Showing posts with label budgets. Show all posts
Showing posts with label budgets. Show all posts

Monday, March 4, 2024

Contrary to appearances, the stage 3 tax cuts will leave us worse off

It’s time we stopped kidding ourselves about the looming tax cuts. They’re what you get when neither of the two big parties is game to make real tax reforms, and the best they can do is lumber us with yet another failed attempt to wedge the other side.

If you want real reform, vote for the minor parties, which may be able to use their bargaining power in the Senate to get something sensible put through.

The stage 3 tax cuts always were irresponsible, and still are. They’ve caused interest rates to be raised by more than they needed to be, and they’ll leave us with substandard government services, as well as plunging us back into deficit and debt.

Only an irresponsible (Coalition) government would commit themselves to making a huge tax cut of a specified shape more than six years ahead of an unknowable future, hoping they could trick Labor into making itself an easy political target by opposing them.

Back then, the Libs thought the budget was returning to continuing surpluses. Wrong. They didn’t think there’d be a pandemic. Wrong. They had no idea it would be followed by an inflation surge and a cost-of-living crisis.

Only an irresponsible (Labor) opposition would go along with legislating the tax cuts five years ahead of time, then promise not to change them should it win the 2022 election.

Let’s be clear. Just because Prime Minister Anthony Albanese’s changes made the tax cuts less unfair, that doesn’t make them good policy. And just because many families, hard-pressed by the cost-of-living crisis, will be pleased to have the relief the tax cuts bring, that doesn’t mean the tax cuts are now good policy.

Don’t be misled by the Reserve Bank’s acceptance of Albanese’s claim that his changes would not add to inflation. Any $20 billion-a-year tax cut is a huge stimulus to demand, imparting further upward pressure on prices.

All the Reserve was saying was that diverting a lump of the tax cut from high-income earners to middle and low earners wouldn’t make much difference to the degree of stimulus. Why wasn’t it worried about a $20 billion inflationary stimulus? Because it had known it was coming for years, and had already taken account of it, increasing interest rates sufficiently to counter its future inflationary effect.

Get it? Had there been no huge tax cut in the offing, interest rates would now be lower than they are, and causing less cost-of-living pain.

As the Grattan Institute’s Brendan Coates and Kate Griffiths have reminded us, the big loser from the stage 3 tax cuts – whether the original or the revised version – is the budget.

The budget has done surprisingly well from the return to full employment, the effect of continuing high commodity prices on miners’ payments of company tax and from wage inflation’s effect on bracket creep. So much so that it returned to a healthy surplus last financial year. It may well stay in surplus this financial year.

Great. But next year it’s likely to return to deficit and stay there for the foreseeable future. Why? Because we can’t afford to give ourselves a $20 billion annual tax cut at this time. As if we didn’t have enough debt already, we’ll be borrowing to pay for our tax cut.

In theory, of course, we could pay for it with a $20 billion-a-year cut in government spending. But, as the Coalition was supposed to have learnt in 2014 – when voters reacted badly to its plans for big spending cuts, and it had to drop them post-haste – this is a pipe dream.

No, in truth, what voters are demanding is more spending, not less. The previous government went for years using fair means or foul – robo-debt, finding excuses to suspend people’s dole payments, neglecting aged care, allowing waiting lists to build up – to hold back government spending as part of its delusional claim to be able to reduce taxes.

As Dr Mike Keating, a former top econocrat, has said, we keep forgetting that the purpose of taxation is to pay for the services that our society demands, and which are best financed collectively.

So when we award ourselves a tax cut we can’t afford, the first thing we do is condemn ourselves to continuing unsatisfactory existing services, and few of the additional services we need.

Those additional services include education – from early education to university – healthcare, childcare, aged care, disability care and defence. (Another thing the Libs didn’t foresee in 2018: our desperate need to acquire nuclear subs.)

But don’t hold your breath waiting for any politician from either major party to explain that home truth to the punters. No, much better to keep playing the crazy game where the Libs unceasingly claim to be the party of “lower, simpler and fairer taxes” and Labor says “I’ll see you and raise you”.

Anyone who knows the first thing about tax reform knows that achieving that trifecta is impossible. But if the Liberal lightweights realise how stupid repeating that nonsense makes them seem to the economically literate, they don’t care.

All they know is that the punters lap up that kind of self-delusion. Which, of course, is why Labor never calls them out on their nonsense.

The other thing we do by pressing on with tax cuts we can’t afford is sign up for more deficits and debt. Coates and Griffiths remind us that the high commodity prices the budget is benefitting from surely can’t last forever.

If you exclude this temporary benefit, Grattan estimates that we’re running a “structural” budget deficit of close to 2 per cent of gross domestic product, or about $50 billion a year in today’s dollars.

We’re ignoring it now, but one day we’ll have to at least start covering the extra interest we’ll be paying. How? By increasing taxes. How else? Ideally, we’d introduce new taxes that improved our economic efficiency or the system’s fairness. Far more likely, we’ll just be given back less bracket creep.

It’s the pollies’ bipartite policy of not stopping bracket creep by indexing the income tax scales each year that makes their unceasing talk of lower tax so dishonest and hypocritical. They’ve demonised all new taxes or overt increases in existing taxes, while keeping bracket creep hidden in their back pocket.

Which is not to argue we must eradicate it. Most of the tax reform we’ve had – notably, the introduction of the goods and services tax – has come with the political sweetener of a big, bracket-creep-funded cut in income tax. (Would-be reformers, please note.)

Another name for bracket creep is “automatic stabiliser”. When spending is growing strongly and inflation pressure is building, bracket creep is one of the budget’s main instruments working automatically to help restrain demand by causing people’s after-tax income to rise by a lower percentage than their pre-tax income.

The pollies can’t just let bracket creep roll on for forever. You have to use the occasional tax cut to return some of the proceeds. But July 2024 turned out to be quite the wrong time to do it.

So even if the Reserve starts to cut interest rates towards the end of this year, the tax cuts mean rates will stay higher for longer than they needed to.

Read more >>

Wednesday, February 28, 2024

Paying for the cowpat sandwich Morrison handed Albo

It never pays to be too sorry for politicians. They’re all volunteers, they’re well paid for what they do, and even the nicest of them have thrust themselves ahead of many others to get as far as they have.

But I can’t help feeling a bit sorry for Anthony Albanese. He got himself elected by promising not to change much, but I doubt he expected to be handed quite such a cowpat sandwich from the smirking Scott Morrison.

As part of his efforts to prove he could keep taxes lower than Labor, Morrison avoided fixing anything much and allowed waiting lists to build up. Now everywhere Albo and his ministers look, they find problems.

These problems will be expensive to fix. This week it’s Education Minister Jason Clare’s turn in the spotlight. The final report on the Universities Accord, which was released on Sunday, reveals plenty that needs fixing.

For openers, the previous government’s job-ready graduates scheme has been a disaster. Under the guise of encouraging students to pick courses that left them job-ready, it cut fees for teaching and nursing, while more than doubling the fees for such courses as arts and humanities, including economics and law.

As the experts predicted, this had little effect on the courses chosen. But it did have its intended effect: saving the government money. One expert suggests that returning tuition fees to something more reasonable could cost the government about $1 billion a year.

The report recommends that the fees for particular courses be set according to the expected lifetime earnings of someone with that degree. Good idea.

I’ve always been happy to defend the HECS-HELP debt scheme as a way of getting people to contribute towards the cost of their education. With repayments geared to the size of their income, and an interest rate far below commercial levels, it should not deter youngsters from poor families from attempting to better themselves.

But unsympathetic governments have fiddled with the scheme incessantly, and with the (hopefully brief) return to high inflation, it’s not surprising Gen Z is so dissatisfied. But Clare seems disposed towards the tweaks the report proposes.

Annual indexation of the debt would occur after deducting the year’s repayments, rather than before. The debt would be indexed to the lower of the rise in consumer prices or the wage index. And the rates at which repayments were required would be applied to successive slices of your income, just as income tax is applied.

There are shortages of workers with various tertiary qualifications at the moment, and the report sees the demand continuing to grow. At present, about 60 per cent of workers have trade or degree qualifications, and we need to reach at least 80 per cent by 2050, the report says. This would involve more than doubling the number of Commonwealth-supported students each year to 1.8 million.

Clare worries that not enough disadvantaged young people are making it to – and through – uni. (Let me tell you, people have been worrying about this at least since Gough Whitlam’s day. And even making university free didn’t help much.)

At present, people from poor families – those of “low socio-economic status” in academic-speak – account for about 17 per cent of enrolments, compared with 25 per cent of the population. Other target groups are First Nations peoples, people with a disability and people living in regional and remote areas.

The report proposes that uni students’ places be funded on a needs basis, similar to Gonski’s scheme for schools. Unis would receive a base amount per student, plus further loadings according to the particular students’ disadvantage.

This would mean regional and outer-suburban unis got a lot more funding per student than the sandstone central-city Group of Eight. But the extra money would be used to reduce the chances of disadvantaged students failing to complete their course for monetary or other reasons.

There would be fee-free courses to prepare chosen students for the rigours of university learning, and financial support for students required to undertake presently unpaid work placements.

It all sounds a big improvement. Quite apart from fairness, it’s clear that the higher the proportion of young people the government wants with a uni degree, the more it will need to include people from disadvantaged backgrounds.

But note this: none of these good ideas has been costed, let alone accepted by the Albanese government. We don’t know whether those that are accepted will start in this year’s budget or in 10 years’ time.

As for Gonski-like arrangements, the real Gonski needs-based funding for schools has still not been fully implemented more than 12 years later.

