Tag Archives: alan kohler

Business Leaders Urge Action On Problem They Do Not Want Solved, And Treasury Does Not Understand

6 Aug


There must have been something in the air last night.

While I was writing today’s blog on Treasury’s epic fail in its analysis of Australia’s structural budget deficit, it seems that our business elite were bending the ears of the nation’s journalists on the same topic:

Call to tackle deficit as business blasts budget

AUSTRALIA’S failure to prepare for the end of the mining boom is damaging the nation, business leaders warned as they expressed “zero” confidence the election campaign would deal with the structural budget deficit.

…business leaders also questioned Labor’s reliance on Australia’s AAA credit rating to bolster its economic credentials.

Former Future Fund chairman and Commonwealth Bank chief executive David Murray said some states that later suffered credit ratings downgrades or had been told a downgrade was possible had “done this for years – tell everyone it’s OK”…

Commonwealth Bank director and former AMP chief executive Andrew Mohl attacked politicians because they “don’t want to do anything structural” and warned that “current tinkering is doing nothing but creating uncertainty”.

“The chance of the structural deficit being addressed in this election campaign is zero,” he said. “I have no doubt the budget policy over the past five years, given the resources boom, has been too loose. There has been wasteful expenditure, policy formulation has been dysfunctional. If we face a fiscal shock, the economy is more vulnerable than it was. We have spent our ammunition and we don’t have much to show for it.”

The comments come after the government on Friday revealed a $33.3 billion revenue writedown in barely 10 weeks – a situation that Brambles and BlueScope chairman Graham Kraehe described yesterday as “incredible”.

“My fundamental view is that economic policy at the moment is absolutely ad hoc from day to day without any long-term cohesive, integrated plan,” said Mr Kraehe, who is also a former Reserve Bank board member.

“We have a history of increasing government spending throughout the resources boom and now that the resources boom is tapering off, there is no suggestion that we are planning to reduce government spending, instead of which we are just increasing taxes.

“To have a credible economic strategy, government of either persuasion needs to tackle government spending in a serious and co-ordinated way. That’s spending in the commonwealth budget and the overlaps in commonwealth and state. Unless we do that, with an ageing population we are going to continue to build on deficits.”

Last night, Mr Hockey said that on Mr Rudd’s logic, the European and American economies “with virtually zero per cent interest rates would be doing well, but they are not”.

Some business figures also said interest rates had been cut as the economy softened.

Aussie Home Loans founder John Symond said: “You’ve got to remember that the reason for the RBA dropping is because the economy isn’t performing as well as we would like.

“That’s on the back of some poor government decision-making – some has been fine, some has been awful.”

We really are screwed, when the loudest voices in calling for action on budget mismanagement are our business elites.

Especially when they — like Treasury — fail to correctly identify the cause/s of the structural budget deficit.

But then, this is to be expected.

Every .. single .. one .. of those “business leaders” quoted in the above article — yes, including Graham Kraehe — either are now, or were formerly, senior executives in the finance industry.

Merchants of Debt.

They are hardly likely to tell us the truth.

That the reason for Australia’s structural budget deficit, is not the mismanagement of the mining boom.

The prime cause of our structural budget deficit is exactly the same as Ireland’s:

While part of the revision to the IMF’s pre-crisis estimates of the structural budget balance is due to a lower estimate of potential GDP, the main reason for the change is that these estimates failed to capture the dependence of the fiscal position on an unsustainable boom in the housing sector (Kanda 2010). With residential investment and house prices soaring, property-based taxes grew at a pace well above GDP growth. Failure to recognise at the time that the bulk of these revenues were cyclical led to significant tax cuts and expenditure increases, which created a large structural hole in Ireland’s public finances.

At Business Spectator, leading business commentator and ABC presenter Alan Kohler also has a go at the structural deficit problem today. And he too, fails to identify the real cause:

What neither party will admit: budget heading for large structural deficit

What does all this mean for Australia, as it starts the first post-boom election campaign?

It means any promises based on confidence about knowing the future are meaningless.

The economic statement issued on Friday was both recognition of how rapidly the world is changing and a stab in the dark about government revenue between now and 2016-17. In truth no one has any idea, and least of all Treasury.

