The debate around the proposed deficit levy has so far focussed on the economic impact of the Federal Government's debt burden.

However, economists are warning there is a bigger threat to the country's future - the unrelenting growth in household debt.

Consumer group Choice is also warning that borrowers are being offered new home loan products that create huge financial risks for the individual.

The Reserve Bank's decision to leave the official interest rate on hold yesterday at 2.5 per cent no doubt came as a relief to Australians with a share in the country's mounting private debt.

Official figures released yesterday show Australians owe $1.8 trillion to banks and other lenders.

Adjusted for inflation, that is the highest level since 1988, and the equivalent of $80,000 per person.

David Skutenko from the Australian Bureau of Statistics says the figure is not just high in historical terms, but by global standards our debt burden is among the highest in the developed world.

"We often compare household debt with household disposable income and, at the moment in Australia in 2013, it was 1.8 times household disposable income," he said.

"In comparison to the G7 countries such as the United States - 1.1 times household disposable income. The UK - 1.5 times disposable income."

http://www.abc.net.au/news/2014-05-07/household-debt-the-big-threat-to-australian-economy/5435844

Could it become known as the "Abbott moment", when a prime minister cursed his political fate and consigned his government to one term?

A big call, to be sure, especially so far out from the next federal poll in 2016.

But the revelations that Tony Abbott is backing a tax increase for middle and high-income earners coupled with the National Commission of Audit's call for swingeing cuts and radical reforms to health, education and welfare has many pondering the possibility of the demise of the government.

"Crazy", "electoral suicide", a "Gillard moment" were some of the comments from Coalition MPs, the latter remark a reference to Julia Gillard's commitment to a carbon tax, which haunted her to Labor's eventual defeat.

"Everyone is shell-shocked. They don't understand it," one Coalition MP said on Tuesday, after the Prime Minister confirmed a "temporary debt levy" for as long as four years was a live option for the Coalition.

Joe Hockey is a small man, inflated by hubris, with little understanding or interest in economics. Dr Evan Jones asks who will prick this bubble in the public interest.

TREASURER JOE HOCKEY is the self-proclaimed saviour of Australia’s fiscal rectitude, supposedly hobbled from six years of Labor mismanagement.

It could not be said that Hockey lacks conviction; but he is not convincing — save to journalists, who are wont to treat him seriously.

This from 'serious' journalist Peter Hartcher, Sydney Morning Herald, 3 February, 2014:

Joe Hockey is supplying something the Abbott government has been lacking – a purpose. … The purpose is to impose the virtues of the Protestant ethic of work, thrift and self reliance. The irony is that it's being done by a Palestinian-Armenian Australian Catholic. "The age of entitlement is over," Hockey said on Monday. "The age of personal responsibility has begun."

Hartcher again, Sydney Morning Herald, on 15 February, 2014, said Margaret Thatcher

... led the world in shrinking the sphere of government and enlarging the scope for markets, the forerunner of Ronald Reagan and Paul Keating, Roger Douglas and John Howard. Sure enough, it's her ideals that the new Treasurer serves, her words he evokes.

A quarter-century after the Iron Lady left office and a year after her death, Hockey sees himself as one of the leaders of an antipodean Thatcherite renaissance, a great return sweep of the ideological, political and policy pendulum.

Sorry Peter, Thatcher, Reagan and Howard did not

‘... shrink the sphere of government and enlarge the scope for markets'.

Rather, they reoriented their governments’ priorities and enlarged the power of megacorps over markets — which is precisely what we can expect from Hockey in office.

Hockey’s career trajectory has produced no appealing landmarks.

As an adviser to John Fahey during the latter’s Premiership of New South Wales (1992-95), Hockey impressed several senior staff in the NSW Cabinet Office as being predominantly a man of bluster. But are appearances deceptive?

Hockey readily gained pre-selection and then election in the Federal seat of North Sydney in 1996, and rapid elevation to a ministry (Financial Services) as early as 1998.

An early puff piece in The Age in April 2009 painted Hockey as ‘no ordinary bloke’:

'He climbs mountains, rescues cats, raises money for a children's charity — and still Joe Hockey finds time to be a politician ...'

Then, at end of interview:

'Joe has a Mini idling and an iPod in need of a duet. Canberra awaits him and beyond that, Kilimanjaro. Joe Hockey's song is set: many rivers to cross, one big mountain to climb.'

Really? Is this the soon-to-be most human Federal treasurer in Australian history?

There is clearly more than one Joe Hockey.

Hockey served as minister for Small Business during 2001-04 – a junior ministry known for incumbent lassitude; Hockey did not depart from the norm. There was no concern by Hockey for the nurturing of Hartcher’s ‘Protestant ethic of work, thrift and self reliance’ in a sector ground down by corporate predation.

As shadow treasurer, Hockey came out of the closet in October 2010 in criticising bank interest rate divergences from RBA levels. Hockey claimed the need for a ‘social compact’ for Australian banks, contrasting their pursuit of self-interest while being underwritten by the taxpayer.