Let me quote Clare back at himself: “We’re not going to tackle this problem if we think that we can solve all the problems at the door of the university when someone turns 18.”

Just so. With education, it’s best to start at the bottom and work up. But we won’t solve many of our multitude of problems until some pollie has the courage to say maybe we need taxes to be higher, not lower.

Read more >>

Monday, February 26, 2024

Two-class school system a great way to entrench low productivity

In 2011, the Gonski report recommended that government funding of schools be needs-based and sector-blind. More than 12 years later, it still hasn’t happened. And it’s by no means certain it will happen any time soon.

The idea of sector-blind schooling – funding all students according to their needs, rather than their religion – fell at the first hurdle. Sectarianism has bedevilled attempts to ensure all our kids get a decent education since the introduction of compulsory schooling in 1880.

And so fearful of the religious vote are both major parties that this time’s been no different. Providing adequate funding for the more disadvantaged kids congregated in public schools could have been a simple matter of redistributing money from privileged private schools, but no.

Former prime minister Julia Gillard was straight out of the blocks, promising that private schools would be left no worse off. That is, disadvantaged kids would be helped only to the extent that extra money could be found for education, at the expense of all the government’s other responsibilities.

So the private schools – almost all of them professing some religious affiliation – have retained their funding priority. It used to be a matter of Catholics and Protestants but, thanks to the Howard government’s introduction of a new education priority – giving parents greater choice of which school to send their kids to – it’s now also a matter of Jewish schools, Muslim schools, “Christian” schools (code for the smaller non-conformist Protestant denominations) and soon, no doubt, Hindu schools and Buddhist schools.

If you wonder why the eternal enmities of the Middle East are echoed in faraway Australia, that’s part of the reason. “Choice” is a nice idea but, from the taxpayers’ perspective, it comes at a cost. Public schooling used to be part of the way we could be multicultural and still socially cohesive.

Now we’re paying more for it to be less so. Now, if you choose to have your kid grow up never having rubbed shoulders with people of other religions, that’s another service the taxpayer provides.

Except that it involves a monetary cost we’re reluctant to pay, and our politicians are reluctant to make us pay. How to square the circle? I know, let’s short-change the (majority of) kids still going to public schools.

But not to worry. The more things keep going the way they are, the fewer kids will be left going to public schools and the less the pollies will have to worry about the raw deal they’re getting.

We’ll have more kids leaving education with inadequate numeracy and literacy, of course, but who’ll notice that – or the extra cost to the budget – when we’ll all be so busy listening to the Business Council giving yet another sermon on the pressing need to reverse our declining productivity by cutting the company tax rate.

The beauty of a new plan to have most kids going to private schools – whether their parents can afford it or not – while only the kids of the rock-bottom poor are still going to public schools is that it’s self-reinforcing.

The more the better-paid and better-educated shift their children to private schools, the more those who are left will scrimp and save to join them.

And don’t forget this: public schooling is the default setting. One of the ways private schools maintain their reputation for greater discipline is to decline students with special needs, and expel students who cause too much trouble.

The public schools have no choice but to pick up the rejects. This wouldn’t be such a problem if they were given the extra funds needed to cope with the extra problems. But depend on it: they won’t be. This will give parents even greater incentive to get their kids out of there.

The plan does have a big drawback, however. No parent ever wants to admit it but, for many of them, a great attraction of private schooling is the greater social status it confers on the parents, as well as the old-school-tie benefits it confers on the kids.

Economists see education as a prime example of a “positional good” – a product that advertises to the world your high position in the pecking order. Trouble is, social status requires exclusivity. The more kids pile into private schooling, the less exclusive it becomes.

Economists say the demand for a good or service is “inelastic” if a rise in its price does little to deter people from buying it. As a positional good, the demand for private schooling is highly inelastic.

This explains why, not content with the big government subsidies they receive, the oldest and most famous private schools can charge parents huge fees on the top. Their fees rise faster than the inflation rate year after year, even in years of a cost-of-living crisis.

It may be that, the more parents pile into the cheaper Catholic systemic and other private schools, the more the elite private schools have to raise their fees to retain their exclusivity – their status as a positional good.

And, of course, the higher their fees, the more desirous status-seeking parents are to be seen paying them. Only the Reserve Bank’s ability to print its own money beats that. Remind me, why exactly is the taxpayer subsidising elite private schools?

Economists also say education is a “superior” good, meaning that the higher people’s real incomes rise, to more of that income they’re willing to spend on the product. In theory, people are buying more education or higher quality education.

But I have a theory that two-income families are more likely to choose private school education to prove to themselves their kids aren’t missing out. If so, they’re victims of a rarely remarked economic fallacy: anything that costs more must be of higher quality.

Fallacious though such thinking may be, the rise of the two-income family helps explain the shift to private schools and suggests it has further to run. Yet another reason to question why the federal government is propping up private schools at the expense of public schools.

Since Gonski, the feds have calculated the “schooling resource standard”, an estimate of how much total government funding a school needs to meet its students’ educational needs. The previous federal government’s agreement with the states required it to contribute 80 per cent of the private schools’ standard, with the states contributing the remaining 20 per cent.

For public schools, it was the reverse: the states pay 80 per cent, while the feds pay 20 per cent. Since the feds’ taxing powers are far greater than the states’, this deal had an inbuilt bias in favour of private schools.

As it’s worked out in practice, almost all private schools are fully funded, with many being overfunded, whereas almost all public schools are still underfunded, more than 12 years since Gonski.

The Albanese government’s Education Minister Jason Clare is renegotiating the funding agreement with the state education ministers, who met with him on Friday. They’re demanding that he hasten the public schools’ achievement of full funding by raising the feds’ contribution to 25 per cent.

You’d expect a Labor government to care about public school students getting a decent education. We’ll soon find out if it does.

Read more >>

Monday, February 19, 2024

Lest we forget the unknown public servant, working to inform us

Have you ever wondered how much taxpayers’ money is wasted by our politicians and public servants? Do you hope that every dollar governments spend is fully accounted for?

And would you like it to be made public not just how much was spent on public servants’ wages, rent, grants, paperclips and other administrative expenses, but how much was being spent on each of the individual programs within education, health, police, courts, roads and all the other government departments?

Better yet, would you like to see what were the outcomes of all that spending on this program and that? That is, hard evidence on whether they were achieving their stated purpose, and by how much things were getting better or worse.

You don’t have to be keen personally to spend hours poring over the books to believe that such information must be made available for others to study: the government’s auditor-general, of course, but also the opposition, the media, nosey investigative reporters, academic experts, and even the special interest groups.

I’m pleased to tell you that all those things you’ve just agreed we need are being provided. But I need to remind you that 40 years ago, they weren’t.

In those days, government financial reports – state and federal – were a dog’s breakfast of facts and figures. If you were able to form a conclusion from them, it would probably have been wrong.

The accounts concealed about as much as they revealed. This was partly because no one had made the effort to make them more reliable and informative. And partly because this laxity made it easier for bureaucrats and politicians to fudge the figures, making things look better than they were.

But we’ve had much improvement since those bad old days. Many people have played a part in this reform, and much has happened under pressure from professional accounting bodies, the International Monetary Fund and the UN Statistical Commission.

But if you were to single out one person who drove most of the many improvements over many years, it would be Don Nicholls.

Never heard of him? That’s the way he wanted it. He was a shy, self-effacing Treasury officer, who wore a cardigan in the office and always ate a long pink iced bun for lunch. He joined the NSW Treasury straight from school in 1948, he retired in 1990, and he has just died, at 93.

If he sounds boring, know this: when he told his first wife, a writer, that writing seemed easy, she challenged him to enter the SMH short story writing competition. He won it with a story about cricket.

Some people assume only second-class minds join the public service. They’re wrong, and never more so than in Nicholls’ case. He went to a selective school, Fort Street High (one of two I went to), gained an economics degree and an accounting qualification while working and, a year after he retired, he published the tome Managing State Finance, which became the Treasury bible.

Many public servants are intent on ensuring things are done the way they always have been, but Nicholls had a strategic mind and was always thinking of ways things could be improved.

These days, all the states produce multiple performance indicators for their many activities, on a uniform basis, collated and reported annually by the federal Productivity Commission.

Nicholls introduced “program budgeting” to Australian government accounting, and he also consolidated the NSW government’s accounts so they showed the “general government” sector separately from all the businesses it owned, plus a balance sheet outlining the state’s assets and liabilities. Money hidden from view in “special deposit accounts” was brought into the open.

Before Nicholls, the government didn’t even know the value of all the buildings, businesses and land it owned. Since the year dot, businesses have used “accrual” accounting to accurately match the amount they earned during a year with their expenses during that year.

It wasn’t introduced to state and federal government accounting until about 2000. Nicholls played a big part in this, insisting on uniform rules for the measurement of budget deficits and surpluses. (Federal Treasury, however, has stuck with the old “cash” accounting, so it can still fudge the figures.)

Nicholls’ influence spread throughout Australia because he was asked to conduct separate independent audits of the finances of the NSW, Victorian, Tasmanian and South Australian governments. He was, for a time, Victoria’s Treasury secretary.

A lot more Australians are indebted to his influence than they know.

Read more >>

Wednesday, February 14, 2024

Want better productivity? Start by ensuring our kids can read

The trouble with our economy is that there are so many things needing to be fixed, it’s hard to know where to start. And so many of them are urgent we don’t have time to fix things one at a time. But since the economy consists simply of all the workers and all the consumers – that is, all the people – one of my guiding principles is that governments should manage the economy for the many, not the few.