What we do know is that there is a structural budget problem related primarily to the ageing population and the growing cost of health care.

Sorry Alan.

Epic fail.

That’s a problem. Sure.

But it’s a coming problem.

The structural deficit is here, and now. It was caused in the past.

Interestingly, Mr Kohler flatly contradicts the Treasury in their working paper Estimating The Structural Budget Balance Of The Australian Government.

Their brilliant economic modellers are convinced that:

The key point to draw from the analysis is not the specific year in which the budget returns to structural surplus, but the steady improvement over time…

The estimates over the forward estimates and the projection periods suggest a steady improvement in the structural balance over time, reflecting over the forward estimates, the Government’s structural savings measures and, over the medium term, its commitments to limit real spending growth and allow tax receipts to recover naturally.

About The May ‘Surplus’ Budget – “It Won’t Actually Be Achieved, Of Course”

4 Apr

Alan Kohler points to the Emperor’s Clothes:

If Treasurer Wayne Swan and Treasury Secretary Martin Parkinson really do pull off a surplus in the 2012-13 budget it will be an incredible achievement.

It won’t actually be achieved, of course, when we come to look back on 2012-13 in hindsight, because it is bound to contain over-optimistic projections…


Just like last year’s ridiculous budget.

But just watch, dear reader.

Watch Wayne and friends – that is, the mainstream media – crow and pontificate and hail the magnificent “return to surplus”, “as promised”, under “extremely difficult” economic circumstances, come May the 8th, 2012.

An “on paper” forecast surplus, that has not a snowflake’s chance in hell of actually being delivered, come June 30 2013.

Strewth! What Is Alan Kohler Doing On “Their” ABC?!

21 Dec

I applauded ABC News Finance commentator Alan Kohler recently, for his brilliantly blunt article on Wayne’s MYEFO.

And here’s Alan speaking more dangerous truths on ABC’s Inside Business, his Sunday morning business show (h/t wakeup2thelies):

I’m shocked.

Wonders will never cease.

Big Truth told, on the government-funded national broadcaster.

If you are inclined to prayer, then you might like to petition for Alan’s personal safety.

Should he persist with commentary like this, he may need it.

Speaking of which, does anyone know how Alessio Rastani is faring these days?

ABC’s Alan Kohler Mauls Wayne’s MYEFO

30 Nov

In my opinion, ABCTV News ‘Finance’ and ‘Inside Business’ presenter, and Editor-in-Chief of Business Spectator Alan Kohler has increasingly shone as a rare beacon of (usually subtly hinted) truth in the mainstream economic commentariat over recent months. His excellent, pull-no-punches article today is very well worth reading. As Business Spectator viewing requires (free) registration, it is reproduced below in full. Suggest registering for his articles alone, and do follow @AlanKohler on Twitter.

Read on, dear reader (my emphasis added):

Wake up and smell a budget stinker

As everyone in business knows, a forecast is just a forecast. In times like these, it’s not even that; it’s a guess that you hope won’t look too stupid.

The World’s Best Treasurer has had to redo his budget because the one he did six months ago has turned out to be wrong. We told him at the time it would be, and so it was, but the new one looks worse – a shocker.

The forecast for GDP growth this financial year has been cut from 4 to 3.25 per cent, or by 19 per cent; the revenue forecast has been reduced by just 1.7 per cent.

Economic growth for 2012-13, about which nobody has the faintest clue, has been reduced by 13 per cent to 3.25 per cent. Revenue for that year has been trimmed by only 1 per cent.

Total tax receipts in 2010-11 were $280.8 billion (that’s the actual outcome, not a forecast).

In the current financial year receipts are forecast to be $315.3 billion – a rise of $34.5 billion, or 12.3 per cent. In 2012-13 they are now forecast to be $374.5 billion – $93.7 billion greater than the outcome for 2010-11, which is an increase of exactly a third.

Do these forecasts pass the smell test, Mr Chairman? No way Swanny, go back and try again.

