Tag Archives: budget

Joyce: ‘More Modelling Than Naomi Campbell’

3 Jun

Barnaby Joyce accuses Labor of using dodgy statistics in its propaganda for its Orwellian-named “Resource Super-Profits Tax” (RSPT).

From The Australian:

The Federal Government has more modelling “than Naomi Campbell” on its proposed mining tax, but none of it makes any sense, Nationals Senate leader Barnaby Joyce says.

He has accused the Government of hiding behind questionable statistics in its push to implement a 40 per cent tax on the super profits of mining companies.

“They’ve got more modelling than Naomi Campbell, but it’s all wrong,” Senator Joyce said today.

Indeed, the modelling is all wrong.

Professor Steve Keen, winner of the Revere Award for being the international economist who first and most cogently forewarned of the coming GFC, has demonstrated that Treasury’s modelling is based on economic fallacies and “a gaping hole in logic“, in a series of articles for Business Spectator.  They can also be found on Professor Keen’s DebtWatch blog.

Returning to Barnaby:

He took special aim at Treasury over pie charts Treasurer Wayne Swan used to back the Government’s argument miners have been paying half the tax they were paying a decade ago.

Respected business commentator and ABC TV’s Finance presenter, Alan Kohler, today checked the numbers for himself in a column for Business Spectator titled, “The Government’s RSPT Spin Is A Disgrace”:

Another big accounting firm, Deloittes, has gone through ATO data and demonstrated that the effective tax rate for Australian mining companies (company tax plus royalties) is 41.3 per cent, compared with the average across all sectors of 27.18 per cent. I went into the ATO website and did the same calculation: it’s true.

In one of its taxpayer-funded advertisements, the government says: “Before the last boom Australia got 1 in every 3 dollars of mining profits in royalties and resource charges, we now receive just 1 in every 7 dollars.”

This statement is a disgrace, even leaving aside the fact that we are paying for it.

Back to Barnaby:

Senator Joyce wants to see the figures Treasury used to formulate the charts, but Departmental officials have opted to stall at a series of Senate estimates hearings this week.

“The pie charts don’t make any sense,” he said.

“They’ve had four days to explain two pie charts and they can’t do it.”

Indeed, according to mining magnate Andrew ‘Twiggy’ Forrest today, the head of the Treasury department Ken Henry – the architect of the now infamous Henry Tax Review – can’t even explain it himself:

Mr Forrest said Dr Henry had effectively conceded at a lunch with leading economists late last month that he was uncertain how financiers would view the rebate.

“When asked … he (Dr Henry) said, `I’m sure some clever banker is going to find out how to make it work’,” Mr Forrest said.

“What he’s saying to the Australian people is that he doesn’t know.

“Ken Henry doesn’t have the answers and what I know with absolute certainty is that he didn’t consult with the banking industry, like he didn’t consult with the mining industry.

As this blog has highlighted many times, Treasury secretary Ken Henry is not fit to hold his position, and should be sacked.  The huge controversy over the RSPT only serves to confirm this view.

Yesterday Andrew Forrest revealed details of his own private conversations with Ken Henry over the RSPT, during which Henry admitted that the “logic” of his RSPT all rests on one critical assumption.  The fact that this assumption is dead wrong, further proves Henry’s ivory-towered, disconnected-from-economic-reality incompetence:

“Ken has described to me how the tax works and it relies on a critical assumption, that the so-called guarantee of 40 per cent of losses in bankruptcy actually has a value to financiers,” Mr Forrest told ABC Radio.

“If it doesn’t, then in Ken Henry’s own words, the logic of the entire tax collapses and this is just a 40 per cent take, which of course will then damage the industry.”

Mr Forrest said he had told Mr Henry that the 40 per cent tax credit guarantee on losses would be worthless to the mining industry as it would not be worth anything to financiers when they decided on loans.

“It theoretically works for economists in textbooks, it doesn’t work in the real world.”

Which is exactly what contrarian economist Steve Keen says is true about almost all mainstream economic thought, in his brilliant book “Debunking Economics“.

UPDATE:

From The Australian:

One of Australia’s most respected economic forecasters, Chris Richardson, has demolished the intellectual and economic modelling behind the government’s resource super-profits tax, effectively telling Treasury it got it badly wrong..

The assault on the fundamental logic of the tax will seriously embarrass the government and the architect of the tax, Treasury secretary Ken Henry, given their repeated claims that their model will not deter investment and the mining industry is merely running a fear campaign.

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Rudd’s Smoke And Mirrors Accounting

26 May

Media Release – Senator Barnaby Joyce, 26 May 2010:

Questioning in Senate Estimates today showed that the Labor Party has been cooking the books to make their spending plans look better.

In the budget the Labor Party brought forward about $1.5 billion, which was earmarked for spending in future years for State and Local Governments, to this financial year.

“Much of this will be paid on June 7. It is not clear what State and Local governments will do with the money for the 23 days that will be left in this financial year. Perhaps the interest will help their bottom line at the expense of the Commonwealth’s”, Senator Barnaby Joyce said.

“The Government could not provide a cogent reason for bringing forward this spending. They could not produce one letter from a local government requesting an early transfer of spending.”

“Labor has produced an accounting trick to increase the base of their funding in 2009-10 and therefore make the amount they can spend higher under the 2% expenditure cap in forward years.”

“The Government’s financial acumen is demonstrated by them losing $11 million on the Sydney West Metro project. In last year’s budget the Government gave NSW $91 million for this project. Not much more than six months later the NSW government scrapped the project, with $11 million of the Commonwealth’s contribution going west on helpful things like ‘consultant fees’.”

“This is another clear example that the Australian people simply cannot trust this Labor Government to deliver economic responsibility.”

More Information- Jenny Swan 0746 251500

This government is constantly ‘cooking the books’.

Please take the time to review the following exposés of other accounting ‘tricks’, in previous Rudd government budgets –

Labor: Hide The Increase

Labor Fakes GDP By 4.5%

Tanner Lies About Budget, GFC

Labor’s $50bn Budget Fraud

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Barnaby Bets Henry

26 May

From AAP:

Queensland Senator Barnaby Joyce wants to bet federal Treasury boss Ken Henry $1000 that the government fails to deliver its $1 billion 2012 budget surplus.

The forecast surplus depends largely on the government’s proposed 40 per cent resource rent tax.

Senator Joyce said achieving the 2012 surplus will be miraculous.

“Does Dr Henry truly believe that?,” the Nationals leader told ABC television on Tuesday.

“If he does, I’m willing to take a $1000 bet with Dr Henry, and if he is … a billion dollars or better I will pay him $1000.

“If we have a deficit, is he prepared to match my money?”

Senator Joyce has clashed with Treasury secretary Ken Henry previously.  When Barnaby was the Opposition’s Shadow Finance Minister, the insufferably arrogant Ken Henry appeared to relish taking every opportunity during Senate Estimates hearings… and in public speeches… to make thinly-veiled criticisms about his economic views.  Criticisms that the feral media pack wlecomed gleefully in their constant baying for Barnaby’s sacking.

Ironically, the increasingly dire global economic events are demonstrating ever more clearly, that when it comes to economics, Ken Henry is usually wrong.

And Barnaby Is Right.

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Mining Tax Puts Australia On Frontline of Market Fury

21 May

Highly respected Australian economics commentator, Robert Gottliebsen, puts forward the same basic point as investment giant Goldman Sachs/JB Were in their recent note to clients – that the Rudd’s government’s mining tax is a prime cause of the dramatic collapse in the Aussie sharemarket and Aussie Dollar.

From Business Spectator:

Global stock markets are losing faith in governments to manage the escalating problems stemming from the sovereign debt situation. But it is worse than that. Bankers are also losing confidence in governments. The sharp falls in stock markets will affect business activities and will have repercussions on economies around the world.

Solvent governments such as Germany are effectively borrowing vast sums to prop up bankrupt countries like Greece and most of the other PIIGS . The bankers say it will not work. Traders are liquidating their portfolios and the shorters are selling European shares.

And whereas we should have been one of the pillars of stability in this global crisis, our crazy mining tax has caused Australia to be in the front line of the market fury.

We have already been hit by a massive bear raid and now we will hit again by the falls on Wall Street.

We need good government at this crucial point in history. Instead we have bad government, so our economic recovery will be stalled if markets keep plunging. Treasury’s optimistic budget forecasts now look as silly as its mining tax.

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Joyce: Rudd Expects Miners To Pay Off The Debt

20 May

Media Release – Senator Barnaby Joyce, 19 May 2010:

Senator Barnaby Joyce, whilst on his “Straight Talking Tour” in Deniliquin said, “It was interesting to read the answer given yesterday to a question I asked on notice at the Senate Standing Committee on Economics in February as to what our debt position is.”

