Tuesday, May 26, 2015

One rule for the rich. Double standards in the crackdown on welfare

Where will the police turn up next?

They are already mixing it with the department of immigration in Operation Sovereign Borders. They're smartening up the place as well. I am told departmental staff have been asked to dress sharply and get haircuts. They've even been directed not to wear their photo IDs when they leave the building. They have to be careful.

Now it's Human Services' turn. Essentially a call centre and payments organisation, the department that runs Centrelink is about to get a "tough cop on the beat". A "senior police officer" is to lead its crackdown on welfare fraud, or so a Sunday newspaper tells us. Never mind that the department's annual report shows it already has nine federal police working with it, apparently appointing an extra one to lead a taskforce could claw back an extra $1.5 billion in overpayments. The minister says so.

It got me wondering what other government departments the police could help. Communications came to mind, although that would have been in the days when the government collected radio and television licence fees. Anyone caught listening or watching without a licence was fined.

Education and Health offer few opportunities - the Commonwealth runs neither hospitals nor schools. And then it struck me. Police could be embedded in the tax office.

But although that does happen for serious financial crime (the tax office is on a joint taskforce with the Federal Police), there are no plans to get police to crack down on ordinary taxpayers claiming deductions.

Instead the tax office has lost 10 per cent of its staff. The Coalition used its first budget to bring forward staff cuts planned by Labor in order to bring about "the largest reduction to public service jobs over the forward estimates".

It makes its crackdown on fraud unbalanced. Australians who misreport their incomes for the purpose of claiming benefits are about to get further hammered but not Australians who misreport their incomes for the purpose of escaping tax.

Even within the department of human services the crackdown will be unbalanced. Minister Marise Payne says it will apply to the recipients of Newstart unemployment benefits and age and disability pensions, but not to the recipients of family tax benefits. That's because family tax benefits are "supplementary payments". They are middle-class rather than life-sustaining welfare.

It's a distinction that is running through everything the Abbott government does.

Within weeks of taking office it set up a Commission of Audit. Its terms of reference required it to "eliminate wasteful spending" but said nothing about tightening up wasteful tax concessions. The commission took the instruction to heart, saying nothing about the wasteful concessions on super but plenty about how to wind back spending on pensions.

When asked why it had examined only one sort of waste - the waste in payments intended to help people survive - the commission said tax concessions would be the subject of a separate tax white paper to be delivered in 2015.

The Coalition's first budget tightened spending on pensions and Newstart as foreshadowed but left superannuation alone. Its turn would come, we were assured...

There were reasons to believe it would. The government had told the authors of the tax white paper that nothing was off limits. They were free to point out waste wherever they found it.

The Murray financial system inquiry found that super tax breaks were not "well targeted to achieve provision of retirement incomes", which is another way of saying much of the money was wasted. The discussion paper released to set off the tax white paper process reached much the same conclusion, finding that despite the tens of billions of dollars offered annually in super tax concessions, the total effect of taxes on savings was "uncertain".

Treasury calculations prepared for this year's budget show the cost of the concession on employer contributions is set to climb from $16.3 billion to $20.15 billion by 2018-19. The cost of the concession on super fund earnings is set to climb from $13.4 billion to $30.4 billion. By way of reference, the cost of the age pension is set to climb from $41.6 billion to $50.4 billion, meaning that by then super tax concessions will cost as much as the age pension and will overtake it unless reined in.

And the bulk of the concession goes to extraordinarily high earners, the type who would be saving anyway. The treasury believes the top 1 per cent of Australian earners, a mere 132,000 people, take home between them 9 per cent of Australia's super tax concessions.

And so Joe Hockey and his departmental head John Fraser began speaking out. On Jon Faine's program on ABC radio the Treasurer called for "a bipartisan approach". Whoever was in government, "whether it's a Liberal government or Labor government, whoever it is, we're going to have the same problems", he said. Fraser told a gathering at the Australian National University it was time for a "fundamental rethink about the interaction between superannuation and tax and the whole welfare system".

And then Abbott decided it was off. Eyes fixed on the next election, be declared there would no changes to the super tax concessions, not now, not ever.

I am just one who's been taken for a ride. Welfare lobbyists who cautiously supported the winding back of pension access in return for action on super; the super industry itself, which offered up modest savings; the opposition, which drew up its own proposals, believing the offer of bipartisanship was genuine - all of us have been waiting for something we are now told won't happen.