In fact, what would happen if revenues for some reason turned to be flat for a couple of years? What would that do to our bottom line in 2013? Er, well, if that happened the 2012-13 deficit would be, um, $50 billion.

OK, how about this Wayne… given we’re facing the most uncertain economic outlook in our lifetime, with the prospect of a severe recession in Europe, possibly one in the US and a slowdown in China, and the probability of much lower commodity prices, the board will allow you to forecast revenue growth of no more than 5 per cent a year for the next two years. That would seem prudent, wouldn’t you say?

Now, as you know Wayne, we do need to run this business at a surplus in 2012-13 because we are facing a takeover from those bastards at Abbott & Co, so what would we have to do with expenses between now and then to report a surplus in 2012-13 under that scenario?

Well, um, that would mean revenue in 2012-13 of $308.7 billion. Actual expenses were $346.1 billion in 2010-11, so that’s a spending cut of $37.4 billion over two years, Mr Chairman. Right Wayne – the board thinks you should implement that.

That just illustrates the political importance of having implausible revenue forecasts that no one can disprove: $37.4 billion is a lot of welfare programs and/or a lot of public servants. Shadow Treasurer Joe Hockey says the Labor government has hired an additional 20,000 staff since 2007; sacking them all would only save less than $2 billion in salary and on-costs.

Will government revenues grow by 10 per cent between 2010-11 and 2012-13 or by 33 per cent, as forecast in yesterday’s MYEFO? Absolutely no one knows, least of all the bozos running Treasury’s macroeconomic models downstairs in Langton Crescent. But does 33 per cent revenue growth feel right, given everything we know about the world at the moment? Nah, it feels ridiculous.

But the wonderful thing about politics, as opposed to business, is that your board consists of executives who want spending cuts even less than you do, and you get to have a press conference at which you announce forecasts and guesses as if they have happened already. No wonder the world is a mess.

Bravo Mr Kohler!


Now, please note that the above recommendation is not to say that I agree with everything Mr Kohler says. On the contrary, I still find him guilty of occasionally (and hopefully, inadvertently) perpetuating many of the various myths and falsehoods underpinning our Great Australian Housing Bubble, as just one major point of difference.  However, I have been sufficiently impressed with Mr Kohler’s subtle (and sometimes not so subtle) hinting at the truth about both the Australian and more particularly the global financial situation over recent months, that I am happy to give a firm-yet-guarded recommendation.

Given that Mr Kohler is not only “mainstream”, but also a presenter on Their ABC, that is high praise indeed.

(h/t Twitter follower @kawunnee for bringing this article to our attention)

Loss-Making Tax “A Complete And Utter Fiasco”

24 Nov

The gummint has passed its Minerals Resource Rent Tax (MRRT) through the Lower house.

But only after “negotiating” deals with the Greens and Independents that … incredibly … actually render this great big new tax a net loss-maker for the government bottomline.

More on that in a moment.

But first, we bring you the brilliance of Barnaby Joyce’s well-justified mockery:

SABRA LANE: This was supposed to be the so-called “sunshine parliament” but a deal done last night to secure the Green’s support in the Lower House to pass the mining tax has the Opposition claiming dirty deals and the Green’s leader Bob Brown sounding sorry.

BOB BROWN: I apologise to people in the media and in the public who want to know about this but that’s the nature of the arrangement we have with the Government. And it will be, the details will be forthcoming and the Government’s got good reasons for not wanting to reveal it.

SABRA LANE: The Greens are still reserving their rights in the Senate, prompting the leader of the Nationals in the Senate, Barnaby Joyce, to go on the attack this morning.

BARNABY JOYCE: Every time we see the Labor Party do a deal, this tune starts going through my head and goes something like this: Da da dada da da dada… because we’ve got – it’s Monty Python.

It’s Monty Python. It’s Monty Python, it’s The Life of Brian.

We’ve got Bob Brown, Bob Brown who is like leader of the Judean front. “What have the Romans done for us?” What has the mining industry done for us? What have the – oh aqueducts, kept us out of recession, supported our standard of living.

You know, “What have the Romans done for us?” We’ve got Terry Jones, you know, Terry Jones is obviously Tony Windsor. “It’s not the Messiah, it’s just a naughty boy.” You know, he’s out the front there.

