunker

    @Neil #1908265, posted on January 6, 2016 at 10:08 pm

    & how does Sim explain all those following ACTUAL LABOR DEFICITS, given their ‘all time high’ commodity prices?
    Prudent fiscal management?

  6. Infidel Tiger

    Sims is a Swan appointee isn’t he? A loyal dog to the end.

  7. Neil

    & how does Sim explain all those following ACTUAL LABOR DEFICITS, given their ‘all time high’ commodity prices?

    Exactly. Commodity prices exploded after 2007. Swan got the benefit of the biggest mining boom in Australian history and did not save one cent. Terms of trade were also at record levels under the Rudd/Gillard govt.

  8. Paul Farmer

    “I have always taken the view that we must take a long term approach to assessing commodity prices. Always having the 30 to 40 year commodity price picture in front of you will at least help frame a sensible discussion.”

    Shame Mr Sims was not advising Treasury at the time Wayne Goose was Treasurer. Most of the jump in commodity prices in that graph happened post labor coming to power yet despite this they continued to pump prime the economy when this indicator shows the economy clearly didn’t need it. Even if Costello was helped by the above graph (2004-2007), so what, when you are running a surplus the right thing to do is to return more to the taxpayers which he did.

    Sims is a typical Keynesian but…………..one notes his comment ;

    First, mining and energy companies invest a lot more when commodity prices are high; the higher they are often the more they invest. They invest little when prices are low; indeed they often cut back on investment savagely when commodity prices fall.

    True Keynesian , making out all those reckless capitalists just don’t know what they are doing………….is he implying they ( i presume by they he means all our major mining and energy companies) should run a counter cyclical investment strategy ? Its called uncertainty Mr Sims……….when you are in business you don’t know what the world is going to do tomorrow, you can only guess based on today. It is easy for people to run around today and say……….ah look its so obvious , all you mining executives are stupid, you should have seen this coming, but its only a few years back , many people including economists and the main stream media were running around talking about Australia being in a new paradigm or a “super cycle” for resource prices.

    Finally at a micro level Sims throw away suggestion that businesses need to exercise more common sense and not repeat the mistakes of the past is flippant nonsense………..Of course a business invests more when prices are high………….this is exactly what you want, this is how the price system works in a market economy and reallocates resources and the same for when prices crash………..this is not a failure of the system , its a design feature called the invisible hand that people like Adam smith recognized 240 years ago actually helps us arrive at efficient resource allocation.

  9. These surpluses, however, were usually structural budget deficits; that is, once you substitute more normal commodity prices…

    Yes, The Goose could have substituted more normal 7% tax receipt increases rather than the predicted 12%.

  10. Neil

    Not only did Swan have the benefit of the biggest mining boom in Australian history he also had the benefit of the best terms of trade in our history.

    http://www.rba.gov.au/chart-pack/images/15-commodity-prices/15br-tot-small.gif

    And Swan did not save one cent.

  11. H B Bear

    Even Costello couldn’t control the flow of Howard’s pork hydrant towards the end. Sims has probably over egged the pudding but the Father of Middle Class Welfare certainly left the country in a structural deficit when he was thrown out on his arse.

  12. H B Bear

    Yes, The Goose could have substituted more normal 7% tax receipt increases rather than the predicted 12%.

    Having kd wrong, the $106bn woman, as Minister for Finance didn’t help either.

    Wayne Morrison is still relying on the same tricks though.

  13. Rayvic

    Despite its supposedly close monitoring, the ACCC fails to appreciate the fact that petrol service station retail margins have increased markedly in the last two years, thanks apparently to the collusion of the two arch exploiters, Coles and Woolies.

  14. Andrew

    The HIGHEST point reached by commodity prices under the Howard6666 Regime was exceeded in all but 7 months of the R/G/R disaster (the 7 months from the depths of the GFC).

    Anyone who claims JWH ran a structural deficit and the Goose was a great structural saver because commodities is outing themselves as a lying communist unfit for anything except a good hiding with a duck.

  15. Oh come on

    The nice thing is that statement can be easily checked.

    I say this much more out of sorrow than anger, but do you really think anyone gives a shit?

  16. Combine Dave

    Despite its supposedly close monitoring, the ACCC fails to appreciate the fact that petrol service station retail margins have increased markedly in the last two years, thanks apparently to the collusion of the two arch exploiters, Coles and Woolies.

    The ACCC has acted to prevent competition between these two (as cheap fuel prices driven by competition is bad mm kay) and is ‘investigating’ the excessively low fuel prices of costco).

    Morons.

  17. J-man

    Sinc, while I agree with the general thrust of your argument, that chart should be in Aussie dollars. The exchange rate moved massively in that period.

  18. Entropy

    Wouldn’t change rate changes reinforce the graph anyway? Commodities are traded in USD.

  19. Sinclair Davidson

    Commodities are sold in US$ that’s why I chose that currency, but Australian taxes are paid in A$, but easily done. New graph up, very little difference.

  20. Sinclair Davidson

    I say this much more out of sorrow than anger, but do you really think anyone gives a shit?

    Maybe. Maybe not.

  21. Neil

    certainly left the country in a structural deficit when he was thrown out on his arse.

    This structural deficit concept was most probably introduced into the 2010 budget to trash Costello. Treasury has had several goes at measuring the structural deficit with different results every time. Their latest effort shows no structural deficit until Swan got into office. Treasuries precious work showed a SD several years before Howard lost office.

    http://www.treasury.gov.au/PublicationsAndMedia/Publications/2013/Estimating-the-Structural-Budget-Balance-of-The-Australian-Government/Working-Paper/Updated-estimates-of-the-structural-budget-balance-for-the-Australian-Government

    The estimates suggest that the structural budget balance deteriorated from the mid-2000s, with the point estimate of the structural budget balance falling into deficit just prior to the GFC.

