Surpluses By Sophists

13 May

Stephen Bartholomeusz at Business Spectator shines a brilliant, all-revealing light on the Rudd Labor “return to surplus”. Unsurprisingly, he shows that the government’s latest budget is really just an exercise in pure political sophistry:

Wayne Swan might claim that the Federal Budget wasn’t a political document but the lengths the government has gone to so it is able to forecast a $1 billion surplus in 2012-13 while still being able to announce some popular pre-election spending tends to contradict his stance. In fact the budget represents a very clever political strategy.

It is a strategy built on the mislabelled resource super profits tax and the increase in tobacco excise announced just ahead of the budget. Without those taxes the surplus wouldn’t have arrived three years earlier than originally forecast, assuming it does arrivethe whole budget is predicated on a massive windfall from the terms of trade generated by a continuing book in commodities.

The really clever bit is that Swan and Rudd know that the opposition can’t support the RSPT, at least in its present form.

By dedicating the revenues they say they will raise from that tax to spending on health, superannuation, cuts to company taxes et al they appear to have funded the core of their platform and will be able to go into the election with the cloak of fiscal rectitude – even though the detail of the tax and the actual revenue it will raise, if any, won’t be known until after the election.

The opposition, therefore, if it wants to match the government in terms of fiscal credibility and deliver that surplus in three year’s time, will start at least $12 billion behind it. It will either have to propose slashing spending or raising taxes, or both to fill in that gap.

The government is presumably betting that the RSPT and its attack on greedy miners and their foreign owners will play favourably in the electorate, particularly as the tax will be dedicated to probably popular measures. So, the opposition will be accused of supporting big miners and opposing worthy spending if it opposes the tax and the measures it is supposed to fund.

After the election, of course, if the Rudd government were returned, their planned protracted ‘consultation’ with the resource sector could, and almost certainly will, lead to significant changes to the detail of the tax.

However, while it might look like clever politics, the RSPT is destructive economics which is going to have a chilling effect on resource industry investment until it is finalised and certainty is restored and which will have long-term and damaging implications for perceptions of sovereign risk and Australia’s attitude towards foreign investment and investors, given the way the sector was ambushed by the nature of the tax and the language the government has used in promoting it.

Whether the tax is ultimately imposed in its current form or redesigned, it won’t raise the revenue the government is claiming it will to get to that $1 billion surplus and, in the meantime an increasingly angry resource sector is telling the world that Australia is now a less attractive and less stable destination for mining sector investment – direct or portfolio.

The RSPT might represent a clever political strategy but the way it has been unveiled and the anti-industry and xenophobic language the government has used to leverage the political mileage in it is increasingly damaging to the national interest.

One Response to “Surpluses By Sophists”

  1. val majkus May 16, 2010 at 6:38 pm #

    Barnaby Joyce has taken a swipe at the government’s debt position, which he said was in the range of $141 billion. “I know this is obvious, but you have to tell the Australian people this, just because you get a surplus, doesn’t mean you’ve paid off your debt,” Senator Joyce told reporters. Barnaby is right, of course. You need to achieve budget surpluses – lots of them – in order to pay down your debt.
    Well I don’t know whether the $141 B above includes the expenditure on the NBN which was not included in the budget – in any event a claimed return to surplus in 2012-2013 means only that we can start paying what the Govt have spent in this term;
    check out this article at which includes these words: ‘Recently, a lawyer friend emailed me an article written by Ross Greenwood, Financial Editor of The Nine Network and author of Money Matters. It is some weeks out of date but the basic premise of the article seems pretty well current. Greenwood took the Rudd government’s recently acquired debt (in the past 18 months), which may be approaching $200 billion. Rudd’s self-imposed borrowing limit is actually that —$200 billion.
    That’s $200,000,000,000 of borrowed money.
    Greenwood then did a very basic calculation using a home-loan calculator to work out the interest on the $200 billion over 20 years @ 4.67% interest (the current Government bond rate). The repayment rate came to $1.24 billion every month, for every one of the 20 years, or $15.4 billion every year. As Greenwood pointed out this is a government that 18 months ago had no debt. Whereas Gordon Brown has had 13 years to puff-up Britain’s debt to a trillion pounds, our Inner Cabinet of four — Kevin Rudd, Wayne Swan, Julia Gillard and Lindsay Tanner — have managed to tick-up what could be one fifth of a trillion dollars in just 18 months.
    I think this should be shouted from the hilltops; I certainly hope that Jo Hockey makes a point of it on Q & A on Tuesday – I think that most commentators and certainly most voters don’t realise that until there is a budget surplus we won’t start paying down the debt

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