They’re not the Messiah, they’re just naughty boys.

SPEAKER OF THE HOUSE: Senator Joyce. Senator Joyce, could I just remind you to refer to senators and members by their correct titles.

BARNABY JOYCE: Okay and of course, you know, we’ve got Mr Rob Oakeshott, the Member for Lyne, who reminds me of Eric Idle. He’s always looking on the bright side of life, no matter what’s happening.

Graham Chapman, well that’s obviously Andrew Wilkie. And Michael Palin is Mr Adam Bandt.

But see the problem is it’s just a fiasco. We have no idea who’s running the show. It’s a complete and utter fiasco. In fact as we speak I look at a quote from Senator Bob Brown: “We’re very disappointed when the Government reached an agreement with Andrew Wilkie.”

Well we can’t have someone usurping his position as being the nuttiest person in the palace. No, that’s all his position.

Barnaby is right.

It’s a complete and utter fiasco.

Here’s what Alan Kohler (ABCTV News Finance) had to say about the MRRT, in Business Spectator (reproduced in full, emphasis added … and h/t Twitter follower @John_Poelwyk):

Mourning Gillard’s mining disaster

Australia’s effort to levy extra taxes on mining companies has been an unmitigated debacle, capped by the passage early this morning of the Minerals Resource Rent Tax with a further last-minute compromise.

It is one of the great lose-lose outcomes. We can only hope the Senate knocks it back.

To get the vote of Andrew Wilkie, the Member for Denison, a seat about as far from mining as it’s possible to get, the government increased the profit threshold at which the tax kicks in, from $50 million to $75 million.

This is now a deficit tax – it will cost more in concessions to get it passed than it will raise in new revenue. That gap widened by about $100 million last night with the Wilkie amendment.

There are two big problems with the MRRT: state mining royalties can be offset against it and an increase in superannuation has been shackled to it.

A resources rent tax was proposed in the Henry Tax Review of 2009 as part of a package of measures designed to deal with the pressure the resources boom was putting on non-mining industries.

The idea was to replace ad valorem mineral royalties on mine production volumes with a rent tax on profits because governments weren’t sharing in the big increase in commodity prices that increased the terms of trade and therefore the currency.

There was, and is, a fundamental disconnect between the terms of trade boom that was killing manufacturing and tourism and the tax revenue governments were getting from it because royalties are levied on volume not price.

The Henry proposal involved a 40 per cent extra resources rent tax and a reduction in company tax to 25 per cent, plus a series of depreciation and capital allowance benefits for manufacturers and other small businesses.

The last time there was a sustained terms of trade boom in Australia, in the late 19th and early 20th centuries as a result of gold, wheat and wool exports, the policy response involved regulating wages through the Harvester Judgement and then imposing a tariff on imports to protect manufacturing. This so-called Australian Settlement had the effect of insulating manufacturing from the terms of trade and its effect on the currency but led to a gradual, disastrous decline in competitiveness.

It’s worth pointing out that the United States had the same terms of trade problem 100 years ago but chose not to protect manufacturing, with the result that it became the great manufacturing powerhouse, only eventually destroyed in the 21st century by China’s currency manipulation.

In the 1970s and 1980s Australia removed tariff protection and centralised wage fixing, so that the new terms of trade boom – ironically resulting from China’s defeat of America’s manufacturing supremacy – leaves Australian manufacturing entirely exposed to its effects.

Former Treasury Secretary Ken Henry had been banging on about the two-speed economy problem for years, and the Future Tax System review that he chaired contained his solution: a resources rent tax to be spent on reducing company tax. Without wage regulation and tariffs there is no other way to protect manufacturing from the effects of the mining boom.

But the Labor government has managed to completely mess it up.

First the Resources Super Profits Tax was plucked out of the Tax Review by Wayne Swan and Kevin Rudd and dumped on the miners by surprise. They revolted and won.

Then Julia Gillard negotiated a lower tax on iron ore and coal with BHP, Rio Tinto and Xstrata so that only the smaller companies with smaller advertising budgets would complain. As part of that, she was forced to allow existing mineral royalties to be deducted from the tax, which totally negated the idea of replacing ad valorem royalties from a tax on profits.