    But we certainly have a SD now thanks to the ALP.

  22. Will

    The ACCC has acted to prevent competition between these two (as cheap fuel prices driven by competition is bad mm kay) and is ‘investigating’ the excessively low fuel prices of costco).

    Morons.

    High prices are evidence of collusion and/or market power, low prices are predatory attempts to remove competition, varying prices are evidence of market manipulation, and stable prices are evidence of price fixing, all require the intervention of the regulator.

  23. entropy

    High prices are evidence of collusion and/or market power, low prices are predatory attempts to remove competition, varying prices are evidence of market manipulation, and stable prices are evidence of price fixing, All require the intervention of the regulator.

    definitely the important bit

  24. ACTOldFart

    … certainly left the country in a structural deficit when he was thrown out on his arse.

    This structural deficit concept was most probably introduced into the 2010 budget to trash Costello.

    I think you can safely drop the “most probably”. It absolutely was. I can recall Costello, after the Howard Government ended, being interviewed and expressing surprise that a “structural deficit” had appeared and apparently had been running for several years of the Howard Government. Costello noted that, in the whole time he was Treasurer, Treasury had never mentioned any structural deficit to him.

    Lo and behold, the Government changes and all of a sudden Treasury finds a structural deficit that has been running for years. I think “political prostitution” is not too strong a term to apply to Treasury and its advice then, if not since.

  25. Leo G

    May we have a chart update showing the commodity price index in real-dollar values?

  26. Sydney Boy

    The nice thing is that statement can be easily checked.

    I say this much more out of sorrow than anger, but do you really think anyone gives a shit?

    Sorry Sinc, but that is exactly how the left works. They make up an outrageous claim and hammer it unceasingly regardless of fact. The Green/ALP alliance claimed that Joe Hockey “doubled Australia’s debt” – even before he had passed a budget. TheirABC Factcheck (snort!) found this claim to be true. Apparently making realistic assumptions about commodity prices and Australian government revenue is “doubling Australia’s debt”.

  27. MD

    You need to check company tax receipts. The Howard government, like all leftist governments before and after it, was the biggest taxing and spending government at the time. The Howard and Clinton governments both had the luxury of stumbling into the start of the China boom (cheap goods, downward pressure on prices, resource sales), the dotcom boom, a mining investment boom, and a consumer spending and housing boom, both of which were fueled by record immigration and by allowing foreigners to buy up property. As one of your contributors once said: allowing foreigners to buy property is the ultimate export industry – no inputs required and the cash just rolls in.

    As usual, government used deception to further its own ends, to the long-term detriment of our society.

  28. Leo G

    The Howard and Clinton governments both had the luxury of stumbling into the start of the China boom (cheap goods).

    The China boom began in the early 1960s after the disaster of the Great Leap Forward- with sustained high real GDP growth over the past 35 years.
    Howard became PM in 1996, not at the start of the boom.
    Moreover, according to the RBA, the real GDP effects of the mining boom weren’t observable until 2005, peaking during the years of the subsequent RGR governments.

  29. H B Bear

    The spirited defence of Howard’s big spending Conservative government is most touching. Have a look at tax revenue as a % of GDP, Howard and Costello were awash with cash.

    At least Costello had the decency to look embarrassed occasionally. Howard couldn’t even manage that.

  30. Yohan

    The Howard era budget surpluses were not due to the mining boom. There is a very good case, however, that they were due to the massive increase in household debt levels.

    Australian households went from debt of 50-60% of GDP to 140% of GDP during the Howard era. This fueled a massive consumption binge, driven by a ponzi like inflated house market and easy mortgage borrowing. The record budget surpluses were quickly spent by Howard on vote buying middle class welfare.

    The GFC saw a temporary dip in household debt levels, then a rise to hit new highs during 2010-2012, but have leveled off again at 150% of GDP.

  31. MD

    Leo G,

    This analysis might help you to overcome your apparently ideologically driven blindness to the failure of the Howard government.

  32. Neil

    Have a look at tax revenue as a % of GDP, Howard and Costello were awash with cash.

    Lefties can not make up their mind. They used to say the Howard govt tax cuts destroyed the budget. Now they are saying Howard taxed the crap out of people to be awash with cash.

    The structural deficit did not exist under Costello but appeared under Swan according to the latest Treasury analysis which keeps changing but is only publicised when it looks bad for the Coalition. A good definition of a structural deficit is this

    https://en.wikipedia.org/wiki/Structural_and_cyclical_deficit

    Economist Chris Dillow has questioned the distinction between cyclical and structural deficits……contends that there are too many variables involved to allow a clear distinction to be made, especially when dealing with current circumstances rather than retrospectively, and suggests that the concept of structural deficits may be used more for political purposes than analytical purposes.

  33. Leo G

    Leo G, This analysis might help you to overcome your apparently ideologically driven blindness to the failure of the Howard government.

    I implied nothing about any failure of the Howard government, only about the failure of your own arguments to match reality- as your above response demonstrates. Figure 3 from your link clearly verifies my principal point.
    Quoting from page 5:-

    Since the introduction of economic reforms, China’s economy has grown substantially faster than during the pre-reform period, and, for the most part, has avoided major economic disruptions. From 1979 to 2014, China’s annual real GDP averaged nearly 10% (see Figure 3)

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