This may seem obvious but, during the decades of “neoliberalism” from which we’re still emerging, it became far from obvious. Neoliberalism is the doctrine that what’s good for BHP is good for Australia. We got used to listening with rapt attention when the top 100 or so chief executives told us what needed to be done to improve productivity.

It took us too long to realise that their idea of a well-functioning economy was one where their incomes grew considerably faster than ours. They’re still at it, not having realised that we’ve stopped listening.

They’re arguing again that the most important thing we need is major tax reform – which, when you inquire, turns out to mean they’d pay less tax while we paid more.

No. I’m far more persuaded by this week’s report from Dr Jordana Hunter and Anika Stobart of the Grattan Institute, arguing we should start at the bottom, not the top, and make sure all our kids become confident readers as early as possible in their time at school.

If you’re building a house, you start by laying a firm foundation, and education should work the same way. Hunter says that in no area of education is improvement more urgent than reading. “Reading proficiency is a foundational skill that unlocks the broader curriculum and empowers young people to grasp opportunities for themselves,” she says.

Stobart says, “When children do not read fluently and efficiently in early primary school, it can undermine their future learning across all subject areas, harm their self-esteem, and limit their life chances.”

Students who struggle with reading are more likely to fall behind their classmates, become disruptive, and drop out of school. They are more likely to end up unemployed, or in poorly paid jobs, we’re told.

Why are they telling us this? Because last year’s NAPLAN testing results show that one in three Australian primary and secondary students cannot read proficiently. For Victorians, the news is better, sort of: a mere one in four.

But for Indigenous students, students from disadvantaged families, and students in regional and rural areas, it’s more than half. (Which makes you wonder why Barnaby Joyce and his National Party mates don’t have a lot more to say on public school funding.)

This appalling deficiency hasn’t just happened, it’s been going on for years without anyone making a fuss about it. Why is it happening? Hunter says the reason most of those students can’t read well enough is that we aren’t teaching them well enough.

“A key cause,” the report says, “is decades of disagreement about how to teach reading. But the evidence is now clear. The ‘whole-language’ approach, which became popular in the 1970s, doesn’t work for all students [including someone in my family years ago]. Its remnants should be banished from Australia’s schools.

“Instead, all schools should use the ‘structured literacy’ approach right through school, which includes a focus on phonics in the early years. Students should learn to sound out the letters of each word.”

Now, let’s be clear. I like teachers – especially those who tell students they must read my columns. So this is no attack on our hard-pressed teachers.

“The real issue here,” Hunter says, “is, are governments doing enough to set teachers up for success? The challenge is making sure best practice is common practice in every single classroom.”

But a key improvement is regular classroom testing, to ensure kids who are struggling get identified early and given extra help to catch up.

That, of course, takes extra money. But federal Education Minister Jason Clare is renegotiating the school funding agreement with the premiers. “The reading wars are over. We know what works,” he’s said. “The new agreement we strike this year needs to properly fund schools and tie that funding to the sort of things that work. The sort of things that will help children keep up, catch up and finish school.”

Economists often worry that the things you could do to make the economy fairer come at the expense of the economic efficiency that improves productivity. But ensuring our kids get off to a good start in life – including through early education, two years of pre-school and good literacy and numeracy – ticks both boxes.

It gives our kids better lives, it makes our workforce better skilled and more valuable, and it saves the budget a bundle in having fewer people who need special help.

Read more >>

Friday, December 15, 2023

Chalmers finds a better way to get inflation down: fix the budget

There’s an important point to learn from this week’s mid-(financial)-year’s budget update: in the economy, as in life, there’s more than one way to skin a cat.

The big news is that, after turning last year’s previously expected budget deficit into a surplus of $22 billion – our first surplus in 15 years – Treasurer Jim Chalmers is now expecting this financial year’s budget deficit to be $1.1 billion, not the $13.9 billion he was expecting at budget time seven months’ ago.

Now, though $1.1 billion is an unimaginably huge sum to you and me, in an economy of our size it’s a drop in the ocean. Compared with gross domestic product – the nominal value of all the goods and services we expect to produce in 2023-24 – it rounds to 0.0 per cent.

So, for practical purposes, it would be a balanced budget. And as Chalmers says, it’s “within striking distance” of another budget surplus.

This means that, compared with the prospects for the budget we were told about before the federal election in May last year, Chalmers and Finance Minister Katy Gallagher have made huge strides in reducing the government’s “debt and deficit”. Yay!

But here’s the point. We live in the age of “central bankism”, where we’ve convinced ourselves that pretty much the only way to steer the economy between the Scylla of high inflation and the Charybdis of high unemployment is to whack interest rates up or down, AKA monetary policy.

It ain’t true. Which means Chalmers may be right to avoid including in the budget update any further measures to relieve cost-of-living pressures and, rather, give top priority to improving the budget balance, thereby increasing the downward pressure on inflation.

The fact is, we’ve always had two tools or instruments the managers of the economy can use to smooth its path through the ups and downs of the business cycle, avoiding both high unemployment and high inflation. One is monetary policy – the manipulation of interest rates – but the other is fiscal policy, the manipulation of government spending and taxation via the budget.

This year we’ve been reminded how unsatisfactory interest rates are as a way of trying to slow inflation. Monetary policy puts people with big mortgages through the wringer, but lets the rest of us off lightly. This is both unfair and inefficient.

Which is why we should make much more use of the budget to fight inflation. That’s what Chalmers is doing. The more we use the budget, the less the Reserve Bank needs to raise interest rates. This spreads the pain more evenly – to the two-thirds of households that don’t have mortgages – which should be both fairer and more effective.

Starting at the beginning, in a market economy prices are set by the interaction of supply and demand: how much producers and distributors want to be paid to sell you their goods and services, versus how much consumers are willing and able to pay for them.

The rapid rise in consumer prices we saw last year came partly from disruptions to supply caused by the pandemic and the Ukraine war. There’s nothing higher interest rates can do to fix supply problems and, in any case, they’re gradually going away.

But another cause of the jump in prices was strong demand for goods and services, arising from all the stimulus the federal and state governments applied during the pandemic, not to mention the Reserve’s near-zero interest rates.

Since few people were out of job for long, this excessive stimulus left many workers and small business people with lots to spend. And when demand exceeded supply, businesses did what came naturally and raised their prices.

How do you counter demand-driven inflation? By making it much harder for people to keep spending so strongly. Greatly increasing how much people have to pay on their mortgages each month leaves them with much less to spend on other things.

Then, as demand for their products falls back, businesses stop increasing their prices and may even start offering discounts.

But governments can achieve the same squeeze on households by stopping their budgets putting more money into the economy than they’re taking out in taxes. When they run budget surpluses by taking more tax out of the economy than they put back in government spending, they squeeze households even tighter.

So that’s the logic Chalmers is following in eliminating the budget deficit and aiming for surpluses to keep downward pressure on prices. This has the secondary benefit of getting the government’s finances back in shape.

But how has the budget balance improved so much while Chalmers has been in charge? Not so much by anything he’s done as by what he hasn’t.

The government’s tax collections have grown much more strongly than anyone expected. Chalmers and his boss, Anthony Albanese, have resisted the temptation to spend much of this extra moolah.

The prices of our commodity exports have stayed high, causing mining companies to pay more tax. And the economy has grown more strongly than expected, allowing other businesses to raise their prices, increase their profits and pay more tax.

More people have got jobs and paid tax on their wages, while higher consumer prices have meant bigger wage rises for existing workers, pushing them into higher tax brackets.

This is the budget’s “automatic stabilisers” responding to strong growth in the economy by increasing tax collections and improving the budget balance, which acts as a brake on strong demand for goods and services.

There’s just one problem. Chalmers has joined the anti-inflation drive very late in the piece. The Reserve has already raised interest rates a long way, with much of the dampening effect still to flow through and weaken demand to the point where inflation pressure falls back to the 2 per cent to 3 per cent target.

We just have to hope that, between Reserve governor Michele Bullock’s monetary tightening and Chalmers’ fiscal tightening, they haven’t hit the economy much harder than they needed to.

Read more >>

Friday, October 27, 2023

Paying tax is good and, for better government, we should pay more

On Friday, a former top econocrat did something no serving econocrat is allowed to do, and no politician is game to do: he set out the case for us to pay higher, not lower, taxes.

For years, politicians have sought our votes by promising smaller government and lower taxes. This often helped get them elected, but it hasn’t worked as promised.

They’ve reduced the size of government by privatising government-owned businesses and outsourcing the provision of many government-funded services. But though they’re always announcing tax cuts, the hidden tax of bracket creep means there’s been no real reduction in the tax we pay. Great.

The man advocating a radically different approach is Dr Mike Keating. He laid out the case for bigger government and higher taxes in a speech to the Australia Institute’s revenue summit at Parliament House in Canberra.

The pollies seeking election by promising lower taxes take it as obvious that taxation is a bad thing – a “burden” which, like all burdens, needs to be minimised.

But Keating says we should remember the purpose of taxation. It’s to pay for a wide range of services that governments provide to us either directly (education, healthcare, child care, aged care, pensions and payments) or collectively (defence, law and order, roads). Some services we get while we’re young, some when we’re middle-aged, and many when we’re old.

Keating says there’s a wide consensus among Australians about the things we expect the government to do for us. “We recognise that all Australians are entitled to basic levels of education, healthcare, income support and shelter, and that governments have a responsibility to ensure the provision of these essential services,” he says.

Recent Coalition governments promising us lower taxes always added the promise that this could be done without reducing “essential services”.

Keating says there’s now widespread acknowledgement that these services that we pay for collectively are critical to building our community and to our sense of community.

So taxation reflects our mutual obligation to one another as citizens. Taxation underpins an inclusive society and is an efficient way of paying for those services that are consumed collectively. Many of the services paid for by taxation add to our quality of life.

Indeed, he says, history suggests that our demand for these services, such as education and health, tends to rise rapidly as economic growth causes our incomes to grow. They’re what economists call “superior goods”. The better off we get, the more of our income we devote to them.

The problem for governments – which politicians themselves have worsened – is the disconnect in people’s minds between our demand for government services and the taxation needed to pay for them. We refuse to join the dots.

“We want increased access to more and better services on the one hand, and less taxation on the other,” Keating says.

So, let’s stop kidding ourselves. If we want more and better services from government, we’ll have to pay for them with higher taxes, just as when we want more or better in a shop or a restaurant, we know we’ll have to pay more.

But assuming we accept that truth, why do we already want the government to be bigger and better?

One way the previous government sought to square the circle of maintaining “essential services” while cutting taxes – including next July’s stage-three tax cuts – is by underspending on those services and hoping no one would notice.

Keating has thought of no less than seven areas where there’s little doubt that we need to spend more.

First, although the previous government acted on the scandals exposed by the royal commission into aged care, and governments have spent more on childcare, both remain underfunded. What’s more, increases in the availability and quality of care services are likely to lead to higher costs because higher wages will be needed to attract the extra workers.

Second, the Albanese government’s increased spending on “social housing” (what in the olden days was called the housing commission) is widely considered to be much less than needed.

Third, federal government grants for public hospitals will probably have to grow a lot faster than presently expected to reduce excessive waiting times. And the Medicare payments to GPs are still too low, risking shortages of doctors, particularly in the country.

Fourth, federal funding for universities hardly grew in real terms over the nine years of the Coalition government, and actually fell per student. Labor will be pressured to make this up. As for vocational education and training – TAFE – the new National Skills Agreement requires the feds to cough up more.

Fifth, unemployment benefits – this week labelled JobSeeker, maybe something else next week – are very low compared with most other rich economies. And the recent leap in rents means the rent assistance paid to pensioners and others on benefits is now far too mean.

Sixth, it’s clear we’ll need to spend a lot more on the AUKUS nuclear submarines and other defence capabilities. This could increase annual defence spending by at least 1 per cent of gross domestic product over the next decade.

Finally, measures to reduce carbon emissions and to fully develop Australia’s potential as an exporter of renewable energy will almost certainly require greater funding than the government is presently planning.

The Grattan Institute estimates that if present tax arrangements aren’t changed to cover the expected additional growth in government spending, the “structural” (underlying) budget deficit will be close to 3 per cent of GDP in 10 years. Keating thinks it’s more likely to be 4 per cent – or $100 billion a year in today’s dollars.

Continuing deficits of this size would be quite unrealistic, he says. He suggests not another review of the tax system, but a major, authoritative inquiry to assess how much revenue is needed to adequately fund all government services.

When the public has a better understanding of what we’d get for our money, then maybe we’ll be more prepared to accept the need for higher taxes.

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Friday, October 20, 2023

How much government spending is wasted? Sorry, don't know yet

Hands up if you think a lot of the money the government spends is wasted. I think a lot of people would agree. But the question’s not as easily answered as you may think.

My guess is that many people’s impression of the amount of waste is exaggerated. When they see what they believe is wasteful spending they notice and remember it, whereas when everything seems to be going as it should, they don’t take note.

And what’s wasteful can be in the eye of the beholder. All the government money that comes my way is well spent, but the money it’s giving to people I don’t know or don’t like – or to causes I don’t care about – that’s waste. Well, maybe, maybe not.

Many people convince themselves governments waste massive amounts, in order to justify their objection to paying more tax, or their resentment of what they already pay.

Remember, no one in government just stands there tearing up banknotes. Some of the money can be spent on, say, fighter planes than don’t work properly, or roads that are rarely used, but almost all the money spent ends up in someone’s hands, not just as a pension or benefit, but as a payment for work they did for the government, either as its employee or the employee of a company that did something for, or sold something to, the government.

The people who get money from the government in this way don’t regard it as a waste. What do they do with it? They spend most of it. And when they do, this generates income for other people. The money goes round and round. It’s rare for government spending to benefit no one.

But that doesn’t mean the money was well spent. That it benefited the people it was supposed to benefit, or that they got as much benefit from it as intended. That can be particularly so when governments don’t just give people cash, but do things for them that are supposed to help them.

When you think of it like that, my guess is that a fair bit of the government’s spending is wasteful. But I can’t tell you how much. Why not? Because even the government doesn’t know.

Why not? Because governments don’t do nearly as much evaluation of their spending as they should. Australian governments have no culture of regularly and rigorously checking to see spending programs are achieving their stated objectives.

But here’s the news. The Albanese government has vowed to change this. In fulfillment of an election promise, it has allocated spending of $10 million over four years to set up the Australian Centre for Evaluation as a unit within Treasury. It’s the baby of assistant treasurer Dr Andrew Leigh.

The centre will improve the number, quality and impact of evaluations across the Australian public service, working together with evaluation units in other departments and agencies. “It will save taxpayers money and make government better,” Leigh says.

It will partner with other departments to conduct evaluations on mutually agreed priority programs. These evaluations will build momentum by helping to build departments’ capabilities and demonstrating the value of better evaluation across the government.

“Building the … public service’s evaluation capability is also an important step towards reducing the over-reliance on [outside] consultants” and cutting spending on them. Using consultants “is expensive and delivers inconsistent results”, Leigh said.

Last week, Leigh announced that the centre’s first evaluation, with the Department of Employment and Workplace Relations, would be of Workplace Australia, the latest name for the network of community and for-profit outfits contracted to provide “employment services” to people having a hard time finding a job.

Leigh says that making sure the Workplace Australia network’s employment services are achieving their stated objective – which is to reduce long-term and “structural” unemployment – is a key part of achieving the government’s commitment to full employment, as outlined in its recent white paper on employment.

Good. Because I’ll be amazed if the evaluation doesn’t find the Workplace Australia program has been a huge waste of money, doing amazingly little to help unemployed people with problems on their way to a decent job.

On one side, bureaucrats have used the tendering system to pay as little as possible for the services the government says it wants to be provided. On the other, the “providers” – even some of the community organisations that seem only in it for the money – have learnt all the ways to tick the boxes and be paid, while doing precious little to help people with problems.

In the era of robo-debt, it didn’t take the providers long to twig that the previous government was happy to pay them for punishing the jobless for minor or manufactured misdemeanours, rather than helping them.

The telltale sign that Workplace Australia was yet another example of the failure of outsourcing – looked good on paper; didn’t work in practice – is the number of times the bureaucrats have tried to fix it by giving it a new name. The old Commonwealth Employment Service became Jobs Services Australia, then the Job Network, then the one-word, lower-case jobactive, then Workforce Australia.

Leigh, a former economics professor, is a great believer in the wider use of the “randomised controlled trials” that the medicos have used so successfully to ensure the procedures and pills they prescribe are “evidence-based”.

This, he hopes, will make the evaluations more accurate in determining what works and what doesn’t.

I have to say there’s a reason that, to date, the evaluation and improvement of spending programs has been half-hearted to non-existent. It’s because ministers and their department heads aren’t keen to have people producing documentary evidence that they aren’t doing their job properly. And the last thing they’d want is for such a report to find its way to the public’s attention.

So Leigh’s is a worthy crusade. Let’s hope he gets somewhere. Actually, if evaluations became a regular thing, and led to regular improvements, ministers and mandarins would have a lot less to fear.

Read more >>

Wednesday, August 9, 2023

Universities teach us much about government mismanagement

I’m starting to worry about Anthony Albanese and his government. As politicians go, they’re a good bunch. Well-intentioned, smart and hard-working. Only occasionally got at by their union mates.

They’re anxious to fix things, which is surely what we elect our politicians to do. Things the previous lot either neglected or worsened. But, like all pollies, their overriding objective is to stay in office.

And I fear they lack what John Howard called the “ticker” to make the tough decisions. To knock heads together when needed. To make the unpopular decisions their predecessors shied away from.

Above all, to say to voters what a tradie says to a home owner: “I can fix it, but it’s gonna cost ya.”

Everywhere you look in the federal space you find problems: aged care, the National Disability Insurance Scheme, government employees who’ve gone for years being underpaid, especially women in the “caring economy”, who’ve been exploited for decades. Medicare, with its overstretched hospitals and staff, overpaid specialists and underpaid GPs. The way the increasing frequency of extreme weather events is making insurance unaffordable.

Housing – whether it’s home ownership or renting. The decades of neglect of public housing. The rundown of the public service and its expertise and its replacement by untrustworthy management consultants charging exorbitantly for self-serving advice.

What many of these problems have in common is that they’re the consequence of both parties’ decades-long experiment with “smaller government” and lower taxes and the always-dubious notion that, because the private sector is inherently more efficient than the public sector, handing institutions over to private owners and the provision of various public services over to for-profit providers would leave us much better off.

No. Government is smaller only because so many of its bits have been sold off. The new private owners have rarely hesitated to whack up their charges, but our taxes don’t seem any lower. Put it together, and we’re paying more for services whose quality has declined.

Education Minister Jason Clare’s plans to fix universities are an extreme example of supposed “reform” gone wrong.

