Before the release of the Mid-Year Economic and Fiscal Outlook, there was a lot of talk that it would be the beginning of a concerted attempt by the Abbott government to reset the economic narrative. As it turned out, the release coincided with the Martin Place siege, and therefore received hardly any coverage on the day. More significantly, the government has done nothing with the MYEFO statement since its release. Treasurer Hockey issued a media release on the day, and nothing since. Finance Minister Cormann did a couple of media interviews on the day, then nothing. Tony Abbott has been completely silent.

The reason is obvious enough, and has been noted by quite a few commenters already (but I will restate the case anyway). The MYEFO report undermines the government’s policy narrative in several crucial respects. Key elements of that narrative are:

* Debt and deficits are always bad, are now at catastrophic levels and are the product of Labor profligacy
* More labour market reform is needed to prevent a wages explosion resulting in higher unemployment
* The mining sector is the key to Australian prosperity and was unfairly burdened by the carbon and mineral resource rent taxes

MYEFO undermines all of these stories. It shows debt and deficits growing as a result of weaker revenue, exactly as happened under Labor. And, given that Treasury is sensibly advising against further tightening, the government now has to retreat from the claim that it will bring the budget back to surplus in its first term (again the comparison with Labor is obvious). It’s worth restating that the modest downgrade in the MYEFO estimates does nothing to change the fact that Australia does not have a public debt problem.

As regards wages, not only does MYEFO not that wage growth (low and stable for many years) has been weaker than ever, this is noted as one of the main factors leading to the decline in revenue growth

Finally, the end of the mining boom undercuts the idea that did so much to propel Abbott to power: that the mining sector is the basis of Australian prosperity and should be assisted at all costs. Despite the cosseting it has received from both federal and state LNP governments, the mining industry has never employed that many people and is now shedding jobs rapidly. The good side of this is that the overvaluation of the $A driven by the mining boom is finally fading, with the result that the net impact of the end of the boom is forecast to be quite small. We have much more to fear from a renewed global financial crisis than from a decline in mineral prices.

15 thoughts on “MYEFO

  1. I suspect that the “its all Labor’s mess” mantra is starting to wear thin now. And as I may have said before, I refuse to believe there is a budget or debt problem if they refuse to tax high income earners appropriately.

  2. Its all Labour’s mess never held water given PEFO.

    It seems the punters realised this well before the commentariat.

  3. “I refuse to believe there is a budget or debt problem if they refuse to tax high income earners appropriately.” (and cut tax expenditure and chase tax cheats and profit shifters).

    Makes sense to me.

  4. Coal mining employed 54,000 Australians one year ago. I assume that number is lower now that China’s coal imports have plunged. Glencore has just started up the 20 coal mines they shut down for three weeks in response to low coal prices. However, the coal price is lower now than when they shut, falling from $63.30 US to $61.10 US. Six months ago the solar installation industry employed about 13,300 people or about one quarter the number of people employed by the coal industry. Maybe if we all made an effort to refer to solar power as mining sunshine jobs in this industry would be deemed worthy of protection.

  5. The developed world is in a condition of long-term stagnation. The rundown in growth in the developed world has persisted from about the mid 1960s to the present (from the six percents to the two percents). Follow the graph and you reach 0% about 2015 to 2020.

    China has been the growth engine of the world for a decade or so now. China has heaps of problems now and plenty of idle capacity combined with its own asset bubbles. The world has a massive capital overaccumulation problem. Vastly excessive financialisation of the economy, asset bubbles, idle industrial capacity and high unemployment are the symptoms.

    The neoliberal oligarchs’ solution for all this is greater concentration of wealth, even more overaccumulation, finacialisation and further impoverishing of all workers. They will successfully push this agenda until they crash the system into a depression. At the same time, global warming and Limits to Growth are about to bite big time. It’s a triple whammy, the “perfect economic storm”.

  6. @peter

    There’s no need to raise the tax rates on higher income earners if the various rorts and special treatments are closed (e.g. superannuation was taxed at marginal rates; family trust tax rates harmonised with income tax rates; McMansions included in asset tests; negative gearing; etcetara). They could even be lowered.