And then, to make the whole exercise completely pointless, she tied it to an increase in the superannuation guarantee levy from 9 per cent to 12 per cent.

That increases manufacturing costs instead of reducing them, and vastly increases the cost of the exercise to the federal budget.

According to Brian Toohey in this morning’s Financial Review, the cost to the budget of the extra superannuation tax deductions will be $4.2 billion in 2019-20. The total cost of the concessions connected to the MRRT will be $9.4 billion in that year – less than a third of which is paid for by the revenue to be collected from the MRRT.

In the 2012-13 financial year, in which the budget is supposed to return to surplus, the net cost of the MRRT package – revenue minus giveaways – is $1.7 billion.

It is, in short, a joke. Everybody loses. It was an idea designed to help Australia deal with the terms of trade boom that has been bastardised by politics into a complicated impost on mining that achieves nothing at all and in fact worsens the position of everyone involved.

Business as usual then, for the Green-Labor-Independent comedy show.


Why not.

This show really has gotten so bad that if you don’t laugh you’ll …. ?

Who To Believe On Super?

16 Aug

From ABC Insiders:

BILL SHORTEN: Well in the last two years, and whilst the final figures haven’t come out from last year, Chant West who are one of the organisations who monitor [superannuation fund] returns show that the year before last the returns on average for a balanced fund was 8.9 per cent. The year just passed – 9.2 per cent.

From ABC TV’s Alan Kohler in Business Spectator:

For the past five years the market has given nothing. After the 20 per cent correction between April 11 and August 8, the ASX 200 accumulation index (capital return plus dividends) has now produced a zero five-year return.

From ABC Insiders:

BILL SHORTEN: As an actual investment product super’s done reasonably well over the last 20 years.

From Alan Kohler:

The first fifteen years since the superannuation guarantee legislation was first introduced in 1992 went extremely well. The compound annual rate of return provided by the sharemarket – like manna from heaven – was 15.5 per cent…

Of course, not all that return dribbled into the members’ accounts: the superannuation industry, consisting of advisers, platforms, fund managers and the super funds, were furiously skimming the accounts and getting gloriously rich.

Still, anyone retiring in 2007 was a big winner and didn’t begrudge the skimmers their little portion. Everyone was a winner!

But now life has changed completely. The five-year total return from the sharemarket is zero; the 20-year total return is now below 10 per cent; the ten-year return is just 6.6 per cent. The fees skimmed off by the industry – which of course continue even though the balances have gone backwards – now represent a much larger percentage of the long-term return.

Suddenly accumulation super lacks the vital ingredient of accumulation. And there is a clear risk that the bear market will continue for some time yet, with both Europe and the United States mired in debt.

From ABC Insiders:

BARRIE CASSIDY: So what do you say then to people who got a bit of a fright this week, that they’ve just got to hang in there?

BILL SHORTEN: Well certainly if you’re right at making a decision to retire in the very near future, if you’re a self-funded retiree and you’ve got a portfolio of shares, this has been incredibly tough; just as was the first global financial crisis in 2008.

But I would say that now is not the time to make snap decisions. I would say that in the long run superannuation in the last 10 years, say if you’ve been in an industry fund, it’s been 4 per cent each year. I would say that the shares market generally has performed well in Australia. I do believe that things will improve.



Why is it that anyone other than politicians who gives financial advice, has to be licenced to do so, or risk facing the full force of the law?

Kohler: A Surplus Of Political Stupidity

14 Aug

From Business Spectator:

Yesterday’s weak employment figures confirm what my colleague Robert Gottliebsen has been arguing for months: that the economy – global and domestic – is much weaker than anyone thought. Forcing the budget back into surplus by 2013 by cutting spending or raising taxes is probably a stupid idea, just as raising interest rates must now be off the agenda.

But the Opposition and the media will now ensure that the most important issue is not how the settings should be adjusted for changed circumstances, but whether the government breaks a promise.