Last month, he issued an interim report promising five immediate actions to start fixing the sector’s many problems, ahead of the more comprehensive changes to be proposed in the accord panel’s final report in December.

These involve setting up 20 additional “study hubs” in regional areas plus up to 14 outer-suburban hubs, abolishing the Morrison government’s rule requiring students who fail to pass 50 per cent of their courses to be sent away, giving uni places to all First Nations students who meet the eligibility requirement for the course, guaranteeing uni funding for a further two years, and persuading state governments to appoint more people to uni councils who actually know something about universities.

That list is too modest to fault, but nor is it likely to do much good. When it comes to universities, everywhere you look you find problems. The academics tell you the government isn’t giving them enough money to do good research; the students tell you the teaching isn’t good enough, with too much of it palmed off onto casuals. Too many students drop out of their courses without anyone much caring. Young graduates seeking a career in academia get no job security and are treated badly.

The Morrison government’s crazy Job-ready Graduates scheme cut the tuition fees for degrees it approved of – teaching, nursing and agriculture – while doubling the fees for the humanities degrees it disapproved of. There’s been no decline in people doing arts degrees, just a lot more debt for those who do.

The HECS student loans started life in the late 1980s as carefully designed and fair, but governments’ attempts to get the money repaid faster have stuffed up the fairness.

The plain truth is that successive governments have brought about a sort of back-door privatisation of our universities with disastrous results. They’ve been trying for ages to get the unis off the federal budget. Their big let-out has been to allow the unis free rein in overcharging overseas students.

They’ve succeeded in giving unis the worst of both worlds. Unis have been filled with layers of high-paid managers, whose main role seems to be to annoy the academics. If businesses can fill up with casuals and keep accidentally underpaying people, we can too.

Vice-chancellors have become fund-raisers, always hunting for new sources of revenue. They spend much time finding ways to game the various international rankings of universities, which impresses the parents of overseas students and allows the big-city unis to charge higher fees.

One problem for Clare is that though the unis are agreed the system is bad and needs big change, they can never agree on what the changes should be.

But the biggest problem is that nothing can be fixed without costing the government a lot of money. This is where Clare risks raising expectations the government can’t meet. We’re stuck with smaller government in the sense that the pollies aren’t game to ask us to pay more for a better one.

Read more >>

Monday, July 31, 2023

Another rise in interest rates is enough already

Whatever decision the Reserve Bank board makes about interest rates at its meeting tomorrow morning – departing governor Dr Philip Lowe’s second-last – the stronger case is for no increase. Indeed, I agree with those business economists saying we’ve probably had too many increases already.

If so – and I hope I’m wrong – we’ll miss the “narrow path” to the sought-after “soft landing” and hit the ground with a bang. We’ll have the recession we didn’t have to have. (That’s where recession is measured not the lazy, mindless way – two successive quarters of “negative growth” – but the sensible way: a big rise in unemployment over just a year or so.)

For those too young to know why recessions are dreaded, it’s not what happens to gross domestic product that matters (it’s just a sign of the looming disaster) but what happens to people: lots of them lose their jobs, those leaving education can’t find decent jobs, and some businesses collapse.

Market economists usually focus on guessing what the Reserve will do, not saying what it should do. (That’s because they’re paid to advise their bank’s money-market traders, who are paid to lay bets on what the Reserve will do.)

That’s why it’s so notable to see people such as Deloitte Access Economics’ Stephen Smith and AMP’s Dr Shane Oliver saying the Reserve has already increased interest rates too far.

Last week’s consumer price index for the June quarter gave us strong evidence that the rate of inflation is well on the way down. After peaking at 7.8 per cent over the year to December, it’s down to 6 per cent over the year to June.

As we’ve been told repeatedly, this was “less than expected”. Yes, but by whom? Usually, the answer is: by economists in the money markets. Here’s a tip: what money-market economists were forecasting is of little interest to anyone but them.

That almost always proves what we already know: economists are hopeless at forecasting the economy. Even after the fact, and just a week before we all know the truth. No, the only expectation that matters is what the Reserve was expecting. Why? Because it’s the economist with its hand on the interest-rate lever.

So, it does matter that the Reserve was expecting annual inflation of 6.3 per cent. That is, inflation’s coming down faster than it thought. Back to the drawing board.

The Reserve takes much notice of its preferred measure of “underlying” inflation. It’s down to 5.9 per cent. But when the economy’s speeding up or slowing down, the latest annual change contains a lot of historical baggage.

This is why the Americans focus not on the annual rate of change, but the “annualised” (made annual) rate, which you get by compounding the quarterly change (or, if you can’t remember the compounding formula, by multiplying the number by four).

Have you heard all the people saying, “oh, but 6 per cent is still way above the target of 2 to 3 per cent”? Well, if you annualise the most recent information we have, that prices rose by 0.8 per cent in the June quarter, you get 3.3 per cent. Clearly, we’re making big progress.

But the next time someone tells you we’re still way above the target, ask them if they’ve ever heard of “lags”. Central Banking 101 says that monetary policy (fiddling with interest rates) takes a year or more to have its full effect, first on economic activity (growth in gross domestic product and, particularly, consumer spending), then on the rate at which prices are rising. What’s more, the length of the lag (delay) can vary.

This is why central bankers are supposed to remember that, if you keep raising rates until you’re certain you’ve done enough to get inflation down where you want it, you can be certain you’ve done too much. Expect a hard landing, not a soft one.

Since the road to lower inflation runs via slower growth in economic activity, remember this: the national accounts show real GDP slowing to growth of 0.2 per cent in the March quarter, with growth in consumer spending also slowing to 0.2 per cent.

How much slower would you like it to get?

The next weak argument for a further rate rise is: “the labour market’s still tight”. The figures for the month of June showed the rate of unemployment still stuck at a 50-year low of 3.5 per cent, with employment growing by 32,600.

But the nation’s top expert on the jobs figures is Melbourne University’s Professor Jeff Borland. He notes that, in the nine months to August last year, employment grew by an average of 55,000 a month – about double the rate pre-pandemic.

Since August, however, it’s grown by an average of 35,600 a month. Sounds like a less-tight labour market to me.

And Borland makes a further point. Whereas the employment figures measure filled jobs, the actual number of jobs can be thought of as filled jobs plus vacant jobs – which tells us how much work employers want done.

This is a better indicator of how “tight” the labour market is. And, because vacancies are falling, the growth in total jobs has slowed much faster. Since the middle of last year, part of the growth in employment has come from reducing the stock of vacancies.

Another thing the Reserve (and its money-market urgers) need to remember is that, when it comes to slowing economic activity to slow the rise in prices, interest rates (aka monetary policy) aren’t the only game in town.

Professor Ross Garnaut, also of Melbourne University, wants to remind us that “fiscal policy” (alias the budget) is doing more to help than we thought. The now-expected budget surplus of at least $20 billion means that, over the year to June 30, the federal budget pulled $20 billion more out of the economy than it put back in.

Garnaut says he likes the $20 billion surplus because, among other reasons, “we can run lower interest rates”.

One last thing the Reserve board needs to remember. Usually, when it’s jamming on the interest-rate brakes to get inflation down, the problem’s been caused by excessive growth in wages. Not this time.

Since prices took off late in 2021, wages have fallen well behind those prices. Indeed, wages haven’t got much ahead of prices for about the past decade. And while consumer prices rose by 7 per cent over the year to March, the wage price index rose by only 3.7 per cent.

This has really put the squeeze on household incomes and households’ ability to keep increasing their spending. And that’s before you get to what rising interest rates are doing.

Dear Reserve Bank board members, please remember all this tomorrow morning.

Read more >>

Monday, July 24, 2023

Beating inflation shouldn't just be left to higher interest rates

Everyone’s heard the surprising news that last financial year’s budget is now expected to run a surplus of about $20 billion, but few have realised the wider implications. They strengthen the case for relying less on interest rates to fight inflation.

But first, the news is a reminder of just how bad economists are at forecasting what will happen to the economy – even in not much more than a year’s time. Which shows that economists don’t know nearly as much about how the economy works as they like to imagine – and like us to believe.

Then-treasurer Josh Frydenberg’s budget in March last year forecast a budget deficit in 2022-23 of $78 billion. By Jim Chalmers’ second go at the budget last October, that became a deficit of about $37 billion.

By the following budget, in May, the best guess had turned into a surplus of $4 billion. And just two months later – and that financial year actually over – the best guess is now a surplus of about $20 billion.

That’s a forecasting turnaround, over the course of only about 15 months, of almost $100 billion, or 4 per cent of gross domestic product.

What did Treasury get so wrong? It grossly underestimated the growth in tax collections. This was partly because it assumed a fall in the prices of our key commodity exports that didn’t happen, thus causing the company tax paid by our miners to be higher than expected.

But mainly because collections of income tax were much higher than expected. The economy grew at close to full capacity, so more people found jobs and many part-time workers got more hours or became full-time.

A huge number of new jobs have been created, almost all of them full-time. Do you realise that a higher proportion of people aged over 15 have paid employment than ever before? The rate of unemployment fell to its lowest in 50 years and many people who’d been unable to find a job for many months finally succeeded.

Obviously, when people find work, they start paying income tax, and stop needing to be paid unemployment benefits. So full employment is excellent news for the budget.

But the rapid rise in the cost of living during the year caused workers to demand and receive higher pay rises, even though those rises generally fell well short of the rise in prices.

So all the people who already had jobs paid more tax, too. But not only that. Our “progressive” income tax scale – where successive slices of your income are taxed at progressively higher rates – means that pay rises are taxed at a higher rate than you paid on your existing income.

Ordinary mortals call this “bracket creep”. Economists call it “fiscal drag”. Either way, the higher rate of tax workers paid on their pay rises also made a bigger-than-expected contribution to income tax collections and the budget balance.

Note that this unexpected move from deficit to surplus in the financial year just past, this underestimation of the strength of tax collections, has implications not only for the size of the government’s debt at June 2023, it has implications for the size of tax collections in the next few years, as well as for the amount of interest we’ll have to pay on that debt this year and every year until it’s repaid (which it won’t be).

In Frydenberg’s budget in March last year, the projected cumulative deficit for the five financial years to June 2026 was just over $300 billion. By the budget in May, this had dropped to $115 billion.

And now that we know last year’s surplus will be about $20 billion, the revised total projected underlying addition to government debt should be well under $100 billion.

Get it? Compared with what we thought less than 16 months ago, the feds’ debt prospects aren’t nearly as bad as we feared. And the size of our “structural” deficit – the size of the deficit that remains after you’ve allowed for the ups and downs of the business cycle – isn’t nearly as big, either.

Which suggests it’s time we had another think about our decision in the late 1970s – along with all the other rich economies – to shift the primary responsibility for managing the macroeconomy from the budget (“fiscal policy”) to the central bank and its interest rates (“monetary policy”).

One of the arguments used by the advocates of this shift was that fiscal policy was no longer effective in stimulating the economy. But our remarkably strong growth since the end of the pandemic lockdowns shows how amazingly effective fiscal policy is.

It’s now clear that fiscal “multipliers” – the extent to which an extra $1 of deficit spending adds to the growth in real GDP – are much higher than we believed them to be.

We know that a big part of the recent leap in prices was caused by shocks to the supply (production) side of the economy arising from the pandemic and the Russia-Ukraine war. But central banks have argued that a second cause was excessive demand (spending), which happened because the stimulus applied to cushion the effect of lockdowns proved far more than needed.

If so, most of that stimulus came from fiscal policy. Our official interest rate was already down to 0.75 per cent before the pandemic began. So, further proof of how powerful fiscal stimulus still is.

But another implication of the $20 billion surplus is that the stimulus wasn’t as great – and its ultimate cost to the budget wasn’t as great – as we initially believed it would be.

In the budget of October 2020, the expected deficit of $214 billion in 2020-21 was overestimated by $80 billion. In the budget of May 2021, the expected deficit of $107 billion in 2021-22 was overestimated by $75 billion. And, as we’ve seen, the deficit for 2022-23 was initially overestimated almost $100 billion.

This says two things: the fiscal stimulus caused the economy to grow much faster than the forecasters expected, even though the ultimate degree of stimulus – and its cost to the budget – was much less than forecasters expect.

Economists know that the budget contains “automatic stabilisers” that limit the private sector’s fall when the economy turns down, but act as a drag on the private sector when the economy’s booming.

We’ve just been reminded that the budget’s stabilisers are working well and have been working to claw back much of the fiscal stimulus, thereby helping to restrain demand and reduce inflation pressure.

Whenever departing Reserve Bank governor Dr Philip Lowe has been reminded of the many drawbacks of using interest rates to manage the economy, his reply has always been: sorry, it’s the only instrument I’ve got.

True. But it’s not the only instrument the government has got. It should break the central bank’s monopoly on macro management and make more use of fiscal policy.

Read more >>

Wednesday, July 12, 2023

Robodebt: Politicians behaving badly to win our approval

Cliches become cliches because so many people see how aptly they capture a situation. My rarely achieved goal is to initiate them rather than reuse them. But at least let me be the first to see how aptly one applies to the robo-debt scandal, by paraphrasing Thomas Jefferson: we get the politicians we deserve.

You may not know it, but there once was a time when the convention – rigorously policed by Yes, Minister-style bureaucrats – was that incoming governments did not inquire into the doings of their predecessors.

But that convention was breached a long time ago, and now it’s conventional for every newly elected government to immediately initiate formal inquiries into the misdeeds – actual or supposed – of the government the voters have just thrown out.

It’s become another of the many advantages of incumbency. You improve your chances of a prolonged period in power by discrediting your traditional opponent in the eyes of the electors.

The first such inquiry I remember was the Costigan royal commission into the notorious activities of the Ship Painters and Dockers Union, called by Malcolm Fraser’s Coalition government in 1980, in the hope of embarrassing Labor.

The Howard government established another anti-union royal commission, into the building construction industry, and the Abbott government set up royal commissions into the Rudd government’s ill-fated “pink batts” home insulation program, and into trade union governance and corruption, hoping to embarrass the then Labor leader, Bill Shorten. So it may not be a simple coincidence that Shorten was the minister who commissioned the robo-debt inquiry.

I was once a supporter of the no-looking-back convention, but now I see that the decline in standards of political behaviour require governments to be held more strictly to account – if only in retrospect. When you think about it, the old gentlemanly convention – that dog doesn’t eat dog – arose from the two political sides colluding to make their lives easier at the expense of the public’s knowledge of what they’ve been up to.

So, it’s a good thing that this royal commission has shone a bright light on robo-debt as “a crude and cruel mechanism, neither fair nor legal” that made many people on the dole and other benefits “feel like criminals”.

“In essence, people were traumatised on the off-chance they might owe money,” the commissioner concluded.

The Liberal ministers who initiated and had oversight of this horrendous scheme should face the music, and those ministers who allowed it to run on for years despite its iniquities being well known (I wrote about them in early 2017) should be ashamed.

But while we’re all pointing accusatory fingers at the former government, I don’t think the rest of us should get too high on our high horse. Most of us don’t come out of this episode with clean hands.

The truth is, most of us knew – or certainly could have known – what was going on, but weren’t too bothered by it. We didn’t inquire further.

When the opportunity arose to disgrace its political opponents, the Albanese government knew where the bodies had been buried but, at the time, the Labor opposition didn’t make a great fuss about robo-debt.

Media outlets love boasting about the royal commissions their investigations have forced on reluctant governments but, with an honourable exception or two, they can claim little credit for this one. This one’s a win for the #notmydebt victims using social media.

People are right to see the former government as being utterly, shockingly lacking in compassion in its treatment of people falsely accused of owing the government money. For such a measure to be initiated by someone proud to proclaim his Christian faith is truly shocking.

But it’s wrong to see these people just as ruthless debt collectors, determined to cut government spending by fair means or foul. Scott Morrison wanted to be seen as the tough welfare cop.

The government wanted to be seen getting rough and tough with dole bludgers because it knew many voters would find it gratifying.

Labor knows it, too. That’s why it wasn’t making much fuss at the time. And why, in the May budget, it rejected expert advice that it greatly increase the rate of the JobSeeker payment to stop it being well below the poverty line.

Both sides of politics know there’s much “downward envy” among Australians. Hard-working, tax-paying people who greatly resent those people – mainly youngsters – who prefer sitting around at home rather than getting out and finding a job, but still have the government giving them money.

There are many reasons I’m proud to be an Australian. But one thing that makes me ashamed is the way our politicians seek popularity by pandering to the worst side of the Australian character: our tendency to scapegoat those less fortunate than ourselves, particularly boat people and the jobless.

Like Joe Hockey, we see ourselves as “lifters”, and greatly despise those we regard as “leaners”.

Read more >>

Wednesday, June 14, 2023

Grim Reaper is catching up with the Baby Boomers, waving bills

Having witnessed the last days of my parents and in-laws, I don’t delude myself – as they did – that I’ll be able to avoid being carted off to an old people’s home. Sorry, an aged care residential facility.

Actually, I dream of dying in the saddle. My last, half-finished column would be the announcement that I’d finally made way for the bright young women coming up behind me. That’s assuming they hadn’t already found a chance to push me under a bus.

Speaking of bright young women, Anthony Albanese’s Minister for Aged Care and Sport, Anika Wells, seems to be attacking her job with much more enthusiasm than her Coalition predecessors.

In a speech to the National Press Club last week, she noted that Labor inherited a system that a royal commission had characterised with a single word – “neglect”. She’d spent the past 12 months engaged in “triage” and “urgent reform” and was now able to think about the future.

And what’s she been thinking? “I don’t want Australians to be scared about the care they will be provided in later life,” she said. “I don’t want daughters and sons worried about the treatment their parents will receive.”

The Howard government’s Aged Care Act of 1997 was aimed at saving money by turning aged care over to community and for-profit providers. It was focused on how the providers were to run their services, setting out their obligations and responsibilities.

But, as recommended by the royal commission, the government planned to introduce a new act next year, this time focused on the rights of older people, with “a clear statement that the care provided to residents is safe and of high quality”.

Labor had already done much to fix the system, she said, but there were more challenges ahead, and “we must act now”. Why? Because “the Baby Boomers are coming”. (I’d have thought they’d come some time ago, and the real problem was their looming departure.)

But I imagine the Boomers (present company excepted) will be living a lot longer than previous generations – thanks to advances in medical science and being the first generation to realise that exercise was something to be sought and enjoyed, not avoided.

But though their arrival in aged care may be at a later age, their later lives won’t be trouble-free and certainly not doctor-free.

One change we’ll be seeing is more in-home care. Almost everyone would prefer to keep living at home rather than go off to a “facility” (sounds like a toilet block). The previous government did introduce the home-care package, but it was expensive and so was limited in how many people were given it.

Wells is introducing a new Support at Home program in July 2025 which, by delaying or eliminating people’s move to facility care, should save money.

But her big announcement last week was the setting up of an aged care taskforce – chaired by her good self – to answer the royal commission’s “great unanswered question”: How to make aged care equitable and sustainable into the future?

