Tag Archives: david murray

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

6 Aug

see_no_evil_hear_no_evil_speak_no_evil___three_monkeys_photo-1280x1024

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.

Advertisements

David Murray Shows The Greens And MSM Are Clueless. Again.

18 Apr

Former chairman of the Future Fund, David Murray, ruffled lots of establishment feathers during his tenure, particularly for his scathing criticism of the Warmageddonist movement.

Now, he has shown up the Greens – and, the entire lamestream economics and political media contingent – with his astute comments about the real reason why the government must balance the nation’s books.

From the Australian (emphasis added):

FORMER Future Fund chairman David Murray has accused the Greens of making “ill-advised” demands on the federal budget, declaring the priority should be to protect the government’s credit rating as the global financial system remains under strain

Mr Murray, former chairman of the nation’s $73 billion sovereign wealth fund and a former Commonwealth Bank chief executive, said he was concerned about the Greens’ suggestions that curbing government spending was not important, given the woes in the global economy and the size of the blow-out in the budget at the peak of the global financial crisis.

“What’s at risk here is that with very significant offshore borrowings and a shaky world for raising capital, if the commonwealth in particular can’t hold its ratings, that will affect the ratings of the banks, that will affect the cost of debt, and it also means that the commonwealth is not there in the same measure as a backstop if things go wrong again and the banking system can’t fund itself offshore,” Mr Murray told The Australian.

That’s the higher risk that has to be managed at the moment. We don’t control what happens in the rest of the world. You need the commonwealth rating as a backstop because of what’s going on elsewhere in the world. You can’t put that at risk. To do that you have to achieve a budget that is cash-neutral at least, so that the debt stabilises and within that cash neutral position you can pay interest.”

Exactly right.

As we have seen here at barnabyisright.com for many months now, the government (and the economy) are now trapped by the errors and abject stupidity of the past.

The credit ratings agencies have put our government on notice that the credit rating of the government – and more importantly, of the banking system – is contingent on the government showing a credible path back to balanced budgets. Why? Because in the GFC, the government explicitly and implicitly guaranteed our hugely overleveraged, foreign-debt dependent, housing market exposed banking system, using the sovereign balance sheet.  If the government can not promptly curb its ever-rising debt and deficits, then the government guarantee propping up the banks will lose credibility.

On the other hand, if the government does attempt to achieve an actual surplus in 2012-13, and not just a forecast for one on May 8th, that spells disaster for the economy too.

How so?

See for yourself – Labor’s Inbred, Debt-Fed Chickens Coming Home To Roost.

We are Ireland Mk 2.

Too Little Too Late

30 Mar

[h/t for video to wakeup2thelies]

Great, isn’t it?

As we have seen in last week’s post on the too-high AUD, and again in today’s post on the mining tax, it seems that it is only after a problem is created, only after diabolical, and/or idiotic, and/or treasonous legislation is actually passed into law, that the legislation starts to receive any serious scrutiny and criticism from the “experts”. And, for that criticism to be prominently and neutrally reported by the mainstream media.

From AAP via Business Spectator:

Murray launches attack on ALP policy

The outgoing chairman of the Future Fund has launched a stinging attack on the Gillard government ahead of his departure next week.

David Murray described the carbon tax as the worst piece of economic reform he had seen in his life, warning it would be very bad for the economy.

It would raise costs within Australia and reduce the export competitiveness of energy-related commodities.

Speaking on ABC radio, he also fired a shot at the mining tax, saying it was “clumsily” designed and introduced.

“The timing at the top of the terms of trade was not good,” he said.

UPDATE:

Ummmm … hasn’t the government been tirelessly claiming that households will not be worse off under the CO2 derivatives scam, because of the “compensation” package?

The unions disagree:

Unions want wage increase to offset carbon tax

A group representing the Australian Services Union and Queensland Public Sector Union plans to factor in the cost of the carbon tax during bargaining negotiations with the Queensland government later this year, arguing the tax will raise the cost of living for their members, according to a report by The Australian.

The Together group, representing the two unions, were supporters of the carbon tax, but now say the $8 billion household compensation package would not cover the cost of the carbon tax for their workers.

“They are compensating 60 per cent of people for some of it,” Union secretary Alex Scott said, according to The Australian. “That’s far from full compensation. We want to make sure we don’t go backwards in terms of cost of living.”

The prospect of carbon tax costs factoring into union wage negotiations has sparked growing concerns among employers over fears the new tax will cause a ripple effect that will raise the cost of production and labour beyond expectations.

UPDATE 2:

From the Australian:

OUTGOING Future Fund chairman David Murray has condemned Labor’s carbon tax as “the worst piece of economic reform I have ever seen in my life”.

Mr Murray, who has also lashed the Gillard government’s mining tax, warned the tax would undermine the nation’s competitiveness and damage the economy.

“If you want me to tell you my view, it is the worst piece of economic reform I have ever seen in my life in Australia,” he told ABC radio this morning.

“The consequence of introducing that tax at that level in Australia today is very, very bad for this economy, particularly in terms of international competitiveness.

