Tag Archives: wayne swan

5 Years After The GFC, ALP Admits Economy Has Not “Recovered”, And 3 More Won’t Help

3 Aug

Pushingstring

The Global Financial Crisis peaked in 2008-09.

Since then, the ALP has relentlessly talked up the “strength” of our economy — by comparing to basket-case northern hemisphere countries — and by extension, the brilliance of their economic management.

Many hundreds of times, they promised a “return to surplus”. And fair enough too.

After all, our economy was — so they said — the “strongest advanced economy” in the world.

We had a “huge pipeline of investment”.

“Low unemployment”.

“Low inflation”.

“Low interest rates”.

And record-high Terms of Trade (ToT), from a Chinese stimulus-fuelled mining boom.

A mining boom that — so they said — would give us a period of “unprecedented prosperity”, “stretching to 2050”.

They should know.

After all, their leader is fluent in Mandarin.

And yet, despite all this … no surplus.

Only more, and deeper deficits.

Yesterday, they admitted that their latest budget — released less than 3 months ago — has already developed a $33 billion black hole.

Word is, they are now going to call an election, for September 7.

So we should, perhaps, pause for a moment to reconsider the strength of our supposedly “strong economy”, according to the ALP’s own words, and their own yardstick.

In the August Economic Statement released yesterday, in one little paragraph, the ALP has conceded that 5 years after the GFC, the economy has not “recovered”:

August Economic Statement, page 29 (click to enlarge)

August Economic Statement, page 29 (click to enlarge)

And their newest revised forecasts, showing deficits to 2016/17, tells us that 3 more years of their brilliant economic management won’t help.

The simple truth is this.

By their own measure — a budget surplus — the economy has not “recovered”.

And with their revised “forecasts” now predicting rising unemployment, and no surplus till 2016/17, there is no hope in sight for an economic recovery.

Under their management, at least.

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$5.2 Billion Budget Blowout

15 May

Let’s hear a caustic cheer for all the “experts” who insist that Australia’s public debt is “small”, and does not matter.

Interest on debt forecast, Budget 2012-13:

Screen shot 2013-05-15 at 9.48.48 AM

Interest on debt forecast, Budget 2013-14:

Screen shot 2013-05-14 at 7.50.25 PM

That’s a blowout of $699 million in 2012-13. $937 million in 2013-14. $1.594 billion in 2014-15. And $1.982 billion in 2015-16.

For a grand total blowout — just the blowout, not the total — of $5.2 billion “over the forward estimates.”

Now remember — all this is based on the forecast assumption of 5% per annum nominal GDP growth in the next two years. Even if that were to happen, the forecast is for another deficit (ie, more borrowing, at interest) of $18 billion in 2013-14, and $10.9 billion in 2014-15.

So, what do you think is going to happen to the forecast budget deficits — and the forecast interest on debt — if when that GDP forecast turns out to be highly optimistic … again?

Dear reader, I invite you to ponder, if you will, just how much productive investment could be made, if the economy were not loaded down with the ever-increasing burden of repaying a forecast $14 billion every year to (mostly foreign) bondholders, just for Interest on the Federal government’s debt?

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One RBA Chart Debunks Wayne’s Entire Budget

14 May

I am so glad that Wayne Swan is such an imbecile.

It means that, despite being sick, I can debunk his entire budget with about as much ease as taking candy from a baby.

Or a Baby Bonus from a “working family”.

All of the “estimates” and “projections” in Wayne’s 2013-14 budget are based on a critical assumption – 5% annual growth in GDP in the next two years:

Screen shot 2013-05-14 at 8.21.19 PM

Budget 2013-14 Overview, Appendix H

Really Wayne?

5% a year?

Let’s see what the RBA’s Chart Pack has to say about actual, not “forecast” GDP –

4tl-gdpgrwth

Er…

Anyone else get a sense of deja vu about this?