Which is a politician’s way of saying, “How we gonna pay for all this?”

One of the commissioners wanted a new aged care tax levy of 1 per cent of everyone’s taxable income (which, in practice, would be added to the present 2 per cent Medicare levy), whereas the other wanted some unspecified combination of a levy and a means-tested contribution from users.

Wells notes that, within a decade, we’ll have, for the first time ever, more people aged over 65 than under 18. And the proportion of people aged 15 to 64 – the people working and paying income tax – will shrink.

Now, this is the point where we need to remember that we’ve gone for decades stacking the financial rules against the younger generation and in favour of the oldies. We’ve kept handing tax breaks to the ageing. Old people can have good incomes that are largely untaxed, whereas young people on the same money have to pay up - and pay for their tertiary education.

It’s not true that every Boomer’s rolling in it – there are poor people in every generation – but most have done pretty well. Most were able to climb aboard the home-ownership gravy train when homes were still affordable. Many have been able to buy an investment property or two on the top.

And though the compulsory superannuation scheme hasn’t applied to the whole of their working lives, they’ll be retiring with a lot more, hugely taxpayer-subsidised super than any previous generation.

So, the idea of spreading the entire cost of the Boomers’ aged care – whether in-home or in-facility – across all those people young enough to still be working and paying income tax ought to be unthinkable.

If Labor doesn’t summon the courage to ask those Baby Boomers who’ve done OK to help pay directly for the cost of their highly privileged lives’ last stage, it will just prove what a rotten world Albo and the rest of us have left our offspring.

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Wednesday, May 31, 2023

PwC: How are the haughty chartered accountants fallen

As we watch the Albanese government and the Senate crossbench getting to the bottom of what’s become “The PwC Scandal”, it’s important to join the dots. It’s not just a question of who did what and when, and how they’ll be held accountable for their actions. It’s more a question of how did a formerly highly respected firm of chartered accountants come to behave in such an unethical and possibly illegal way. And how did the federal government allow itself to get into such a compromised position?

It’s an issue that interests me on many levels. There’s a caste system among accountants, and the ones who call themselves “chartered” – acting under a charter from the King – regard themselves as the brahmins.

Before I became a journalist almost 50 years ago, I worked for one of the “big eight” firms of chartered accountants – Australian partnerships that had affiliated with one of the eight big, American-based international firms. (I’m still a fellow of the chartered accountants’ institute.)

The big eight coalesced into today’s big four, with their snappy, slimmed-down names: PwC, KPMG, Deloitte and EY. Historically, the main thing they did was audit publicly listed companies, certifying that their published accounts were “true and fair”. They also gave tax advice and did rich people’s tax returns.

But there’s not much money in auditing, so each of the big four has branched out into providing consulting services to big companies – in a big way. The consultants – few of whom would be accountants – have become the fat tail wagging the chartered dog.

There is much potential conflict of interest between these three activities, and it’s possible this scandal will hasten the separation of the auditors from the consultants – something that should have happened ages ago.

That’s enough about boring accountants, except to say that, if you wonder why PwC has been so slow to send the offending heavies packing, it’s because these businesses aren’t companies with the usual command structure, they’re unwieldy partnerships. “Why should I vote to get rid of one of my partners, when I might be next?” In Australia, PwC has about 900 partners and 8000 staff.

These days, much of the big four’s income is from consulting to federal and state governments. In 2021-22, the feds paid $21 billion for “external labour” – consultants, but also contractors and labour-hire companies. Senator Barbara Pocock, of the Greens, says this is equivalent to 54,000 full-time workers, and compares with 144,000 directly employed federal public servants.

Barrister Geoffrey Watson has asked “why is Australia outsourcing so much of its governing to private enterprise? Policy development and implementation are now routinely taken from the public service and turned over to private consultants.”

To leftie academics, the answer is that it’s part of the rise of “neoliberalism”. To me, its part of the quixotic quest for smaller government and lower taxes, via deregulation and privatisation in all its forms: not just the sale of government-owned businesses, but the provision of publicly funded services such as job search, childcare, aged care and disability care by church and community groups and profit-making businesses.

Plus, in the present case, getting rid of public servants in favour of advice from private consulting firms. At the beginning, the big four had no great understanding of public policy. But they set up offices in Canberra and hired many of the policy experts being let go by government. These people got paid a lot more, and their services sold back to the government at an even higher rate.

What’s not to like? It’s only taxpayers’ money.

Remember that PwC’s questionable behaviour occurred long before the arrival of the Albanese government. It was the Coalition government, particularly under Scott Morrison, that distrusted and disliked public servants.

One of the attractions of paying outside consultants for advice is that, to ensure repeat business, they tend to tell you what they think you want to hear. Whether in auditing or consulting, the notion that anyone can buy genuinely independent advice is a delusion.

According to Andrew Podger, a former senior public servant, the government’s imposition of ceilings on staff numbers and wage bills “led to the use of external labour even when departments knew it didn’t represent value for money”.

Consultants will always give their business’s profits priority over the public interest. When you join the dots, they go from the PwC affair to the problems we encountered years ago with privately owned childcare, the royal commission into aged care, and all the present problems with the cost of the National Disability Insurance Scheme.

The great experiment of finding out whether it’s better for public services to be delivered by the private sector than the tea-drinking public servants has been a resounding failure. And the suggestion that, by dishonouring its confidentiality agreements, PwC may have broken the law, provides a link to the royal commission on banking misconduct, and even to the epidemic of wage theft.

Somehow or other, the “smaller government” policies of recent decades have left many businesses believing they are no longer required to obey the law.

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Monday, May 29, 2023

Gilding the budget lily: Labor brings in the creative accountants

This month’s budget is not as profligate as its critics claim, but nor is it the deficit-disappearing, penny-pinching budget it was tricked up to be.

When ministerial staffers use words to gild the fiscal lily, it’s called spin doctoring. When the government’s bureaucrats show the treasurer and, more particularly, the finance minister how to do it with numbers, it’s called creative accounting.

So, never fear, Jim Chalmers and Katy Gallagher didn’t need to pay PwC a motza to explain how to make the budget seem better than it was.

No, not the way the former NSW Coalition government paid KPMG to show it how to make its budget balance look better by moving the state’s trains off-budget. Nor has the same firm been paid by another part of the state government to write a report on why it was a bad idea.

There was something a bit odd about the media’s treatment of Chalmers’ second budget. Because the budget’s purpose is to reveal the government’s plans for taxing and spending in the coming financial year, the media give all their attention to the budget balance for the coming year.

Which, this time, is expected to be a deficit of $14 billion, rising to $35 billion the following year, with the budget projected to stay in deficit through to at least 2033-34.

Usually, the media ignore the estimated budget balance in the present financial year, which will end on June 30. It’s “old”. But not this year. This time, a surplus of $4 billion is expected.

Once the media got wind of a surplus, they lost interest in anything else. A surplus! First surplus in 15 years! What an achievement. And after being in power for only a year. How could you get more convincing proof of Labor’s skill as a manager of government finances?

Now, let’s be clear. The expected surplus is perfectly believable, and not the product of creative accounting. But it is the media displaying their economic ignorance.

For a start, in a budget of $630 billion a year, in an economy of $2600 billion a year, a surplus of a mere $4 billion is nothing to get excited about. It’s really a balanced budget, just as much as a deficit of $4 billion would be near enough to a balanced budget.

More significantly, the notion that any treasurer, no matter how wonderful, could turn an expected deficit of $78 billion into a surplus of $4 billion in the space of a year is fanciful. If any pollie should get the credit for it, it would have to be Chalmers’ Liberal predecessor, Josh Frydenberg.

Only he had enough time to do the things capable of helping produce such a result. With the benefit of hindsight, what Frydenberg did was greatly overstimulate the economy, adding to a surge in inflation as well as causing the unemployment rate to fall to 3.5 per cent so workers and businesses paid a lot more income tax.

Another way to look at it is that, had Treasury been better at forecasting, Frydenberg could have forecast a return to budget balance in his last budget.

But this didn’t stop Chalmers and his spin doctors from claiming the credit for himself. Consider this from the budget papers: “The improved fiscal outlook since October largely reflects government decisions to return tax upgrades to budget.”

Talk about twisting the truth. Chalmers wants to take all the credit because, confronted with an unexpected surge in tax collections of $88 billion, he only spent a bit of it.

But, surely, it was the silly media that made all the fuss about the surplus, not that nice young Mr Chalmers. Well, that’s certainly what his spin doctors want you to think – all the adulation came from the crowd.

But they were subtly pushing an easily distracted media in a favourable direction. Consider this. The usual practice in the construction of budget tables is to highlight the coming “budget year”. Not this time. This time it was the old year that got highlighted. So, the $4 billion surplus was shown in bold type, not the $14 billion deficit.

(By the way, as The Australian Financial Review has reported, had Frydenberg’s $690 million [yes, million] deficit in 2018-19 – the one that presaged all the Libs’ happy election talk about “back in black” – been calculated using the same accounting rules under which Chalmers’ surplus was calculated, it would have been a surplus of $7 billion. But no, this isn’t a fiddle, either. The decision to change the rules was made, in prospect, many years earlier by some finance minister named Penny Wong.)

Now we get to the creative accounting, which the Centre for Independent Studies’ Robert Carling, a former NSW Treasury officer, has pointed out. The budget papers make much of the claim that “the government’s spending restraint has limited real [note the real] payments growth to an average 0.6 per cent over five years from 2022-23 to 2026-27”.

Wow. Now that’s what I call restraint. What an achievement. Elsewhere in the papers we’re told that this compares with real average spending growth of about 4 per cent in the eight years before the global financial crisis, and 2.2 per cent over the eight years before the pandemic.

Wow. What restraint the Albanese government is showing. Except that pollies usually quote budget figures over the four years of the budget year plus three years of “forward estimates”. So, why is the 0.6 per cent an average over five years?

Because the extra year includes in the sum the pre-budget year ending in a month. And, purely by chance, real government spending in 2022-23 is expected to fall by 4.3 per cent.

By contrast, real spending in the coming year will grow by 3.7 per cent. Then comes projected annual real growth of 0.6 per cent, 1.9 per cent and 1 per cent.

Why the huge fall this year? Partly, I suspect, because of the effect of temporary pandemic spending programs coming to an end. But also because the indexation of various spending programs was lagging the huge rise in the consumer price index, which is the inflation measure used to calculate the “real” change.

What’s worth remembering from this little fiddle is: never trust calculations of average spending growth into the future. The first year will be close to the truth, but the projections for subsequent years will always be way too low because they’re based on the assumption of unchanged policies, whereas it’s certain that spending plans will have grown by the time we get there.

The first treasurer to con me with this averaging trick was Chalmers’ former boss, Wayne Swan. But Swan got his comeuppance by making himself a laughing-stock when he treated Treasury’s forecasts of future budget surpluses as in the bag. Turned out they weren’t.

The assumptions that policies won’t change and that targets will always be achieved are the reason the budget papers’ “medium-term” projections of deficits and debt 10 years into an unknowable future shouldn’t be taken seriously.

In both sense of the word, they are calculated to mislead.

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Friday, May 26, 2023

What they don't tell you about how the budget works

Now we have some space, there are things I should tell you that there’s never time for on budget night. If you don’t know these things, the media can unwittingly mislead you, and the government spin doctors can knowingly mislead you.

A budget’s just a plan for how much income you’re expecting in the coming period, and what you want to spend it on. Governments have budgets and so do businesses and families.

You may think you know a lot about budgeting and that all you need is common sense, but the federal government’s budget ain’t like any other budget you’ve known.

Where people go wrong is assuming the government’s budget is the same as their own household budget, only much bigger. Families budget so they don’t end up spending more than they earn.

But governments often spend more than they raise in taxes – run at a “deficit” – and only occasionally spend less than they raise – run a “surplus”. When they run deficits, they borrow to cover it; when occasionally they run a surplus, they can pay back a bit of it.

Governments can borrow, and keep borrowing, in a way families can’t. Why? Because they can’t go broke. When they run short of money, they can do what no family can do: order all the other families to give them money. It’s called taxation.

And national governments can go one step further and print their own money. Money is just a piece of plasticky stuff that’s worth, say, $50. Why is it worth $50? For no reason other than that the government says it is, and everyone believes it.

Actually, these days the government doesn’t print money so much as create it out of thin air, by crediting bank accounts. This is done not by the government itself, but by a bank the government owns: the Reserve Bank. It created hundreds of billions during the pandemic (although now the Reserve is making the government gradually pay it back, by actually borrowing the money).

Everyone knows that whatever you borrow has to be paid back. What’s more, you have to keep paying interest on the debt until it is paid back. Parents know they have to get any home loan paid back before they retire.

The trouble with a family is that eventually it dies. The kids grow up and start families of their own, then mum and dad pop off. But governments don’t die. The nation’s government acts on behalf of all the families in the country. There are always some families dying, but always others taking their place.

This is why families have to pay back their debts, but governments don’t – and often choose not to. Because governments go on and on, the main way they get on top of their debts is by waiting for the economy to outgrow them, so the size of their debt declines relative to the size of the economy.

Remember, unless you add to it, a debt is a fixed dollar amount, whereas the size of the economy – gross domestic product – grows with inflation and “real” economic growth.

The final thing making government budgets different from family budgets is that a particular family’s budget is too small to have any noticeable effect on the economy, whereas the federal budget is so big – about a quarter the size of the economy – that changes the government makes in its spending and taxing plans can have a big effect on an individual family’s budget and indeed, many families’ budgets.

But it also works the other way: what happens to one family won’t have a noticeable effect on the budget, but what happens to many families – say, everyone’s getting bigger pay rises, or many families are cutting back because they’re having trouble coping with the cost of living – certainly will affect the budget.

What common sense doesn’t tell you is that there’s a two-way relationship between the budget and the economy. The budget can affect the economy, but the economy can affect the budget.

Whenever a treasurer announces on budget night that he (one day we’ll get a she) is expecting the budget deficit to turn into a surplus, the media usually assume this must be because of something he’s done.

Possibly, but it’s more likely to be because of something the economy did. In this month’s budget, it’s because the economy’s been growing strongly, leading families and companies to earn more income and pay more tax on it.

Because many in the media imagine the government’s budget is the same as a family’s budget, they assume that budget deficits are always a bad thing and surpluses a good thing.

Not necessarily. If the budget was in surplus during a recession, that would be a bad thing because it would mean that, by raising more in taxes than it was spending, the budget would be making life even harder for families.

Only when the economy’s growing too fast and adding to inflation pressure is it good to have the budget in surplus and so helping to slow things down. And deficits are a good thing when the economy’s in recession because this means that, by spending more than it’s raising in taxes, the budget’s helping to prop up the economy.

But not to worry. When the economy goes into recession, the budget tends to go into deficit – or an existing deficit gets bigger – automatically. Why? Because people pay less tax and the government has to pay unemployment benefits to more people. Economists call this the budget’s “automatic stabilisers”.

Hidden away in the budget papers you find Treasurer Jim Chalmers quietly admitting he has no intention of trying to pay off the big public debt he inherited. His “overarching goal” is to “reduce gross debt as a share of the economy over time”.

Finally, for a family, a $4 billion surplus is an unimaginably huge sum of money. But for a federal government, it’s petty cash.

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Wednesday, May 24, 2023

Reach into your pocket, rise of the care economy will come at a cost

From even before the days early last century when people began leaving the farm to work in city factories, the industry structure of our economy has always been changing. In the ’80s, we saw the decline of manufacturing and the rise and rise of the service industries.

We’re probably kidding ourselves, but it seems the pace at which the economy is changing is faster than ever before. What’s certain is that change is occurring in several fields.

As explained in a part of this month’s budget papers I call Treasury’s sermon, it’s happening on at least three fronts. What gets the most attention is our transition from fossil fuels to renewable energy. Then there’s all the change coming from the digital revolution, which is working its way through many industries, with the use of artificial intelligence expected to bring much more change.

But the industry trend that’s doing the most to change how we live our lives is the rise of the “care economy”. On the surface we see childcare, disability care and aged care, but looking deeper we see nurses, allied health professionals, social workers and welfare workers. There are those who work directly with people receiving care, and an army of support workers in clinics, kitchens, laundries and cleaning stations.

By Treasury’s reckoning, the proportion of our workforce employed in the care economy has gone from 2 per cent in the ’60s to 10 per cent today. About 80 per cent of these workers are women, and more than 16 per cent of all working women work in the care economy.

Treasury offers three main reasons for this rise. Most obvious is the ageing of the population, which is greatly increasing the demand for healthcare and aged care.

Less obvious, but more significant, is what Treasury calls “a transition from informal to formal care”. In the old days, women stayed at home to look after young kids, aged parents and anyone with a disability.

But once girls became better educated, more of them wanted to put their education to work in paid employment. So young children went to childcare, oldies went off to a home and, particularly since the advent of the National Disability Insurance Scheme a decade ago, people with disabilities got more professional care.

One of the simple truths of economics is that economies are circular. On the one hand, more women wanted to go out to paid employment. On the other, this created more paid jobs for women in childcare, aged care and disability care.

As medical science advanced, there were more jobs for women in hospitals and clinics, in the allied professions as well as medicine and nursing – which now requires a degree.

Our greater understanding of the way brains develop has prompted us to begin schooling one or two years earlier, and turn childcare into “early childhood education and care”. Play-based learning became a thing. And more childcare workers needed teacher training.

Treasury’s final explanation for the inexorable rise of the care economy is “increased citizen expectations of government”. Just so. Our growing affluence has involved increased demand for services best paid for via the public purse.

All this has a lot further to go. A former government agency expected the demand for care economy workers to double over the next 25 years or so. Fine – but that says we’ll all be paying a lot more tax to cover it.

And there are other reasons the cost of care will be increasing. One is the weird notion that women should be paid as much as men. Another is that we can’t go on exploiting the motherly instincts of women by paying those in caring jobs less than those in uncaring jobs (so to speak).

One reason we can’t go on underpaying care economy workers is that they ain’t taking it any more. There are shortages of workers, and those who do sign up often don’t stay long once they see how tough the work is.

This budget includes the cost of a special, 15 per cent pay rise for aged care workers, awarded by the Fair Work Commission because their work had been undervalued. Nothing to do with the cost of living – that’s on top. Don’t think there won’t be more work-value cases elsewhere in the care economy.

Then there’s the fate of the theory that getting the care delivered by private businesses would be more efficient and so save money. Wrong. They made their profits by cutting quality.

As for the runaway cost of the NDIS, I think it’s more a matter of providers seeing the government as an easy mark. The government’s hoping to limit the cost growth to a mere 8 per cent a year – but we’ll see about that.

In recent times, much of the nationwide growth in jobs has come from the care economy. Which should be a comfort to those wondering where the jobs will come from in future. I don’t see our kids and oldies being left to the care of robots any time soon.

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