In 2008, there were six countries in the OECD that had higher net foreign debt as a proportion of GDP than Australia. These countries are Iceland (355 per cent of GDP), Portugal (72 per cent of GDP), Hungary (72 per cent of GDP), Greece (68 per cent of GDP), Spain (66 per cent of GDP) and New Zealand (60 per cent of GDP). In the same year, Australia’s net foreign debt amounted to 56 per cent of GDP. Around 10 per cent of Australia’s net foreign debt is held by the public sector. In the US, around 64 per cent of its net foreign debt is held by the public sector while in Greece, the public sector holds more than 100 per cent of the stock of net foreign debt.

“I also note that our Commonwealth gross public debt has gone from $139.182 billion to $141.282 billion in the last week. In addition to this is the fact that the aggregate borrowing of the states’ non-financial public sectors is expected to be $164 billion in 2009-10. There is also the money owed by entities such as utility companies that have borrowed money to pay state so-called ‘dividends’. As these debts do not come under the government sector financial reporting, who knows how much they owe.

Are we to believe that this government with their current track record has the capacity to fix things up over the next three years?

The Labor government solution is to go to the only section of the community that is making good money and to impede them on the capacity to pay off the debt. Australia has to maintain the vibrant integrity of its mining sector especially if the global economy starts to peel off through the ructions that are currently being seen in Europe. A resource tax would have to be the most foolish decision that a government could make at this point of time in global economics.

The Labor Party members have to ask themselves one question. If the mining sector is not bringing in money to our nation, and the agricultural sector, which they have managed to tie up with green and red tape, is not bringing in the money, then where exactly are our export dollars going to come from? Export dollars underpin the service industry where the vast majority of Australians work. You may not work in an export industry, but your pay depends on them.

In simple terms, if no money turns up on the table from export dollars, there is no money to pass around the table to reflect our GDP and ultimately to pay the debt on what is one on the most indebted nations on earth.”

More Information- Jenny Swan 0746 251500 / 0438 578 402

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Gittins Nails ‘Rudd’s Budget Trick’

17 May

Economics Editor for the Sydney Morning Herald, Ross Gittins, hits the nail squarely on the head in critiquing the latest Budget, and at the same time, smashes the lamestream media’s pathetic reporting of the Rudd smoke ‘n mirrors ‘trick’:

The annual debate about the budget gets ever more unreal. This year it reached the height of absurdity. Budgets used to be about what the government plans to do in the coming financial year. Now they’re about what supposedly will happen any time over the next four years.

How unreal can you get? Who on earth knows what will happen over the next four years? No one. Certainly not Treasury (nor any of the smarties who think they know better than it). This time last year Treasury’s best guess was that unemployment would peak at 8.5 per cent next year; now we know it peaked at 5.8 per cent in the middle of last year.

This time last year we were told revenue collections over five years would be down $210 billion on what the ”forward estimates” had told us the year before. Now we’re told they’ll be down $110 billion – but why would you set much store by that guess? We know from repeated experience that Treasury is quite bad at telling us in early May what the budget balance will be at the end of the following month. And yet we take seriously what it says the balance will be in three or four years’ time.

This year there’s been huge emphasis – encouraged by the government’s rhetoric and amplified by the media (including yours truly) – on one figure: the projected budget balance in three years’ time, a surplus of $1 billion. Hallelujah! Home and hosed. All over bar the shouting.

How absurd can you get? Treasury isn’t even prepared to dignify this figure with the status of a ”forecast”? It’s the product of a completely mechanical, punch-in-predetermined-numbers ”projection”. Here’s another absurdity: the public debate about the budget treats all its figures as if they were accomplished facts. No ifs or buts or maybes. And do the purse-string ministers – who know better than anyone how unreliable these figures are – make it their responsibility to warn us not to take them too literally? Not a bit of it.

Here’s Lindsay Tanner: ”The result is that we are back in surplus three years ahead of schedule in three years’ time and the level of debt Australia has will be half of what was initially projected” (my emphasis).

Last year’s projection was rubbish, but this year’s is fact. Of all the (inescapably) rubbery figures in the budget, the one we’ve fixated on is the rubberiest: the $1 billion cash surplus in 2012-13. The one thing you can bet on is that the budget balance that year won’t be a surplus of $1 billion.

…

This relatively recent shift from focusing on the budget year to taking a blurry look at the next four years has made it easier for governments to manipulate our perceptions of the budget. And boy, weren’t the pollies working hard at it this year.

Read the rest of Gittins’ detailed and brilliant critique here.

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Is The China Bubble Starting To Burst?