  7. @Ikonoclast
    Low wages and a weak taxation regime lead to low growth, shrinking markets and eventually depression, if you ain’t got you can’t spend it. The Tories never ever get this, they focus on short term greed, to the detriment of all, including eventually themselves. Making money and economics are not the same thing, although there Tories have ben pushing this barrow for yonks, economics is distributing money to keep the system stable, business is creating wealth for oneself i.e. greed.

  8. Mind you, sacking all those public servants must have some knock-on effects for the economy; I wonder how long before it shows? If the average PS salary of the staff made redundant was high (which is likely, since these were budget-driven cuts), then the average age would be high due to seniority, and therefore the redundancy payouts would also be high.

    Ten thousand PS, at $100K average and 10 to 20 years of service, that amounts to a fairly large hit to the budget. Furthermore, once unemployed, their families have to rein in spending, they start using welfare agencies and start collecting unemployment benefits. Their contributions to super come to an abrupt halt, affecting whatever it is that super funds have as assets, and even housing could cop a blip from this. Those PS who survive the first round of cuts are more likely to rein in their spending as well, given the sudden shake-up to their belief of a level of job security which no longer exists.

    Knock-on effects within the PS include the hollowing out effect, where experienced staff disappear, leaving relatively inexperienced staff to pick up a higher workload of greater complexity than what they are currently trained for. Tax receipts go down, thanks to the cuts.

    Netting it out, it seems to me that the first three or so years after the cuts are a nett negative for the budget. As some of these cut PS find new (lower paying) jobs, the tax receipts will increase somewhat, but only at the low marginal rates; in fact, after family rebates and the like, it might be the case that there is a negative tax receipt, i.e. the government pays out more than it receives. It would be interesting to see the crunched numbers…

    Meanwhile, the change in exchange rate, and the collapse in minerals/coal, alter everything far more significantly than the cuts could possibly have made up.

  9. @I am always Not Trampis Punters are a pragmatic lot, when one spruiker says XYZ the punters say, OK, lets give it a whirl and see how you go.

    Abbotts problem is he has no reality base; uses spin to gain a perceived advantage then believes that what he spins is reality. He really has taken a turn up a blind alley of his own making.

  10. @rog The evidence for my hypothesis is that Abbott has frequently used the word “mandate” implying that the vote gave the govt carte blanche to fulfill every election promise.

    In that regard Abbott holds a “liberal” and selective interpretation of mandate.

  11. Am I mischievous for hoping that all male, straight-laced, right-wing politicans claiming to have a mandate do actually have a man date and this gets into the press? Once one has this little pun in one’s head each claim to have a mandate from such a politician can seem hilariously funny. I have to invent such private jokes (no pun intended this time) to stop me smashing the TV.

    I hope I can make this joke and at the same time assure people I am not homophobic but would be quite happy to see right-wing homophobes have multiple brain explosions from cognitive dissonance.

  12. Despite the considerable lip service that Abbott has paid to the myth of electoral mandates, after recently reading David Marr’s excellent essay, ‘Political Animal’, I really am not convinced that Abbott gives much of a toss about mandates.
    He seems to have made a great performance of keeping ideology hidden until the time that real power arrived (as Marr, in his subtle way predicted). This suggests that he has taken to heart the IPA’s advice – go hard and early as Whitlam did. The youthful Mad Monk was profoundly shaken by Whitlam and although the Coalition’s narrative frequently locates its ‘reforms’ amid the legacy of Hawke/Keating (e.g. the Chinese FTA was preposterously equated with the floating of the dollar!!!) Abbott aspires to give society as much of a nudge as Whitlam – albeit in the opposite direction. This does not require a second term.
    I am guessing that whether ‘One term Abbott’ becomes a reality rather than just a bumper sticker depends on Labor’s ability to turn ‘Howard’s booby trap’ – as the Saturday Paper recently described the structural deficit – against Howard’s protégé. Given the unflagging incompetence with which Labor has extolled its economic credentials in the recent past, I remain skeptical.

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