When “Outspoken” Is A Perjorative For “Truth-Teller”

12 Aug

Outspoken former RBA board member Warwick McKibbon (emphasis added):

Ditch the delusion that stimulus saved us from GFC

The sell-off in global sharemarkets reflects the realisation that debt problems in advanced economies are serious, but it reflects more than this. For some time the fiscal fragility in the global economy has looked like a slow-motion train wreck

Australia is now likely to be hit with a second global shock. This is different from the GFC in a critical respect. It is a concern over excessive government debt so the response in Australia should not entail a new fiscal package …

Bad fiscal design always has an unexpected cost. Why is a flood tax being introduced just as the economy slows? The forecast that this would help dampen the boom is now likely to be wrong. There clearly should be an urgent review of the mismatch between spending commitments in the pipeline and highly uncertain revenue. This is essential to better understand future fiscal vulnerability.

The delusion that what saved the Australian economy from the GFC was entirely fiscal policy needs to be jettisoned.

Outspoken chairman of the Future Fund – the government fund containing public servants’ super, that Barnaby has warned will be raided to pay down debt – says that the global sovereign debt crisis could take 20 years or more to “play out” (emphasis added):

The chairman of the $75 billion Future Fund has warned the debt crisis engulfing Europe and the United States could take at least 20 years to resolve, causing ongoing market volatility.

David Murray warned the post-global financial crisis environment would continue to be characterised by a series of market shocks, with investor uncertainty heightened by concerns over the ability of political systems to contain any emerging meltdown.

And he sounded the alarm on the level of government and private sector debt in Australia, saying they both needed to be reduced, given the capacity of Australia to be caught up in a new global financial rout.

“The global financial crisis was caused by excessive debt which had built up in the world at both the government level and in the private sector in developed countries,” Mr Murray told ABC radio.

“The sorting out of that problem is something that could take up to 20 years. As that post crisis environment unfolds we will see continuing events such as we’ve seen in the past couple of weeks.”

“Outspoken” is another of those words wielded as a weapon.

In modern, politically-correct Unspeak, it is the latest putdown label for “truth-teller”.

When someone speaks the truth, contrary to the “mainstream wisdom” – especially someone like Warwick McKibbin or David Murray holding a public position, who cannot be “politely” attacked more viciously – then they/their viewpoint is labelled as “outspoken”.

The unspoken implication of labelling someone as outspoken … is that we should not speak out.

That we should all be good, silent, obedient slaves.

Future Fund Boss’ Debt Warning: Barnaby Is Right

21 Jun

From The Australian:

Future Fund chairman David Murray has urged governments to heed the lessons of the European and US sovereign debt crises as growing state and federal borrowing pushes their financial liabilities past half a trillion dollars in the new financial year.

Analysis by The Australian finds the states are forecasting their net-debt levels will surge from almost $102 billion this year to $135bn next year to help fund upgrades to rundown electricity, water and other infrastructure.

This will help push their net financial liabilities – a figure that includes liabilities for pension benefit schemes – to a record $285bn next year.

On top of this, the federal government’s net debt levels will rise from $82bn this year to $107bn next year – largely to fund the budget deficit – helping to drive their liabilities from $200bn to $227bn.

The surge in debt prompted Mr Murray to warn that this could force the private sector to compete for funds as the resources sector booms.

All of which is exactly what Barnaby Joyce warned of 18 months ago, and repeatedly since.

It’s also worth noting that this is the boss – though not for much longer – of the Future Fund.

Barnaby Joyce has warned at least twice this year, that the government plans to steal our super to pay down debt – starting with public servants’ superannuation in the Future Fund:

In response to a question I put in Senate estimates, Treasury revealed that $64 billion of the difference between our gross debt and our net debt is made up of the cash and non-equity investments of the Future Fund. The Future Fund is there to cover the otherwise unfunded costs of public servants’ superannuation.

That is a little fact that the people of Canberra might be interested in. When Wayne mentions net debt translate that to, I am going to pay his debt off with my retirement savings.

And more recently, straight after the May budget, Barnaby spelled out his warning even more clearly:

On Tuesday night’s budget, Labor sneaked in an Amendment of the Commonwealth Inscribed Stock Act 1911. Here is the most telling statement for where our nation is going under this Green-Labor-Independent Alliance. Under Part 5 Section 18 subsection 1 “omitting ‘$75’ and substituting ‘250’ ”.

Now that is in billions ladies and gentlemen and it is real money that really has to be paid back. If we have all this money stashed away under the lower net debt figure that is always quoted by Labor, then why not use some of this mystery money to pay off what we owe to the Chinese and others who we are hocked up to the eyeballs to.

The reason why we can’t is at least $70 billion that makes up ‘net’ debt is tied up in the Future Fund and student loans.

Of course, the public servants will not be happy when we use their retirement savings, put aside in the Future Fund, to pay off some of Labor’s massive debt.

Pinching public servants’ superannuation will only be the beginning. We know this simply by looking at what is happening abroad.

Learn all about the wave of government confiscations of private superannuation savings that is quietly sweeping the Western world, and how both major parties in Australia already have policies to do the same, in “No Super For You!!”.

Barnaby is right.

%d bloggers like this: