Election 2013: Day 11 (or, my thought bubble is more concrete than yours)

And so today Kevin Rudd hoped on a plane and went north with a plan. He was the man with a plan. And being a man with a plan in a plane heading north is a good thing.

Unfortunately it seems the plan was something he only bothered to come up with on the actual plane flight.

He, like Tony Abbott before him, saw a vision of a new North – a north that is going to tap into the growing middle class of China.

All good. So what is he going to do about it?

Three things. First he is going to

• Expand the Ord Irrigation Scheme Stage 3 by providing $10 million to the Northern Territory Government to help facilitate expansion of the Scheme from its current 29,000 hectares to 43,000 hectares. This will increase economic output in northern Australia by an estimated $150 million every year, mainly through expanded sugar production and agricultural crops.

OK. Now I have written a number of times before about boondoggle plans to make northern Australia into Asia’s food bowl.

Northern Australia will never become a food bowl in the sense that it will, as Andrew Robb wrote, “double Australia’s agricultural output”.

The most recent report on the issue of Northern Australia was handed down in 2009 by the Northern Australia Land and Water Taskforce (set up by John Howard as a sop to the Nationals and Bill Heffernan), It stated:

The north is not a vacant land. It needs to be actively managed for resilience and sustainability, based on a contemporary and informed understanding of the complexities of the landscape and its people. Contrary to popular belief, water resources in the north are neither unlimited, nor wasted. Equally, the potential for northern Australia to become a ‘food bowl’ is not supported by evidence.

And when it came to speculation home much land could be “opened up for farming”

The potential for growth in groundwater irrigable land in northern Australia is
estimated at between 100 and 200 per cent, or around 20 000 – 40 000 hectares.

And it attached to that a number of risks.

To put that size into context, the Murrumbidgee Irrigation Area is around 660,000 hectares, of which 120,000 hectares is irrigated. And if you look at the map above, you see that is only a small fraction of the Murray-Darling basin (which of course is not all farm land, but it gives some good perspective).

So at least Kevin Rudd is not off with the fairies and talking about doubling our food production.

He also talked about

• Develop twenty-year growth plans for the regional hubs of Darwin, Cairns, Townsville and Mackay. Infrastructure Australia will oversee these plans, based on the successful Mount Isa to Townsville Economic Development Zone supply chain model, developed in collaboration with the private and public sectors. These plans will target key industry sectors and include strategies for increasing trade, investment and employment in these regional centres.

Sounds good. Anything developed through Infrastructure Australia gets my tick of approval. But it is all a bit, “we don’t know really what we’re going to do”. He probably should have had Anthony Albanese along, because Albo would be reeling off a number of projects that he probably has on a list that he keeps under his pillow.

There’s also not a lot of meat here. Nice sentiments, but, you would hope a bit more from a party currently in Government.

This is one of the problems with changing a leader so close to an election –especially if you want to come up with different policies. It means you can’t use the incumbency in your favour.

Remember those trades centre announced yesterday? That was not an election promise – that was actual money that is going out. It was a Government announcement that Rudd was able to badge as a campaign issue.

Same deal with the after-school care announced in the first week. It was budgeted and is now going out. The Liberal Party will have to actually stop it if it doesn’t want to spend the money.

That is what good political operators do. They spend the last 6-9 months before an election using the public service to cost and develop policies and programs, put a few in the budget as “decision taken but not yet announced” and announce them in the campaign.

You also announce all these whiz-bang policies that are well formed and developed, because for the past 6-9 months some bright sparks in the public service have been working on them!Howard was great at using the public service. He knew better than probably any politician before him how to use the power of incumbency.

No Prime Minister should turn up during an election and announce something that sounds like a thought bubble. Julie Gillard did it last time when she came out with the cash for clunkers and people’s assembly.

And Kevin Rudd did it today. Because the third thing he announced today was this:

• Create a Northern Special Economic Zone focussing on the Northern Territory to attract new Australian and foreign investment through simplifying investment rules, streamlining regulation and application processes for major projects, and introducing new tax incentives with the objective of reducing the company tax rate for Northern Territory based companies in five years.

A lower company tax rate for NT based companies.

The best response to this was a tweet by economist Richard Green (who blogs for Club Troppo)

Who wants to invest with me in a large building of letter boxes just on the NT side of the WA border so firms can incorporate there?

— Richard T. Green (@RHTGreen) August 15, 2013

Anyone think every major organisation who can employ a decent tax lawyer won’t set up a HQ in Darwin that does just enough to ensure its business operations qualify for the lower tax rate?

That is not producing an economic boom, that is just shifting capital, and reducing the revenue collected by the government at the same time.

It was a dumb idea when it was floated by free-market ideologues from the IPA, and it is still dopey. The IPA wants it because it’ll end up with less tax collected and hopefully set off a spark whereby the company tax rate gets lowered everywhere else and then perhaps lowered in NT again and then…. Gina Rinehart wants it because she’ll get to pay less tax just by shifting here HQ.

But what the hell is an ALP government doing proposing it?

Geez. Next Rudd will come out in favour of income splitting tax returns.

Worst of all is he didn’t seem to have a clue about the details. He had no idea how much this would cost, and even how low the rate would be and whether it would apply to Darwin based or Northern Territory based companies. The media release talked of “reducing the company tax rate”, but then Rudd off the top of his heads talks about “by a third” – so to 20% – but this was just his hope.

Geez.

There is no way in hell this policy was worked over by boffins in Treasury. And we know this because just a couple months ago the Gillard Government was quite rightly calling it a boondoggle.

But Rudd had a thought bubble I guess.

All this to try and win Lingiari?

***

And it was a dumb day to have such an uncosted thought bubble, because Tony Abbott was in Tasmania announcing the next step of his plan for Tasmania.

Among the plans was extra money to lengthen the Hobart Airport to allow it to service 747s and the like, and also a “one stop shop” located in Launceston for approvals for major projects. This Tasmanian Major Projects Approvals Agency sounds all well and good. Though it does seem an odd move for someone who wants to cut the public service to create a new agency, so it will be interesting to see if it will be done by trying to transfer people from Canberra.

It says it will try and makes this a one stop shop for both Commonwealth and State approvals. Which sounds a bit like it needs state government support. And given his stated aim of giving the state the right to tick off on any environmental concerns, I’m not sure how it all fits in with that.

But overall the policies at least had the whiff of intelligence about them. They sounded like things being done. The was an overall shape to them all.

And then at the press conference Joe Hockey put in one last sound-bite:

JOE HOCKEY:

Well, we have always said we will release the full costings before the election, well before the timetable that Labor has had in the past.

I just say to you, if the whole election is going to be about costings rather than about policies like we are announcing today then I think everyone is going to bore the Australian people to death and we don’t want to do that, we won’t them to be excited about the policy initiatives, but believe me all of our policies and all of the costings and the ways we are going to pay for it. All of it is going to be out there verified and in net terms provided to the Australian people before polling day.

You have to love the wannabe Treasurer of Australia saying policy costings are boring.

He’s right though – policy initiatives are the exciting thing. Everyone wants to do that. Heck I could go out on the hustings right now and promise everything from high speed rail to double carriage highways across Australia and a second airport in Sydney.

Look at me! I’m doing policy!!

That’s the easy part. The hard part – as Kevin Rudd showed today – is the costings, and that is why they are important. If your costings are dodgy then the policy is dodgy.

The only reason this is an issue at all this time round is because in 2010 the Liberal Party absolutly ballsed up the costings. They treated everyone like mugs. The best they showed us was a spread sheet with numbers on them that correctly added up to a total number

That is not costings.

Heck I can do that. Watch:

JERICHO PARTY MAJOR POLICIES:

1. High Speed Rail from Sydney CBD to the Bradman museum in Bowral (because Richie Benaud says, ‘gosh it’s interesting’, so we need to get there fast): $5 billion.

2. A giant wall around the north coast to keep undesirable people out and put me onside with voters who say they aren’t racist and they really only care about people drowning at sea: $6 billion

3. Free beer at Christmas for those who can’t afford to buy those Tap King things: $7 billion

TOTAL COST: $18 billion

Wow. And here I thought it would be harder to run for government.

Costings are not about adding up the final numbers, it is about working out what the number should be and why. And it needs to be done by someone who you are NOT paying to come up with a nice figure for you. 

Take the Greens. They are thus far the only party to have had any polices fully costed and released by the Parliamentary Budget Office.

Here for example is the costings for their “Improved Mining Tax”

And there we have it – the policy, the assumption made and then the cost (or save) to the budget). We can challenge the assumptions – indeed that is where most of the argy bargy lies, because the costing are made on the basis of the assumption.

If we don’t like the figures, we have to find issue with the assumptions – ie the diesel rebate ain’t going to get removed, so fughgeddaboudit.

But we can trust that the figures are not dodgy, because they were not worked out by anyone who has any reason to give the Greens better number than there really is.

(As an aside, as someone who wrote about the legislation of the PBO in my third ever Drum article in which I chided the media for ignoring the legislation, I am quite happy to see it being used so extensively).

The costings don’t suddenly mean the policy is good. But at least the argument has some degree of reality involved.

Now the Liberal Party has apparently around 200 policies with the PBO. That is great, but it is time to start releasing them. Sure some things are dependent on the PEFO numbers, and may take a couple more days. But today Abbott announced $38m for the extensions to the Hobart airport. Fine show us the costings. Show us the document that displays that a third party has looked at your policy and said, yep $38m will cover it.

There is no more reason to wait.

Tony Abbott tonight on ABC’s 7:30 again talked about “in good time” before the election. That good time is now, not later.

Because the longer he leaves this, the better the ALP new advert looks:

***

And the first policy he can shows us is his Direct Action Plan.

Today the Climate Institute released a report on the Direct Action Plan which suggested the Libs were about $4b short.

And having read the report, I think that’s a conservative estimate. They made some very conservative assumptions which will unlikely occur and which if they didn’t would lead to higher costs. As was noted Tristan Edis of Climate Spectator, the assumptions that the companies bidding for contracts will do so based only on their costs rather than on what they think has become the going rate; that it will be able to start by July 2014; and that all bidders will deliver on time and on budget are pretty generous.

The thing about the Direct Action plan is it is a plan whose purpose is not to reduce emissions but to look as if the Liberal Party wants to try and reduce emissions. The only person who might think the Liberals can get to their target of 5% reduction in CO2 from 2000 levels with the money they’re spending is Greg Hunt.

Tony Abbott certainly isn’t so dumb as to care; he knows the policy is just a show – one that he can slice and dice once in government to suddenly find savings. It is designed to appeal to people who don’t like the carbon tax, but kind of think we should at least be trying something, and it;s also a policy that doesn’t offend those who think Climate Change is … crap..

But today Greg Hunt came out and said the Climate Institutes report is silly and that it was done by a partisan organisation.

Now that is fair – they certainly do favour action on climate change and would prefer a price on carbon. But where is your policy? Show us your assumptions, let’s put them side by side with this report and let’s see who is making the more realistic case.

The aim of the Direct Action plan seems not to be to reduce emissions but to spend $3.2 billion on reducing emissions. Any suggestion that it might cost more is met with the response that it is capped and no more will be spent.

It’s a bit like saying you plan to spend $50 million to build a bridge and upon being told that will only get you three quarters of the way, saying, ‘Well that’s all we’re going to spend, we will not have a blow out of costs’.

Tony Abbott doesn’t care if we don’t get to 5% by 2002. 2020 is three elections away.

The latest Direct Action policy is the 2010 version. Is it still the same? If so bring it out and show us that the costings within have been made by an independent party. Until then you got nothing but dreams and idle desires.

But it could be worse. You could have just announced a company tax cut and you’re not even sure how much the cut will be.

***

And look it could all be worse than that. You could be the journalist who asked Tony Abbott this question:

QUESTION:

[You chose] the song ‘Hot and Cold’ to be your anthem. Are you fully aware of the lyrics? “You change your mind like a changes clothes” “You say yes but you mean no”, “got a case of love bipolar” Do you think that is the best anthem for you as Opposition Leader?

Election 2013: Day 10 (or, I’m 70% confident there’s a preference for bias)

One of the more interesting things is to watch where candidates campaign. In 2007 in the last week Kevin Rudd surprised many when he turned up in Cairns which is in the seat of Leichardt. The sitting member, Warren Entsch was retiring and the ALP thought it had a chance to win. And win it did – with a 14% swing to take the seat.

In 2010 Entsch came back and he re-took the seat with an 8% swing and he currently holds it with a 4.6% margin.

It is the 6th most marginal LNP seat in QLD, but you would think a longshot for the ALP to pick up. And yet today Kevin Rudd was back in Cairns

This doesn’t necessarily mean that the ALP thinks it is a chance to win it; it is as likely that they know they have to go for everything they can possibly get.

It’s only in the last week that the real focus on where the candidates campaign takes on full meaning. But it is something to keep an eye on.

***

Today Kevin Rudd was in Far North Queensland spruiking skills. He’s been on the skills and training kick all week. Today the big announcement was:

$209.8 million for 137 new Trade Training Centres.

The selling point was that

This investment is part of our positive plan to ensure all Australian students are given every opportunity to secure high-skill, high wage jobs beyond the China mining investment boom.

It’s a good policy, but it got no traction because the big “news” of the day was all about preference deals.

One aspect about this policy is that in 2007 Rudd promised 2,650 of these trade trainings centres over the next 10 years (ie till 2018 – as it started in 2008) to be in every secondary school.

At present we have around 250 completed. But the policy has changed a bit. Now the trade centres are more like “hubs” where one centre will service a number of nearby schools.

The latest information from the Department (which came out today) on the centres is:

More than $1.4 billion has now been approved for 510 projects benefitting over
1290 schools.  Over 60% of these schools are located in regional Australia and of the 29 schools  identified in RSD priority locations, 26 have now been approved to benefit under the Program.

Of the previously announced projects, over 70% have already been built – this is a
great achievement considering the first funding round only opened in March 2008.

At the 2010 election the LNP promised to scrap them.,

No idea what they’re going to do this time round; they weren’t saying today, they were just complaining it was all going too slow. 

***

Tony Abbott this morning announced via his party’s newspaper that the Liberal Party would not preference the Greens in any seats.

The statement was initially:

I have directed the Liberal Party to preference the Greens below Labor in all 150 House of Representatives seats.

By the time of his press conference though it became:

I have today instructed the Liberal Party organisation right around Australia that we should put the Greens last.

Geez, they’ve couldn’t even keep a consistent message for a whole morning.

The preference deal won’t matter much. In the seat of Melbourne and maybe Denison in Tasmania.

Preference deals only matter if the Greens are going to finish above the LNP. Other than that it’s all show.

And that show is about telling voters the LNP won’t ever work with the Greens and that they don’t want a minority government.

Again, there’s no basis in reality here – the Greens would never side with the LNP over the ALP in a hung parliament. Abbott continues to say he won’t make any deals and that if it is a hung parliament there should be another election.

He then followed this announcement saying:

“This is my captain's call and I say to Mr Rudd be man enough to do the same.”

Geez, ain’t it good that men are back running the country again?

Kevin Rudd had to respond to this sideshow of an issue, and given it was Julia Gillard who organised the deals with the independents, he was only too happy to run a mile from it saying,

We’ll be not entering into any coalition agreements, we won't be having any negotiated agreements, we won't have any deals with any independent or minor party.

But he also said he would try to work with whatever parliament was elected. And so both sides should.

Elections are not the cheapest of things going around, and we elect a parliament in the belief that an effort will be made to form a government. If neither leader is prepared to do that then their party should dump them at that point and put in a leader who will find a way.

Tony Abbott had nothing else to announce today other than in Wyatt Roy’s marginal seat of Longman, where he announced $250,000 for the Caboolture netball association.

So a bit of pork for the marginal seat.

Tomorrow it is Tasmania again for Mr Abbott where we’ll see if he adds to his “Tasmanian Special Economic Zone” policy he first talked about last week.

***

Tony Abbott also went on 2SM radio talking to John Laws:

He noted of same sex marriage that:

“Well, we have to be conscious of the fact that we are all the product of the society, of the culture, of the circumstances that have shaped us and I’m not saying that our culture and our traditions are perfect.

But we have to respect them and my idea is to build on the strength of our society and I support by and large evolutionary change.

I’m not someone who wants to see radical changes based on the fashion of the moment.

Now I’ll give him a slight benefit of the doubt and say when he was talking about “fashion of the moment” he was talking more in general terms, than of same sex marriage.

But the thing is same sex marriage is actually an example of evolutionary change. It’s not radical at all. Numerous states in America allow it, Britain, New Zealand, Canada, Spain, France and others nations do as well. A majority of Australians support it.

If the move to same sex marriage is not evolutionary, then no change is.

***

Last Friday I noted that while news.corp tabloids were unsubtle in their bias, The Oz was no less dodgy when it came to reporting the state of affairs.

On that day the front page made very idiotic use of the unemployment data to suggest QLD’s employment situation was a hell of a lot better than it is, and also to label Rudd as wrong.

This morning because I was working on various things, I hadn’t got round to reading The Oz, until I was alerted by a blogger from @ConusBusiness to another economics' crime on The Oz’s front page.

Conus Business’s blog post on it is excellent, and largely I will be reiterating and elaborating what they have noted.

Now yesterday I noted that in the PEFO, Treasury had released a graph showing its confidence intervals for its Real GDP growth projections. I noted that this was a great idea because it showed just how difficult it was to predict things years in advance.

I naively thought it would give journalists a bit more knowledge so that their reporting would be more accurate and more aware of the context of Treasury predictions.

Of course I forgot to put in the caveat that this does not apply to those writing for The Oz.

The Treasury also had another graph that showed the confidence intervals for nominal GDP. Nominal GDP is more crucial for the budget because it affects revenue (because you pay tax in a nominal amount, not adjusted for inflation).

Here’s the graph:

For those who prefer words to graphs, this is how the PEFO explained the graph:

The average annualised nominal GDP growth over the two years 2011-12 to 2013-14 is expected to be a little over 3 per cent, with the 70 per cent confidence interval over the two years from 1¾ to 4½ per cent (Chart B).

So the darker grey area is the 70% confidence interval. Treasury is 70% confident that nominal GDP from 2011-12 to 2013-14 will be between 1.75% and 4.5%.  When we look at the next three years (the 2011-12 to 2014-15 part) the range goes from 1.75% to 5.25%.

Fairly straight forward.

But when you need to come up with a front page story that suggests growth is in danger of tanking and that the budget truly is in “an emergency”, well then you have to be a bit less even handed.

So here’s how David Uren and David Crowe explained it on the front page of The Oz

“It says there is a 70 per cent chance that nominal gross domestic product growth – which is the value of all goods and services produced – could be as little as 1.75 per cent a year for the next three years against a central forecast of 3.5 per cent.”

Now that is just as dodgy as it gets.

If you look at the graph you can see the confidence levels are the same amount above the 3.5% central forecast as below.

There is not a 70% chance of nominal GDP growth for the next three years being as little at 1.75%. There is a 70% chance of nominal GDP growth for the next three years being between 1.75% and 5.25%.

I guess they didn’t believe their readers would like to know that there is a bit of an upside to the confidence interval as well.

Because everything in their article focuses only on the lowest level of growth occurring.

As the ConusBusiness folk note, saying there is a 70% chance of nominal GDP growing as low as 1.75% is as disingenuous as looking at the figures and saying Treasury believes there is a 90% chance nominal GDP will grow by as much as 6.25%.

Now you might think, oh well they played fast and loose with the confidence intervals. Big deal. It’s just a small part of their article.

The problem is they use the 70% chance figure to justify the entire thrust of their article. Here’s the lede paragraph:

TREASURY has sounded a dire warning that the budget could be in far worse shape than the government's economic statement suggests, with revenue possibly falling much lower and spending rising higher.

OK. Dire warnings. They need to provide something to support that. So what do they write?

“The document suggests revenue could easily be $30 billion a year less than the budget forecasts, while spending could be rising 50 per cent faster across the next decade than dictated by the government's budget strategy.”

Now the spending aspect is right – I noted it yesterday as well when I pointed out that while the Govt aims to keep spending growth at 2% in real terms, since 2008-09 it has grown by 3.7% (which is actually more than 50% higher, I really missed my chance to go for a headline).

But how do they come up with “revenue could easily be $30 billion a year less than the budget forecasts” line? Well they use the 70% figure:

“It said every percentage point error in the nominal GDP would raise the deficit by $6bn, mostly because of lower tax revenue. This suggests there is a 70 per cent chance that the deficit could be as much as $30bn a year worse than Treasury's forecast.”

How do they come up with $30 billion?

Well 3.5% (the central predicted growth figure) is 1.75 percentage points higher than 1.75%. So we do some “maths” and have 1.75 times $6 billion and then times 3 years to get $30 billion.

What a load of bullshit.

Because you could just as easily write:

“It said every percentage point error in the nominal GDP would lower the deficit by $6bn, mostly because of higher tax revenue. This suggests there is a 70 per cent chance that the deficit could be as much as $30bn a year better than Treasury's forecast.”

Both examples are terrible reporting. And yet oddly Uren and Crowe chose the version that aligns with the Liberal Party’s view of the budget situation. And that version ended up on The Oz’s front page.

I know. The shock.

I don’t know either David Uren or David Crowe personally, but I have chatted quite a lot with David Crowe on Twitter. He was a fine journalist when he worked for the AFR, and I thought him an excellent hire by The Oz. But his name was on last Friday’s piece of biased crud, and it is there again today on this one.

Crowe likes to take to Twitter and talk about his pride in the mainstream media. I would suggest embarrassment is the more appropriate feeling he should have for these two efforts. 

***

But hey, both Davids should not feel too bad. After all they didn’t write this:

***

And everyone can take a moment and be glad that so long as Mark Latham is around, there’ll always be someone in the world who is a bigger tool than they are:

Election 2013: Day 9 (or, Hit ‘em with the old PEFO)

Today was PEFO day. That moment when everyone turns to the Treasury to find out what the budget situation is as we head to the election.

Everyone except those in the Liberal Party looking at the Budget grassy knoll knew the Pre-election Economic and Fiscal Outlook was going to be almost exactly the same as the Economic Statement released the Friday before the election. We know this because it was clearly one of the reasons why the Economic Statement was released two days before the election was called. The ALP could not cope with another drop in Budget estimates during an election campaign and so it made sure there was as little time between the Economic Statement and the PEFO.

The only clowns who were saying the Economic Statement would be greatly different from the PEFO were Liberal Party fantasy dwellers and assorted kool-aid sippers. It is not in Treasury’s and Finance’s interest to get budget forecasts wrong on purpose to please the political party in power – which is essentially what Joe Hockey was charging they were doing.

At some point Joe Hockey should apologise for treating Treasury with more contempt than any politician since Jim Cairns. But I wouldn’t hold my breath. If he becomes Treasurer I can just imagine morale at the Dept of Treasury will be sky-high knowing that they have a bloke who for 3 years has accused them of being incompetent now as their boss.

But not to worry, he’ll probably call in Peter Costello to do an audit, like Campbell Newman did, so that they can get the numbers they want to get.

The interesting thing about the PEFO is that it acknowledged the difficulty of achieving the 2016-17 unemployment rates set in the Economic Statement. This was something I wrote about in my Drum piece last week.

The reason it is difficult is it would involve going in one year from 6.25% unemployment to 5%. And to do that you would really need GDP growth of around 6%. Treasury however – because in the 2 “out years” (ie the last two years of the 4 year forward estimates) uses the long term averages for growth and unemployment – had GDP growth in that year only at 3%.

In the PEFO it acknowledges this and points out it could have used alternative assumptions to achieve a different scenario:

Under this alternative scenario, unemployment in 2015-16 only gets to 6% and down to 5.75% in 2016-17.

But while that might be a nice number of the LNP to focus on, it is worth noting that this alternate scenario actually has a higher level of GDP growth projected and thus ends up with a better budget bottom line in 2016-17. Treasury estimates in 2016-17 the alternative scenario would add a cost of about $1.7 billion in unemployment benefits, but because it predicts stronger GDP and employment growth there would be an extra revenue take of around $2.1 billion.

The other interesting thing (in an economic-nerdy way) is that the Treasury has followed the RBA’s lead and published confidence intervals for its forecasts:

This gives you an idea of the inexact science of economic forecasting.

I actually think it is good to acknowledge this.

While in the past the risks with the forecasts have been noted, showing it helps ram home to people (ok, mostly journalists) that getting the GDP growth “wrong” by 0.5% is not an unlikely scenario.

The PEFO also provided an updated assessment of the structural position of the Budget.

This measure in effect forecasts where the Budget would be if economic circumstances were “normal”  ie when we’re not being able to count on record terms of trade figures.

It displays in a nice graph that the budget is expected to be in deficit until 2016-17, but that in structural terms it will take until 2017-18 for things to be in surplus – although the band shows that if the “worst case” scenarios occur it could be till 2012-22.

Note that even if this occurs, the actual budget might be in surplus already, but we could be in that position due to above average terms of trade and not due to a correction of the structural balance.

OK. That is all pretty dull and dry. In effect it lets you know that so far as the “Budget emergency” goes we’re actually repairing it pretty well.

BUT.

That is only if annual spending growth remains at 2% – the Govt’s professed target.

Now since 2009-10 real growth in expenditure has increased on average by 1.9%, but if we include 2008-09 the average jumps up to 3.7%. This might seem a big jump, but 3.7% growth is also the average increase in real govt spending in the last 10 budgets of the Howard Govt.

So keeping spending to 2% is going to be tough.

Laura Tingle also notes in her AFR article on the projections, they are dependent on a number of spending and tax commitments that have not all been agreed to by the LNP and that also if the asylum seekers policies don’t actually work, the added cost to the budget could be around $3.5b over the next four years.

****

The politics of PEFO is that now that the numbers are out, everyone wants to see everyone’s costings.

Joe Hockey and Andrew Robb made a big deal of the fact that when you go to the “Election Costings’ website, the ALPs page is empty.

If they had looked at PEFO they would have seen Table B2, which includes the costings of decisionS taken between the Economic Statement being announced and the PEFO:

The problem with the ALP is not that they haven’t announced any costings, it’s that they haven’t really announced any new policies not covered by the budget or the Economic Statement. It’s all been pretty light, and remember in the Economic Statement there was around $500m worth of policies over the next 4 years that came under the category of “Decisions taken but not yet announced”.

That said, both sides would be better off now actually releasing some policies and costings rather than saying “look at the other side”. How about not arguing that you are just as bad as the other mob, and show us that you are better?

Bold concept I know, but worth trying.

***

The morning started off with WA Liberal MP Don Randall saying the Libs might dump promises after the election if the budget is bad:

“Governments after elections quite often find themselves in difficult circumstances and I suspect that should we be the government and we see the state of the books, there's going to be a bit of that sort of talk from the coalition because governments do do that.”

Someone clearly forgot to tell Randall you only start making those statements after you win. When Tony Abbott was asked about this today he slapped down Randall:

“Look, I have been trying to call Mr Randall, but there is no mobile phone reception up here. Until we win government and put our mobile phone black spot programme into place, it will be difficult to call people from places like this.  But he knows what he said was wrong. I will keep my commitments. We will do exactly what we say we will do.”

What Randall said is actually quite fine in a broad sense. In his first term Rudd was actually very anal about keeping his promises. I remember being in the public service at the time and “it was an election promise” was pretty much the best way to explain why something was given a fast track.

But then the GFC hit and well, there are things more important than keeping election promises, and that’s keeping as many people working as you can.

The problem with Randall’s comments is the suggestion that the Liberal Party doesn’t know the state of the books. They do. That excuse died when Costello brought in the Charter of Budget Honesty. The PEFO IS the state of the books. Any suggestion otherwise requires a lot of lunacy present in your thought process (this doesn’t seem to be in short supply).

The problem is Randall is referring to the commission of audit that an Abbott Govt would institute. It is very similar to the one instituted by the Newman Govt in QLD which was done by Peter Costello (independent man that he is). When asked if Abbott would use the post election audit as an excuse to dump promises or do things not promised he responded:

… if the commission of audit identifies ways of getting better value for the taxpayers' dollars, of course we will be happy to consider that. We won’t do anything that is contrary to our mandate.

Given Abbott was the bloke who denied the ALP in 2009 had a mandate to introduce an ETS despite both the ALP and Liberal Party campaigning on the issue at the 2007 election, for him to start talking about not doing things contrary to his mandate is rather laughable.

The Randall comments also bled into the GST discussion. Last night Chris Pyne, fool that he is, on QANDA went further than the standard line regarding the GST (that they won’t introduce one without seeking a mandate from the electorate) saying:

CHRISTOPHER PYNE: The GST is one of our taxes. If the review says the GST should be increased, the commitment from the Tony Abbott Opposition is that we will not change either the GST or the basket of goods and services upon which it applies. That is a commitment.

and then

CHRISTOPHER PYNE: There will be no change to the GST in an Abbott Government.

Tony Jones rather correctly then asked him why the GST is being included in the review. The same was asked of Tony Abbott today.

Now I think the GST SHOULD be in the tax review, and it SHOULD have been in the Henry Tax Review. (To be honest about all that is needed in the Abbott tax review is a look at the GST, everything else can be marked “covered by the Henry Tax Review”.)

But why pay someone to review something that you are not going to change? You can obviously set parameters on a review – ie review these things, but not other things. Or you can (as the Govt did with the Gonski Review) put the parameter that any recommendation must not make any school worse off. Now those parameters might limit the effectiveness of the review, but at least doesn't negate it.

But to commission a review and say you will ignore any findings it makes about the GST renders the enterprise rather academic. 

And here’s the other thing, any changes to the GST will have huge impacts on any other changes in the tax system. Indeed changing it would be the starting point for most of the recommendations – ie increase/broaden it so we can cut income tax, get rid state taxes etc etc.

I’ll write more on this in my next Guardian post, but that political parties feel the need to rule out things they might only do after a review and even then only after the next election is just idiotic, and is one of the worst things about our current political system.

Yes the Government could change the Tax Act to change the GST without the states help, but it should be enough for Abbott to rule out doing anything before the next election. Promising not to do something in perpetuity is stupid.

***

Oh yeah, and Tony Abbott when asked to compare the current LNP candidate for Lindsay, Fiona Scott, with former Lindsay rep,  Jackie Kelly (she of the “Chaser style prank” Lindsay pamphlet scandal of 2007), he said:

"They're young, feisty, I think I can probably say have a bit of sex appeal and they're just very connected with the local area,"

Apparently Labor are not going to buy into the issue, wary of suggesting that they are invoking a sexism war. Wonderful. So Abbot gets away with saying stuff no boss would dare say of someone who works for them, and Labor give him a pass.

Geez, thanks goodness Julia Gillard got rolled so we could all stop worrying about sexism in Australian politics.

So don’t discuss the GST, and don’t call out sexism. Welcome to Election 2013.

***

But oh look, let’s not get too depressed. Just think it all could be worse, you could be the journalists who wrote this story:

But geez, you wouldn’t wish being that vacuous on anyone.

****

One last thing:

Today Tony Abbott was in Penrith. He “pledge $12 million towards a new Western Sydney community and sports centre.” He noted that the project would boost economic activity and confidence in the area.

"Over the last few years ... it's been hard to be optimistic about Western Sydney when it's hard to be optimistic, particularly about the Government in Canberra," he said.

Mr Abbott said Labor had neglected the area.

As Kimberely Ramplin noted on Twitter, here was Anthony Albanese back in July:

“The Federal Labor Government today announced it would contribute $12 million towards the development of the Western Sydney Community and Sports Centre in Penrith.”

Some neglect.

Election 2013: Day 3 (or, I’d love to have a beer with Albo)

And so we reached the first real day of stupidity in the campaign.

The news.corp sites ran with a big scoop of Anthony Albanese having a beer with Craig Thomson in a pub in Sydney on Tuesday night. The photo which looks like it was shot with someone’s iphone on full zoom, has that nice fuzzy look that makes you think something dodgy is happening.

The story attempted to suggest something nefarious may have been going on perhaps the two were umm you know something something… or you know they might have perhaps ummm….  OK, look, when you get down to it they couldn't quite put their finger on anything that was actually wrong.

The “best” anyone could come up with was the old “it’s a bad look”.

Devastating.

At least it wasn’t a story about how Kevin Rudd brushes his fringe away.

There was policy announced today but probably the highlight of the day was a young kid photo-bombing Kevin Rudd at a school. The shot taken by Fairfax's Andrew Meares is one of those light moments that is nothing to take too seriously, but is still good. The SMH did go on just a bit too much about it, but heck it’s a smile and smiles are good.

The advocacy group GetUp! tweeted the photo initially without attribution which was quickly deleted and replaced with one acknowledging Meares. The Daily Telegraph then took the photo, put it on its on website, and suggested it came from GetUp! and the source was “supplied”.

After complaints by Fairfax, it was removed.

Flogging a competitor’s photo and claiming you got it from someone’s Twitter account?

Now that’s a bad look.

***

I know it’s early days, but something has struck me about this campaign. It is very dull. I don’t mean dull in that everyone is saying their talking points and no one has made any slip ups. Jaymes Diaz and David Bradbury’s respective interviews are wonderful moments of excruciation. And as we’ve seen, we have had some fun images.

But there really doesn’t seem to be any reason to this election.

What is it about other than not voting for Abbott or not voting for Rudd?

Without worrying about who has won each day, I think both leaders have been tired, and out of step. Abbott has been stilted and dull. And that is being kind. It’s almost like he has taken Rudd’s advice to take a Mogadon and have a lie down.

But Rudd as well has not been good. He has often sounded like he hasn’t quite got his lines set. He at times seems to struggle to find his words. Almost like he’s out of practice – which of course he is.

I think the ALP is in big trouble at this point.

“A New Way” is a dumb slogan that makes no logical sense, and Rudd this week has seemed a bit old.

I also think they’re in trouble because I don’t think people give a sh*t. My gut feeling is that (as I said on Day 1) people are pretty much tuned out, and caring more about the footy and real life. I’m a political junkie and I can hardly be bothered to watch any of it all.

Three years ago, and in 2007 as well, everyday seemed crucial, every interview a must watch, every debate a turning point. This week has really felt a bit “going through the motions”.

It is early days – in 2010 the Libs had a very slow first week.

But the ALP should be very worried if they’re finding that the electorate isn’t caring about the election because it is coming from behind.

So stop right now and think what the ALP campaign is about. I don't mean after-school care or keeping the carbon price or the NBN. I mean what is the soul of the campaign? If you are someone who doesn’t care about politics why are you voting for Kevin Rudd?

“A New way”? But they’ve been there for 6 years, so where’s the new?

A new way? But one of the first things they did was announce funding for the car industry. 

Couldn’t they be stronger, or smarter, or heck even just more vibrant?

Kevin Rudd was just on the ABC 7:30 and he kept trying to talk about “Seven pillars”. Now look I am a numbers nerd but even I was thinking, “Geez, seven pillars? Can’t you just talk to us in human language?”

At his point Abbott doesn’t really need to care about much – it’s the ALP that has to overcomes the “Meh, you’ve had your turn, let’s give the other lot a go.”

Back in 1993 that looked to be what would happen, but the GST happened and the ALP (and Keating) found a reason to convince people not to give the other mob a go.

And thus today we had the ALP getting pretty excited about this from the AFR:

Joe Hockey was quoted as saying that GST “was part of the equation”.

This isn’t really a shock – he has already been on the record as saying if you have a review of the tax system (as the Libs want to do – apparently the Henry Tax Review is old hat now) then you need to consider the GST.

So OK, fair enough the ALP want to try and make some hay out of it, but the GST can only be increased if all the states agree.

Now the only thing the ALP have going for them is the states probably will agree because they all know the federal government will get the political blame. So yes it is possible.

But my view is that Tony Abbott, were he to want to raise the GST, would take it to the next election. And I think had he gone up against Julia Gillard this election, such a tactic was writ in stone.

Exactly like John Howard in 1996 and 1998, the strategy was to win big in the first election and have enough of a margin so that at the following election you can throw in a few uglies . So had Abbott slaughtered the ALP under Gillard (which was likely), then I believe the next election would have seen the GST, and harsh IR all on the table, and few other things – the ABC maybe? And sure they would lose a few seats, but if they had a 100-50 seat margin – which was on the cards – then they’d be almost unable to lose.

Just wait for the next QLD election to watch what Campbell Newman will put forward. He has such a huge margin that he knows the next election is almost a walkover, so what better time to push through everything you know isn’t really popular, but where you will get over the line because the ALP is in ruins.

***

Anyway. To policy.

The Libs announced that they would be cutting company tax by 1.5%… from July 2015.

That’s a ways off, so were I a company director I wouldn't go locking it in just yet.

The main reason the LNP is cutting the tax is because they’re increasing the company tax for big business by 1.5% to pay for their Paid Parental Leave Scheme.

At present though we don’t actually know what their PPL will end up looking like. My belief is there is no way a 1.5% levy on big business will cover the cost of their original scheme and so it will have to be altered. They’ll probably not include state public servants, or some other such.

The reason is (as I have written in The Guardian) that when Abbott first announced that a 1.5% increase in company tax would pay for it all the amount of company tax expect to be raised was a heck of a lot more than it is now.

Back in the 2010-11 budget, corporate tax revenue for this current financial year was forecast to be over $75bn; in this year’s budget it was forecast to be only $71.6bn. The writedowns from the 2011-12 budget are even more severe. Back then, $81.5bn in company tax revenue was expected to be raised in 2014-15; in the May budget, the Treasury was expecting just $72.8bn. In last Friday’s Economic Statement they are hoping to get $70.15bn!

Clearly 1.5% of company tax revenue ain’t what it used to be…

Now the Libs are saying the cut will improve growth, and sure it probably will. But the benefits are easy to exaggerate. The Government's Business Tax Working Group noted in its draft final report that:

A cut in the company tax rate of two to three percentage points would be needed to drive a significant investment response.

It also looked at how the tax cut was funded:

Treasury modelling commissioned by the Working Group indicates that a reduction in the statutory company tax rate from 30 to 29 per cent would increase gross domestic product (GDP) and household consumption in the long run.

Importantly, the modelling assumes that the cut in the company tax rate is offset by a reduction in lump sum transfers to households to keep the government budget balanced. This is a standard technical assumption. The benefit of potential policy reform packages would, of course, depend upon how the rate reduction is funded.

Also bear in mind, for most companies this is not a cut – they will pay 1.5% extra for the PPL and then receive a 1.5% cut. This tax cut won’t even affect most small businesses because, as former AIG CEO Heather Ridout told ABC radio:

"Most small businesses pay tax through the personal income tax structure, so the gains for corporate tax reductions are much more for bigger companies, and for particularly foreign-owned ones."

Now yes Australia's company tax rate is high compared to many of the OECD nations:

But it’s not so simple as that, as Professor Rick Krever, director of the Taxation Law and Policy Research Institute at Monash University told the ABC’s Stephen Long:

… in many European companies, companies pay much higher social security taxes than they do income taxes. So if you just comparing income tax rates, you're not comparing anything, you're not comparing the true costs of companies of operating in different countries.

Also there is the issue that cutting the company tax rate provides greater incentive for high income earners to operate as an independent contractor and pay company tax rather than income tax.

So we have a policy that doesn't really cut the tax rate for the companies who will most drive any GDP growth you would expect to get from a cut in the company tax rate. We have a cut in the company tax rate at the time when expectations of company tax revenue have been declining.

It’s worth remembering that back in 2006-07 company tax revenue was equal to 5.3% of GDP; last year it was 4.3% of GDP.

Just imagine how much easier it would be to run your budget if you had an extra 1% of GDP in your accounts!

So to recap:

A cut that is not really a cut just a split into two taxes: 28.5% +1.5% (gee that sounds efficient).

Thus extra growth unlikely to be anywhere near what would it might be were it a real cut in company tax.

And it is a cut in revenue at a time when revenue is declining.

Interesting way to go about fixing a “budget emergency”.

***

One final thing about today. When the Libs announced this policy they provided the documents to the press gallery after the actual press conference started. Andrew Tillett from The West Australian tweeted that they were passed out 5 minutes after it started.

One journalist (I’m not sure but it might have been Andrew) noted this when he asked Abbott a question about it. Now I realise campaigns don’t want their policies leaked, but this policy HAD been leaked – it was in all the papers. If they are not prepared to give the documents 15-20 minutes before the announcement so journalists can actually ask some question that relate to the policy then they should be called out as dodging accountability.

I have in the past (rather infamously) had a go at the press gallery following the leaders around, but it is not all their fault – the parties are doing more than ever before to avoid scrutiny. But it needs to be called out – and the journalists should have no compunction about doing so. It is not about journalists making themselves the story, it is about leaders dodging tough questions – and I think that is a newsworthy story.

***

Tomorrow the latest employment figures come out. A big day in the campaign.

***

UPDATE. A few mates on Twitter remind me that at this point in an election voters usually aren’t listening. And that is true. Also Abbott had a shocker of a first week in 2010 and he came home with a wet sail. I don’t think it is over. But as I say, the ALP needs to improve. The one reason I think they might is they haven’t announced really anything yet, whereas the Libs have already gone in big with a $5b policy.

Still. 4 and half weeks to go…. Don’t put down your glasses just yet.

Drum Piece–Budget: Not all declines are declines

My Drum piece this week looked at the announcement of a $12b fall in expected revenue and the claims and counter claims about what this means about revenue and the budget.

As a general rule I hate it when people start talking about total tax in nominal dollar amounts.

Usually when they do they’re trying to sell you something. Like the Liberal Party is currently with this graph it has put on its Facebook page:

Well golly gee, it looks like tax revenue was flat – if not going down when the ALP came into office and then they got greedy and up it zoomed. Terrible ALP Government all about taxing you to death.

Well this is what the graph looks like if we take it back a few years:

Suddenly the decline in revenue in 2008-09 and 2009-10 (the only time since the Great Depression total revenue has declined two years in a row) looks a bit stark.

But as I say, total nominal dollars are mostly for propagandists.

Let’s look at revenue as a share of GDP, because that takes into account inflation and the size of the economy (because inflation affects GDP as well as revenue and first the big picture:

And now how it would look if we used the Liberal Party’s Facebook Advert time period (and I’ll even cut the hell out of the Y Axis to exaggerate the drop as they did to exaggerate the increase in nominal $)

And of course the talk was all about the 7% increase in nominal revenue. But a good way to look at the increase is in real terms

On this measure the Government has had a good increase in revenue – in fact at 5.3% it is just below the 5.4% average increase achieved from 1993-94 to 1997-98 when the Keating/Howard Governments took the budget from a deficit of 4.1% to a balanced budget. In the past three years average real revenue has increased by 5.0% on average – and yet Wayne Swan is supposed to have brought the budget back to surplus?

I think not.

My favourite graph of the day:

Wayne Swan was hoping to go from a deficit of 3% to zero in one year. It took Peter Costello 3 years, and the world economy was in a much much better shape than it is now.

One of the things I’m most interested in seeing come Budget day is the expenditure amount for 2012-13. In the MYEFO it was projected to be 4.4% less than last year in real terms.

That in itself would be rather stunning, but (to go back to nominal dollar terms), the MYEFO was still predicting expenditure in 2012-13 to be actually less in nominal terms. And that has never happened in my lifetime:

I’m not saying it should even happen – it’s pretty bloody severe austerity, which, because of the drop in forecast revenue Swan will get absolutely no credit for. But I am interested to see if it does happen (and also if any swifty accountancy is needed to achieve it)