With good reason. In last year’s budget, Wayne forecast 5% GDP growth for the current year…

Screen shot 2013-05-14 at 8.33.33 PM

Budget 2012-13 Overview, Appendix H

… and since then, has been forced by that little thing called “REALITY” to revise it down, to 3.25% (see 1st chart).

Remember, this 35% downward revision for “GDP” growth in the current year has come during a period when, according to none other than Wayne himself, we have been enjoying the benefits of a “strong economy, low unemployment, low interest rates, and a huge (mining) investment pipeline.”

Not to mention record-high Terms of Trade.

That “huge” mining investment pipeline is rapidly closing down.

And the record-high Terms of Trade are collapsing too:

Source: macrobusiness.com.au

Source: macrobusiness.com.au

5% GDP growth next year, and the year after?

Sorry.

I don’t buy it.

Neither should you.

And since all of Wayne’s latest revenue estimates, and spending estimates, and budget deficit/surplus estimates, are based on that critical GDP growth ass-umption, I think it only fair to say that we can write off this entire budget as a(nother) very, very bad joke.

Problem is, the joke’s on all of us.

UPDATE:

A number of my Twitter followers have kindly informed me that I have made an error. Apparently, the RBA chart for GDP that I’ve referred to above is “Real” (ie, inflation adjusted) GDP, and the budget forecast I’ve referred to is “nominal” GDP.

No matter.

Given the falling Terms of Trade, the closing of that “huge” mining investment pipeline, and a likely incoming Coalition government purportedly looking to slash spending and public service jobs, I reckon even a forecast 2.75 (2013-14) and 3% (2014-15) “Real” GDP is highly unlikely:

Screen shot 2013-05-14 at 9.26.32 PM

4tl-gdpgrwth

UPDATE 2:

Thanks to Twitter follower @gregfranksimmo (EDIT: who got it from Greg Jericho, aka @GrogsGamut), the following chart of both “nominal” and “real” GDP clearly shows that nominal GDP has been declining since December 2010, and has actually been below “real” GDP for the past two quarters, while “real” GDP growth is presently barely managing 3% … despite all those wonderful (and temporary) economic “strengths” Wayne has been boasting about –

BKOYpNmCcAI780O

UPDATE 3:

Business Spectator and unabashed ALP apologist Stephen Koukoulas – he of the recent 8 – 12% house price rise prediction – tells us why the nominal GDP forecast is so important for the budget figures:

The forecasts that matter more for revenue, nominal GDP growth, are similarly understated at 3.25 per cent and 5 per cent growth respectively.

Er…

“Nominal” GDP in the Sep ’12 and Dec ’12 quarters was running below “Real” GDP, at less than 2% per annum.

5% “nominal” GDP in each of the next two years?

Chances of that are, I reckon, somewhere roughly between Buckley’s and none.

Meaning, the government’s revenue forecasts have roughly the same chances of coming to pass.

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A Non-Viewer’s Guide To Tonight’s Budget Speech

14 May

wishful thinking cartoon-350x366

No, I won’t be watching it. The Treasurer’s Budget speech, that is.

Firstly, because I’m sick as a dog, and find it hard to stomach listening to Wayne speak even when at my best.

Secondly, because I already know what’s in it.

So without further ado, here is my very brief non-viewers guide to tonight’s Budget speech:

casuistry

cas·u·ist·ry [kazh-oo-uh-stree]

noun, plural cas·u·ist·ries.

1. specious, deceptive, or oversubtle reasoning, especially in questions of morality; fallacious or dishonest application of general principles; sophistry.

That’s all there is to it.

Wayne’s budget speech … in a word.

CasuistryComics

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Hello?! McFly?!! A Simple Question For Swan & Hockey

30 Apr

The Federal government budget has now been in deficit for 5 years straight.

Some analysts are predicting a further decade of budget deficits.