14 May

We’ve just seen the Rudd Government present a truly fantastical budget.  One that relies completely on the hopeful fantasy that the Chinese building boom will continue for a decade to come, and so, a “great big new tax” on the “super profits” of mining companies can return the budget to surplus.

A lovely story.

But what do professional strategists on the China economy have to say about China’s prospects?

From MarketWatch:

China’s economy is teetering on the edge of a major slowdown … according to a noted China strategist.

David Roche, an economic and political analyst who manages the Hong Kong-based hedge fund Independent Strategy, says the world’s third-largest economy is now on the brink, faced with the inevitable reckoning that follows an extended bank-lending binge.

“We’ve got the beginnings of a credit-bubble collapse in China,” said Roche, predicting the economy will likely cool from its stellar double-digit growth rate to a 6% annual expansion as a result.

While that may not sound bad, Roche believes the collateral damage from the cooling will be anything but mild, as the banking sector comes under pressure from cumulative years of bad investment and mispriced capital.

The emerging picture is one of a substantial contraction in credit growth and infrastructure expenditure, he says.

The shrinkage is grim news for an economy heavily dependent on such outlays. China managed to escape recession during the global crisis mainly because of bridges, railways and other infrastructure-project spending, estimated to have accounted for about 90% of economic growth last year, according to Roche.

About 85% of the funding for these projects was arranged by local government financing vehicles “borrowing money they can never repay” from state-owned banks, says Roche. Nearly 3 trillion yuan ($440 billion) of the 11 trillion yuan extended to these entities has been wasted or stolen, he estimated.

***

More worryingly, as bank lending dries up, there won’t be the firepower to sustain new investments in infrastructure, eroding a core pillar of China’s growth model, he said.

Much of the focus on potential asset bubbles in China has been on the property sector, but Roche suggested that housing-price inflation is intertwined with unsustainable gains in other areas.

***

A slowing Chinese economy could also have ramifications for the resource sector.

A scaling back of the infrastructure-building binge is negative for industrial commodity prices such as copper and iron ore, with the latter potentially slumping 50%, he said.

“I would not own resource stocks,” Roche said.

Iron ore prices to fall by 50%?

Hmmmmm… any guesses what that would do to the “super profits” of mining companies? And to the “great big new tax” that Rudd Labor is relying on to get the budget back to surplus?

UPDATE:

Calculated Risk notes that the Shanghai Composite Index is falling already –

Keep an eye on the Shanghai index (in red). It appears China’s economy is slowing.

Shanghai SSE in red (click to enlarge)

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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 arrive – the 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.

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Labor’s $50bn Budget Fraud

13 May

Economist Terry McCrann exposes yet more of the same blatant fiddling the books in this year’s Budget from Labor.  $50 Billion worth of “fiddling”.

From the Herald Sun:

Wayne Swan’s budget is built on two great fiddles. Appropriately, the fiddles relate to the Rudd Government’s two great stupidities – the National Broadband Network and the Emissions Trading Scheme.

The fiddles enable the government to hide up to a massive $50 billion of new spending. So much for the claim they’ve pulled the pursestrings tight.

They also enable the government to ‘keep’ the growth in spending in the 2013-14 year to just 1.9 per cent. Without the fiddles, spending would actually have grown by at least 3.5 per cent in that year – shattering the government’s 2 per cent ceiling.

Now yes, the government’s second great stupidity, the ETS, has been ‘deferred’, while the first marches on…

Ditching the ETS enables the government to take up to $30 billion of proposed spending on it out of the budget and replace it – or most of it – by new spending. With, in an exercise of fiscal magic, no increase in the total spending number!

While separately the $26 billion-going-on-$43 billion to be spent on the NBN is just ‘disappeared’ almost completely from the budget! …

So, put the two together – the ditching of the ETS and the “no formal response” to the NBN – and the government has quite probably hidden as much as $50 billion of very real new spending out to 2013-14.

And blown its 2 per cent growth target right out of the very dirty fiscal water.

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Barnaby’s Reminder Of The Obvious

13 May

From AAP:

Nationals Senate Leader Barnaby Joyce said he would leave it to Mr Abbott to outline the coalition’s response to the budget.

But he did take 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.

I wonder how many mainstream reporters actually know that this is obvious?  And I wonder how many reporters will heed Barnaby’s advice, that “you have to tell the Australian people this“?

Few if any, I’ll wager.  I would happily bet that a poll taken now would show that most Aussies have been thoroughly hoodwinked by the Rudd Labor and media ‘spin’ lies campaign… and think that a (claimed) return to surplus in 2012-13 means that the debt wil be all paid off.

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