Same goes for the carbon tax. If Oliver Marc Hartwich in today’s KGB roundtable is only half right about the dire future of the European Union and the euro, introducing a carbon tax next July would be the silliest idea imaginable.

All three of the economists on the roundtable – Hartwich, Warren Hogan of ANZ and Su-Lin Ong of RBC – are pessimistic about the global economy. They are not alone. The very best that can be hoped for is that the European and American economies muddle through this new debt crisis and they end up with low growth rather than a recession.

In the circumstances, should the government press on with the planned carbon tax next year? Of course not, unless there is some miraculous renaissance of the developed world economy between now and then.

That looks extremely unlikely. Yet at a Town Hall forum in Perth yesterday, the prime minister vowed to press on with the carbon tax, because Treasury has advised that the economy will continue to grow even if it is imposed.

Right. That’ll be the modelling then. That model on the computers in Langton Crescent, Parkes, in Canberra, a million or so miles from the real world.

Well said.

Very pleasant to see that Alan Kohler has about as much faith in Treasury modelling as I do:

Why Would Any Sane Person Believe Treasury’s Carbon Tax Modelling When Their Budget Forecasting Record Is This Bad?

The Pricing Carbon Choir – Why Should *Any* Sane Person Trust Economists After The GFC?

And as much as Barnaby Joyce does:

Barnaby Bamboozles Chief Of Climate Change Modelling Unit … Again

Kohler Agrees – Barnaby Was Right

2 May

It’s getting embarrassing now.  Not only has Standard & Poors, CNBC, Deutsche Bank, and Barack Obama all agreed that Barnaby was right on US debt.  Now our very own ABC News Finance, ABC Inside Business, and Business Spectator heavyweight, Alan Kohler, has conceded it too.

From ABC’s The Drum, buried within comment about the impossibility of Labor achieving their promised surplus budget next year:

The revenue shortfall will be worsened by a rising exchange rate over the next two or three years as the United States approaches an inevitable fiscal crisis.

Barnaby is right.

Victory Declared At Half-Time

4 Mar

From Business Spectator:

‘Declaring victory at half-time’ is a syndrome which afflicts the entire debate over our current economic situation: optimists are of the opinion that the crisis is all over now, while pessimists think it’s only just begun. On this front, as always, I regard history as the best indicator of who may be right.

On this front, I can’t commend highly enough the site New from 1930, which from January 1 2009 began publishing summaries of the Wall Street Journal from January 1 1930. The last few entries include these pearls of wisdom from February 1931:

An Old-Timer believes the market rally “will do more to restore prosperity than anything else.” Total security values have increased over $20B since start of year; barring another dive in the market, this assures a recovery since the 10M-15M US owners of stock feel richer. Bulls say the ease with which considerable profit-taking has been absorbed recently is “the surest indication of a strong healthy market.” Market has rallied very substantially; “if it runs true to form, it will have one of those ‘healthy reactions’ that will, according to the bulls, strengthen its ‘technical position.’” “The buying power of the people and the corporations still is large … In other words, the country never was in a better position to stage a comeback after a depression … (Feb. 25)

One banker cites plenty of evidence that the backlog of consuming power is largest its been in years: corp. inventories are down 20 per cent from a year ago, and even more from 2 years ago; corps. are holding more cash; production of many products is below requirements; products have been wearing out for 18 months of deferred buying; security values up $20B since Jan. 1; easy credit; record-breaking savings deposits. Last year there were few rallies on which to sell; this year there have been few dips on which to buy. Public interest has grown this year, but is still small compared to 1928 and 1929; “a market with a growing public interest is a dangerous market to sell short.” (Feb. 26)

Yeah, right:  in both 1930 and 1931, the belief was widespread – at least in the financial community – that the Depression was over, and recovery was just around the corner. As Alan Kohler noted, at least early on during the Great Depression, people didn’t realise that they were in it. They too, were declaring victory at what turned out to be not even half-time.

A fascinating and highly detailed analysis follows, including a number of interesting charts that show just why Australia ‘appears’ to have done so well – up to half time.  And why the Debt-Deflation which causes depressions has not been solved, but instead, simply made even worse by government intervention.

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