The Federal government presently owes $269.4 billion (77% of tax revenue) to creditors, over 70% of whom are “Non-resident” –

Source: Australian Office of Financial Management

Source: Australian Office of Financial Management

The cost to taxpayers – the extra burden on the economy – of paying just the Interest on the debt accrued so far, is $12 – $13 billion every year –

Budget 2012-13, MYEFO, Appendix B, Note 10

Budget 2012-13, MYEFO, Appendix B, Note 10

It is almost universally agreed – the RBA included – that the Australian Dollar is significantly over-valued compared to the currencies of other key trading nations.

It is also near-universally agreed that this over-valuation of the AUD is damaging the Australian economy (ie, reducing business profits, and tax receipts).

QUESTION:

Why are you continuing to increase the debt and interest burden on taxpayers (and the economy) by selling government bonds that owe interest to the bond holder, when you could simply order the Australian Treasury to (electronically) print Australian Dollars, use those new dollars to pay down the existing debts to foreigners, and, weaken the foreign-exchange value of the too-high Aussie Dollar all at the same time?

FOLLOW-UP QUESTION:

Are you galactically stupid? …

… or, is it that you are all just bought and paid for, gutless, traitorous, overpaid, 100% self-interested puppets of the international bankster sector?

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Australian Government Will Never Get Out Of Debt

23 Apr

You may recall the days of late 2009, and early 2010.

Barnaby Joyce had been appointed Opposition Finance spokesman. He was taking flak from all sides over his public warnings regarding Australia’s rapidly rising government debt trajectory. Ever the “little ‘ol country accountant”, Barnaby had quickly calculated the basic numbers:

Let’s talk about the abundance of faith exhibited by Labor when it tells us of the eight consecutive $19bn surpluses that are required to bring the budget back into orbit when the continued stresses on the international economy are clear and evident, especially in Europe.

Within the first two days of launching this blog in February 2010, I stated that “No, We Cannot Pay Our Debt”:

Surplus-Deficit

This country has never seen anything like eight consecutive years of $19 Billion surpluses. In fact, the Howard Government achieved it just 3 times… in 12 years… during an unprecedented mining boom.

A day later I posed the question, “Can We Even Pay The Interest?”

Interest_Surplus_Comparison

Click to enlarge

As you can see, Ken Henry’s projected Interest on debt alone is greater than many of the 12 years of Howard Government surpluses. And they came during an unprecedented mining boom…

Paying back the projected Interest-only will obviously be a big challenge. So try to imagine how we are ever going to pay back the principal too…

It is easy to see why Barnaby is so concerned about our ever-rising debt under Rudd Labor.

Because quite simply, we can not pay it back.

Since the days of February 2010, Barnaby has been demoted, and the trajectory of ALP’s borrow-and-spend-a-thon has streaked ever higher – see the masthead of this site.

Those Interest-on-debt projections have, of course, continued to extend further and further into the future:

Screen shot 2013-04-22 at 6.35.12 PM

Budget 2012-13, MYEFO, Appendix B, Note 10

Yesterday came the news that not only is there not going to be a return to budget surplus this year – quelle surprise! – but that an “expert” think-tank (ie, lobby group for vested interests) is now predicting a further decade of budget deficits:

Structural changes in the economy are likely to leave Governments across Australia facing budget deficits of around 4% of GDP for at least the next decade, according to research released today.

The Grattan Institute paper, Budget Pressures on Australian Governments, suggests it could be a long time before Australian governments post a collective surplus.

Fairfax papers reported (note the $40 billion error in the opening line; contrast the final paragraph):

Australia faces a decade of budget deficits with the annual total set to pass $60 billion in 2023 unless governments take tough action to “share the pain”, an expert panel has warned.

The Grattan Institute’s assessment comes as Treasurer Wayne Swan confirms the budget has taken a $7.5 billion hit since the midyear update in October…

The institute says that while notionally on track to surplus now, the combined state and federal budget deficits should reach 4 per cent of gross domestic product by 2023, which is about $60 billion in today’s dollars and would be about $100 billion in 10 years’ time.

I fear this estimate may well err to the conservative. A $100 billion combined budget deficit in 2023? No problem … Fed Labor achieved $55 billion in 2009-10:

Source: Catallaxy Files

Source: Catallaxy Files

One can only imagine just how big the TOTAL of Australian government debt – and the Interest bill – will be if the Grattan Institute’s prediction for another decade of annual budget deficits is realised.

Meanwhile, over the weekend the Australian Financial Review reported that the Liberal Party has backed away from its own commitments to achieving a budget surplus (h/t MacroBusiness):

Opposition Leader Tony Abbott has declared “all bets are off” on whether the Coalition will deliver a surplus in what could be its first year in office, prompting warnings from a prominent economist that the budget may not be balanced for years…

Asked at a public meeting in Melbourne when the Coalition would deliver its surplus, Mr Abbott said he had previously been confident about the timing based on government figures as they stood just before Christmas. He indicated he had changed position because the government wouldn’t reveal the budget’s true state.

And fair enough too.

Clearly though, none of the “expert” economists, commentators, and certainly none of our politicians – with the exception of Barnaby Joyce – will take any notice of this paragraph in the Grattan Institute’s report (emphasis added):

Balanced budgets over the economic cycle make a big difference. Persistent large government deficits incur interest costs. They lead to large government debt that can limit future borrowings. Some argue that high debt reduces economic growth. On any view, persistent large deficits can unfairly shift costs between generations, and reduce flexibility in a crisis.

As many developed countries have rediscovered in recent years, high government debt coupled with low economic growth creates a terrible economic dilemma. If government increases spending, the debt gets worse, markets charge higher interest rates, and borrowing more becomes impossible. If government tries to reduce its deficit, GDP slows further, and government debt can rise as a proportion of GDP, making the problems worse. Their successors and financial institutions can then find it difficult to borrow at reasonable costs, and economic growth is often slow for a long time.

How to respond to the trap of low growth and high government debt remains contentious. Far better to avoid the trap in the first place – which means running balanced budgets over the economic cycle.

Although the true state of the budget may be unclear, as the months and years pass by, there is one thing that becomes ever more clear.

Everyone should have heeded the warnings of our “little ol’ bush accountant”, the sacked Opposition Finance spokesman.

Barnaby was right:

“If you do not manage debt, debt manages you.”

– February 2010

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What Do Wayne Swan And The Bank Of Cyprus Have In Common?

6 Apr

Screen shot 2013-04-06 at 2.11.55 PM

Australian Treasurer Wayne Swan and the Bank of Cyprus were both lauded as the “best” in their class by Euromoney magazine:

Bank of Cyprus has been named as the Best Bank for Private Banking in Cyprus, by the internationally acclaimed magazine EUROMONEY

Bank of Cyprus Private Banking ranked first among Cypriot, Greek and other international financial institutions operating in Cyprus in the Private Banking sector. This accolade classifies the Bank among the leading financial institutions offering Private Banking services and is yet another important international distinction for the Bank of Cyprus Group…

This recognition by EUROMONEY is ever more important in today’s macroeconomic environment as it reaffirms the Bank’s ability to safely and successfully respond to its clients’ financial needs and emphasizes its clients’ loyalty and trust.

It now appears that Bank of Cyprus customers will lose up to 60% – and possibly all – of their savings.

Like Wayne Swan, Finance Minister of the Year 2011, and the Bank of Cyprus, Euromoney magazine has a history of picking other winners too:

2006 to 2008 were indeed magic years for Euromoney’s awards selectors with “Best Investment Bank” 2006 going to Lehman Brothers who went broke in 2008. They’re blamed for much of the Global Financial Crisis. “Best at Risk Management” went to Bear Stearns who went bust in 2007. “Best Equity House” 2006 named Morgan Stanley and “Best Investor Services” favoured Citigroup. Both were bailed out in 2008.

What is the secret behind Euromoney’s superb record of success?

The [Finance Minister of the Year] award is judged by leading European banking and finance magazine Euromoney on advice from global bankers and investors.

(h/t MacroBusiness reader ‘innocent bystander’)

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Barnaby: Australia Has Some Of The Highest TOTAL Debt Levels In The World

4 Apr

Senator Joyce writes for the Canberra Times (my emphasis added):

No saving graces as Labor alliance targets our savings

I always believed a net debt figure that assumed using public servants’ superannuation savings to pay off public debt was an absurdity. Well, now the Labor-Green-independent alliance is proposing that super be used to pay off debt.

When you tax more of something you end up with less of it. Why then does the Labor government want to raise taxes on superannuation? Do we really need a lower savings rate, and therefore more consumption in Australia?

Australia has some of the highest total debt levels in the world. In net terms, from the public and private sectors, we owe more than $700 billion to overseas countries. In terms of our GDP this is the eighth highest level of debt in the world, behind countries such as Portugal, Ireland, Greece and Spain.

Our debt is partly a consequence of a mining boom, where billions has been invested in our mining industry. Private companies need to take on debt to build these assets and we can’t fund all of these investments from domestic savings. But that is no reason to unnecessarily reduce domestic savings even further, and increase our reliance on foreign debt even more. We should be doing the opposite. We should be making it easier and more attractive for Australians to save. Our tax system barely does that now, however.

Let’s say you get a $1000 bonus from your boss. You have two basic choices: you can spend the money, or you can save the money. If you spend the money you will pay about 30 per cent in income tax and a 10 per cent GST. This leaves you with around $600 to spend on say a flat-screen TV. You pay no more taxes after that.

If you save the money by, say, putting it into bank account, you will pay the income tax up front, and then get taxed every year on the interest you get paid in that bank account, including on the part of the interest that just compensates you for inflation.

On that basis, the “double taxation” of savings is a raw deal. That’s one of the reasons why we offer a lower tax rate on superannuation: to encourage people to save not spend; to encourage individuals to make provision for their own retirement, rather than all of us having to fund pensions for everyone.

With an ageing population, that problem is only going to become worse and we should be looking to encourage more Australians to save rather than raise yet more taxes on superannuation. That’s exactly what the Coalition has proposed. We have proposed a 10 cents in the dollar tax concession for those that put money into super funds that invest in nation-building infrastructure. It’s a two- birds-with-one-stone approach. We encourage more people to save and have more funds available to invest in the roads, rail and water infrastructure a growing nation desperately needs.

The reality is Labor know all this. They know that we should encourage savings not spending. There is only one reason that they are looking to raise taxes on our savings. They have run out of money and need more of your savings to pay for their debts.

Any government looking to raise taxes on you should be required to get their own spending in order first. Our government is not spending our money wisely enough to be deserving of us giving it more. The Green-Labor-independent alliance spent years promising that our debt is not a problem. If our debt is not a problem, why do they need to raise taxes on our savings?

Cleaning up after this fiasco will be an infuriating task. They create a fiasco selling mining licences without the appropriate oversight and in inappropriate area. Somehow the Coalition is left explaining what we will do to rectify their problem.

They shut down trade with major trading partners in Indonesia and decimated the northern cattle industry and we are asked how we will fix it up.

One of the key reasons that I believe that I have a duty to stand against a key player in this Green-Labor-independent alliance, in Tony Windsor, is that you cannot possibly fix anything from Opposition. That means my job is to help win seats off the government wherever they are standing. Tony Windsor is a key member of that government and it is his job to defend the record of waste, mismanagement and higher taxes of the government he chose.

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Swan Siphons RBA In Failed Attempt To Reach Surplus

23 Feb

the.simpsons.s20e05

And here you were believing our politicians and media parrots, when they say that the Reserve Bank of Australia is “independent”.

From The Age (via MacroBusiness):

TREASURER Wayne Swan defied objections from the Reserve Bank governor and siphoned half the central bank’s profits into the Budget bottom line to fulfil his political commitment to achieve a surplus.