Except that it will. After the election whoever wins will (re)discover that tax concessions skewed to Australia's highest earners exceeding the cost of the pension are not sustainable.

In the meantime, welfare cheats on far lower incomes should expect to hear from the police.

In The Age and Sydney Morning Herald

Tuesday, May 19, 2015

How the East West Link cooked Abbott's budget numbers

Tony Abbott thinks we're mugs.

Deflecting attention from a budget that left Australia's second biggest state with only a fraction of Australia's infrastructure spending, he said he was so committed to the East West Link that he "gave Victoria $1.5 billion to actually get cracking".

It's true, he did give Victoria $1.5 billion for the East West Link in his first 2014-15 budget ($500 million of which was diverted from other Victorian projects). But in extraordinarily odd timing, he handed it over in 2013-14, just ahead of the year to which that budget referred.

Like all budgets these days the 2014-15 budget was handed down in May. The 2013-14 financial year had seven weeks to run. The budget shovelled out the money immediately, before 2014-15 began and well ahead of when it could possibly have been needed. The East West Link contract wasn't signed until September.

The immediate payment had nothing to do with enabling Victoria to get cracking. It had everything to do with cooking the books.

Labor's last budget covered 2013-14. By shovelling out the East West Link money before 2013-14 ended he loaded up Labor's last financial year with extra spending. The 2013-14 deficit climbed from a forecast $18 billion to $48.5 billion. A lot of the deterioration was due to the collapse in commodity prices. The iron ore price slid from $US124 to $US93.

The rest was due to higher spending, most of it tacked on to Labor's budget by the Coalition. It directed $8.8 billion to the Reserve Bank within weeks of taking office, pushing up "Labor's" deficit by $8.8 billion. Then it directed $1.5 billion to Victoria well before it was needed.

The manoeuvres not only made Labor's last budget look bad, they made the Coalition's first two look good...

Having funded the East West Link in 2013-14 the budget didn't need to fund it in 2014-15 (nor as it turned out in 2015-16) and it didn't need to find several billions in 2014-15 to top up the Reserve Bank's reserve fund. Indeed, with the reserve fund topped up the bank resumed paying dividends, giving Abbott $1.235 billion from its performance in 2013-14; half of which he directed to the 2014-15 budget, and half of which he held over until July in order to boost the 2015-16 budget.

And the early gift dressed up Denis Napthine's final Victorian budget. Taking it back will harm Daniel Andrews' first one.

It's particularly irksome that he gave Andrews no notice that he planned to take it back. Victoria's budget, delivered a week before the federal budget, is based on the assumption that the $1.5 billion can stay.

Abbott is using Victoria as a piggy bank. He paid it $1.5 billion at a time when it would hurt a Labor budget. He wants to take it back out at a time when it will help the Coalition's. He has already booked it in the budget as having been returned.

The billboards he is sending around Melbourne's eastern suburbs are a smokescreen. "Stuck in traffic! Blame Labor" they say. What they don't say is that the East West Link is such a bad project that a conventionally-constructed benefit cost analysis finds it returns just 45 cents for every dollar it costs. What they don't say is that the $1.5 billion could be better spent on projects whose returns exceed their costs. What they don't say is that Victoria voted against the East West Link in an election Abbott himself described as "a referendum on the East West Link".

Victorians voted for a rail project, one Abbott ought to be prepared to submit to Infrastructure Australia along with the East West Link. After all, that's what the policy he took to the federal election said he would do: "We will require all Commonwealth-funded projects worth more than $100 million to undergo a cost-benefit analysis by Infrastructure Australia to ensure the best use of available taxpayer monies," it said.

By refusing to do what he said he would do he is setting up a stand-off between Victoria and the Commonwealth, one that will enhance his budget's bottom line for as long as it goes on. If he can drag it out another year it will enhance the next budget's bottom line as well.

But he'll have to cave. Victoria has 25 per cent of Australia's population but is getting only 12 per cent of its infrastructure funds. Billboards and bluster can't obscure that forever.