The Reserve Bank governor, Glenn Stevens, told a parliamentary inquiry that he wrote to Mr Swan, asking him to direct all of the bank’s $1 billion 2011-12 profit to its critically short reserve fund, needed to absorb changes in the value of the bank’s foreign currency holdings. Normally worth around $6 billion, the fund had dwindled to $2 billion.

”It’s a key part of our capital. It has been depleted considerably by the effects of the rising exchange rate,” Mr Stevens told the inquiry. ”I believe the prudent course is to rebuild it as quickly as we can but I am not subject to the other pressures that the government is.”

Mr Swan denied the request, and insisted on taking half the profit as a dividend to help achieve his promise of a budget surplus this financial year.

That promise has since been dumped, leading to the opposition mounting a sustained attack on the government’s fiscal credibility.

”In the end it was his prerogative,” Mr Stevens said. ”He made a judgment, and I had to accept that judgment.”

Another day, another epic fail by our World’s Greatest Treasurer.

080723-gas-shortage

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One Chart Debunks Wayne’s Lies On Interest Rates

20 Feb
Click to enlarge

Click to enlarge

Treasurer Wayne Swan has never tired of telling the Australian people that interest rate cuts are a sign of the government’s good economic management:

Dec 4, 2012 – Treasurer Wayne Swan says the central bank’s decision to cut the cash interest rate follows the federal government’s prudent management…

“Today’s rate cut from the Reserve Bank is the early Christmas present that hard-working Aussies deserve,” Mr Swan told reporters in Canberra.

“We’ve now had the equivalent of seven rate cuts over the past year and of course that’s been made possible by the government’s economic management, strong budget management and of course, contained inflation.”

I could include many more examples. Except there would be no point. If you have heard Swan making these self-congratulatory noises once, you have heard it many times.

The truth, of course, is completely different.

When interest rates are cut, it is not a sign of good economic management.

It is a warning sign that things are going to poo:

Dec 4, 2012 – The Reserve Bank has cut the cash rate to its lowest level since the global financial crisis, following a raft of weak economic data that showed pessimism in the jobs market, a slowdown in mining activity and lower-than-expected retail sales.

The RBA cut the cash rate by 25 basis points, or 0.25 percentage points, to 3 per cent, which is the lowest the rate has been since the central bank started setting rates in 1990.

It matches the setting in April 2009 at the peak of the GFC, when the global financial system was in meltdown and the RBA was trying to prevent Australia slipping into recession.

That’s right. It is the important fact that Wayne and the rest of the Labor Party are conveniently forgetting to mention. The present official interest rate is deemed by the RBA to be an “emergency low”.

Take another look at the chart above.

See that little bump up, brief plateau, then fall in interest rates following the big GFC cliff dive?

Technical chart analysts call that a “dead cat bounce”.

2010-314--political-party-dead-cat-bounce-

Now, lest any reader think to accuse your humble blogger of partisan bias against Wayne and the ALP, let us not forget the LP’s history of lying on this topic.

Many will recall John Howard’s claim that “interest rates will always be lower under a Coalition government than under a Labor government”.

Think about this.

If that were true – and the chart above proves it is not – then what Howard was really saying is that “the economy will always be weaker under a Coalition government than under a Labor government”.

The usury rate formula is very simple to understand.

When the economy is strong, the vested usurers raise usury rates, to increase their profits.

When the economy is weak, they reduce usury rates, to “support the economy”. That is, to prevent their Ponzi scheme from imploding.

When interest rates are falling, it is not a great time to take out a loan. Despite what the vested usurers and their many mouthpieces in the media and real estate sales industry tell you.

It is arguably the worst time to take out a loan.

It is a warning sign that the economy is weak. That unemployment is likely to rise. That your job may be at risk in coming months.

And that the vested usurers are on the back foot, trying to prop up their Ponzi scheme.

DON’T BORROW NOW!!

 

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