And there are plenty of other sleights of hand in Abbott's second budget. He is advancing $5 billion over five years for non-commercial infrastructure facilities in Australia's north, the kind the banks won't touch. Because the $5 billion will be "lent" rather than spent, it won't add to the most widely quoted measure of the budget deficit. But loans for non-commercial ventures are (by definition) highly likely to never being repaid. Eventually some, maybe even most, of the $5 billion will find its way on the deficit. But not now. That's a problem for the longer term. Right now Abbott wants to us to think he's fixing the budget.

In The Age and Sydney Morning Herald

Tuesday, May 12, 2015

The timid budget. Why they'll merely make do tonight

There's been something odd about the lead-up to tonight's budget.

Time and time again Joe Hockey has floated ideas only to have them knocked down. He suggested what he would soon be doing about negative gearing only to have Morrison and Abbott slap him down. He suggested he would look at super tax concessions, only to have just about the entire party slap him down.

Tony Abbott, not Hockey, chaired every one of the expenditure review committee meetings. The last time around he let Hockey deputise for him when he was away. Scott Morrison, not Hockey has been fronting budget press conferences. One of the cruelest photos on The Age's website shows Hockey posing for pre-budget photos in his inner office while in the outer one Scott Morrison is on the TV announcing the childcare package.

And the usual post-budget salesmen are ducking for cover. I know of two instances in which government MPs have turned down invitations to speak at post-budget functions, saying they would rather leave it to others to defend the budget.

The new Treasury boss John Fraser has abandoned a 20-year tradition in which his predecessors have fronted up to business economists in Sydney on the Tuesday after the budget.

Instead he will appear on Friday in Melbourne at the newspaper-unfriendly time of 6.30pm "in conversation" with John Daley of the Grattan Institute. He'll face questions, but it won't be a grilling.

The nervousness may have to do with the impossibility of the task...

The government wants to cut the deficit. It has said so often enough. Abbott once declared a "budget emergency". Hockey held out the prospect of delivering surpluses "in each year of the first term of a Coalition government".

However, the deficit keeps rising. Labor forecast $18 billion for 2013-14, the Coalition forecast almost $30 billion for 2014-15, and tonight it'll forecast something north of $40 billion for 2015-16. That's because the price of the stuff Australia sells keeps sliding. When Labor drew up its last budget iron ore was $US124 ($157) a tonne. A year later it was $US102 a tonne. This morning it's about $US61 a tonne.

The Treasurer says every $US10 that the iron ore price falls adds about $2.8 billion to the deficit, a rule of thumb which would suggest that, all other things being equal, the government has lost $17 billion since the last budget as iron ore exporters pay it less tax. However, all other things are not equal. The dollar has slid from US93¢ to US79¢. Meanwhile, iron ore exporters churn out more product, and the net effect has been to drain the budget of revenue.

From the comfort of opposition it's easy to say that the right approach is to slash government spending or at least wind back its growth, and that's exactly what Hockey et al said. But in government it's wise to consider the consequences of taking money out of an economy that's already losing billions.

A year ago Hockey said he didn't want to do anything to dent confidence (which was actually climbing in the lead-up to the budget). Now confidence is genuinely weak. It's not only mining companies that are scaling back their investment plans, it's also non-mining companies, which were meant to take up where mining left off. Non-mining firms plan to invest 9 per cent less in the next financial year than in this one, mining companies 21 per cent less. The much talked about transition from mining investment to something else is "virtually non-existent" in the words a market analyst. The firms the Reserve Bank regularly talks to say they are reluctant to invest until they see a durable pickup in consumer spending. It has been picking up, but it isn't durable.

If last year was the wrong time to dent confidence, this year is worse. Both of Australia's leading private sector budget forecasters are talking quietly about the need to prepare a game plan to prevent the economy sliding into into recession.

The Reserve Bank reported on Friday that public spending was unchanged throughout 2014. That means the Australian government did nothing to boost the economy as unemployment climbed, but at least >the government didn't harm it.

Doing no harm is now the top priority.

The Treasurer says the budget will be only "mildly contractionary", although he said that some time ago and might have since been overruled.

The big themes of the budget will be families, taxation and jobs. Although many of the families and taxation measures are known, the jobs measures are not. What is known is that they cannot cost much money. Even if it has made a deliberate decision to go slow on cutting the deficit in order to protect the economy, the government most certainly won't have decided to allow the deficit to blow out in order to boost the economy.

Measures that would have helped the budget long-term such as more slowly lifting the age pension are now off the table. They were too unpopular and couldn't get through the Senate.

Measures such as attacking negative gearing and withdrawing superannuation tax concessions won't even make it to the table. They stand the best chance of winding back the budget deficit over time (the cost of the super contributions tax concession will climb from $16.3 billion to $19 billion over three years and the cost of the super earnings concession will climb from $13.4 billion to $26.8 billion) but the government has decided to retain them in order to create a point of difference with Labor.

Tonight we will get a budget that will do little in net terms, even though it could. Its authors are hoping it's enough.

In The Age and Sydney Morning Herald

Tuesday, May 05, 2015

Expect a do-nothing budget that will cost us time

The Coalition's biggest mistake was not to tackle super in its first budget.

If it had, it could have argued it was inflicting pain all around. As it was, with the honourable exception of the (temporary) deficit repair levy, just about all the measures in the budget took money from the least well-off and left it with those on high incomes.

Which means the budget took money from women.

A gender analysis of its retirement income> measures finds that women are almost 80 per cent more likely than men to be on the age pension (which the budget wound back). Men are twice as likely as women to be in the income bracket that benefits the most from super tax breaks (which the budget left untouched).

Siobhan Austen from Curtin University told a conference in Canberra last week that by tackling pensions and not super, the budget further widened the income gap between women and men. Many of us wouldn't have consciously realised this (I didn't) but it left us with the unconscious impression that something about the budget wasn't quite right – that the decisions in it weren't legitimate, which made it easy for the Senate to frustrate it.

Joe Hockey and Tony Abbott defend their decision not to touch super by saying they promised to make no adverse changes to it in their first term, but they also promised that about pensions, a commitment they were able to skirt by saying that the new lower rate of indexation wouldn't cut in until after the next election.

In one way they have learnt their lesson. A week out from this year's budget, they are saying it will be "fair", which is an improvement. But in another way they have learnt the wrong lesson. Their definition of fairness seems to be to not offend anyone...

A collapse in revenue means this year's budget deficit will be more like $46 billion than the $30 billion forecast last budget night. Next year's will be more like $45 billion than the forecast $17 billion. There's not a surplus in sight. The longer the deficits continue and the longer the interest costs of running the deficits compound, the less likely it is there will ever be a surplus.

But rather than raise money in ways that might cut the deficit (however fair), Hockey and Abbott are ducking for cover. Budget cabinet has reportedly knocked back a plan to impose the goods-and-services tax on books and other low-value items that flood into the country in packages, in competition with those sold through shops. It would be fair, but what if someone took offence?

Until Sunday the government looked set to knock back a proposal actually supported by welfare organisations to cap the presently uncapped value of meals and entertainment expenses their employees can claim through the fringe benefits tax system. Even though welfare sector knows it's a rort and offered it up, the budget cabinet was nervous. The latest signs are that it will look again and might well agree to accept what the industry is offering it.

After Hockey mused about imposing a sort of limit on negative gearing (his mate, Sunrise presenter David Koch, once said that while he didn't want to lose negative gearing altogether, "there's got to be a limit"), Abbott and his social services minister Scott Morrison shut discussion down.

Meantime Abbott and his colleagues are spending money as if there is little need for restraint. Bypassing the usual channels, they are giving $4 million to the University of Western Australia to set up a "consensus centre" run by the Danish climate change contrarian Bjorn Lomborg.

They are spending $11 million on a series of largely incomprehensible advertisements promoting the idea of their intergenerational report. And an extra $35.5 million on a continuing festival of Anzac commemorations throughout the next financial year.

The message we are set to get next Tuesday is that there's no budget crisis (even though it's got worse) and that no one needs to get hurt (even though someone will have to be). It's the opposite of what we pay our leaders to do. As unlikely as it seems, it's not too late for them to improve things. One week out, the budget still hasn't been put to bed. That's expected on Thursday.

But big measures that offend large numbers of people are effectively off the table. Abbott promised to consult before any further major changes like the ones to Medicare, higher education and government benefits in his first budget. He hasn't consulted (at least not publicly), and that leaves him able to do very little. One week to go, the government looks like a rabbit in a spotlight, unable to do what's needed, and taking its time.

In The Age and Sydney Morning Herald