Myriad bank victims hoped they might at last have found a champion in the corridors of power.

I emailed Hockey myself on 25 October 2010 to highlight the plight of SME/farmer borrowers foreclosed unconscionably by Australian banks and the need for regulatory attention.

There was no reply.

The potential champion of bank casualties had disappeared from view and has not re-emerged.

In early February this year, Hockey rebuffed Barnaby Joyce’s call for government involvement in mediating with banks regarding the restructuring of debt of drought-affected farmers.

Hockey retorted:

"They should speak to the people that they owe the money to as a starting point."

The predatory power of bank lenders over farmer borrowers is comprehensive. The cynicism of Hockey’s response provides a transparent window into the man’s character.

At his Press Conference on 5 March, Hockey made the extraordinary claim:

"It is also the case that we need, wherever we can, to get rid of unnecessary regulation. I know my colleague Arthur Sinodinos is having an almighty brawl in relation to FOFA.

"I want to back him 100 per cent, because all the regulation left by the previous Government is simply making it harder and not easier to get ahead and build enterprise."

This, in spite of the fact Hockey’s own mother-in-law has been a victim of corrupt activity by the Commonwealth Bank subsidiary Commonwealth Financial Planning.

Hockey’s interviewing persona is telling.

Master of avuncularity, when met with a question that threatens to expose his ignorance or prejudices he smirks and feigns a patronising air. Give me an audience worthy of my sagacity, he implies.

So here is Hockey about to present his first Budget.

The line has been "no gain without pain". "We all have to do the heavy lifting", he declares.

But Hockey will be using the Budget 2014 to cement financially his government’s priorities. Following his ideological forebears, those priorities are to further disadvantage the already disadvantaged.

The annual Budget is a government’s pre-eminent policy statement, but it renders oblique a government’s political priorities and it inhibits an understanding of a government’s complex contribution to economic development.

The Budget is an accounting statement — the means by which governments reconcile their economic and social programs with their revenue options.

The Budget is not the government’s program but rather the (short-term) financial reflection of the program. The government’s economic/social agenda has to be inferred — not least for the lack of an accompanying statement that outlines explicitly the government’s economic/social agenda.

For a government hiding an inegalitarian agenda behind a formal platform of universal sacrifice, obliqueness on the essentials is de rigueur. Learning how to read between the lines is a necessity.

Hockey only has to look to the end of his nose to find billions to plug ‘Labor’s’ deficit hole. As the SMH’s Peter Martin highlights regarding the Commission of Audit's deliberations, tax expenditures are missing from the deficit reduction recommendations.

Treasury’s tax expenditure statement (p11) provides ready directions.

Superannuation tax concessions stand at over $33 billion and rising rapidly. The subsidy directed to the private health insurance sector is currently at $1.5 billion. 

Hockey could draw the age of entitlement to a close in the mining sector, which the Australian Institute’s Matt Grundoff estimates to have received $4.5 billion assistance from Canberra in 2012-13 (add the uncosted tolerance of massive pollution-generated externalities).

But corporate tax evasion is the elephant in the room.

Recent publicity given to the tax evading genius of Google, Apple and Microsoft and the multiple tax haven opportunities is only the culmination of the long-standing plundering of the Australian tax base by multinational companies — including the auto companies, but with home grown Rupert Murdoch as past master.

Hockey should never have given the Reserve Bank close to $9 billion in October 2013. Abbott’s inegalitarian Paid Parental Leave scheme should be jettisoned. But Abbott’s fly-by-night jump into the F35 quagmire, throwing the national patrimony at a gold-plated lemon, exposes the essential jiggery-pokery of the entire deficit reduction propaganda.

Through a glass darkly II

The Budget’s financial accounting character also distorts the complex means by which governments contribute to national economic and industrial renewal.

The Budget certainly has complex implications for the prospects of economic stability and revitalisation, as it includes multiple appropriations for various contributory programs — job creation, investment subsidisation, trade and foreign investment initiatives, and so on.

However, the prospective overall economic impact of the Budget is formally subsidiary to the main point of the exercise — cutting budgetary appropriations to meet a pre-determined bottom line.

This emphasis on aggregates, distilled into a single figure, has been longstanding. Part of the reason is a tradition of the media pack looking for simple indicators of a budget’s meaning.

More deeply, the central agencies (Treasury and Finance), stacked with mainstream economists, have an orientation towards aggregate figures, courtesy of their training — what I call a macroeconomic fetishism.

Get the budget bottom line right and the rest will look after itself.

There is a meme that envisions the economy as innately resilient. At worse, it experiences occasional periods of excess, but the inbuilt cleansing aftermath serves as its own corrective. From this perspective, the enduring adversary of this functional mechanism is external interferences; government regulations, trades union intransigence, are the problem.

Clear away the impediments, embodied in the obscurantist catch cry ‘structural reform’, and it will be all systems go for the future.

Hockey waxed fervent in an interview with the Financial Times published 19 February, prior to the meeting of G20 finance ministers and central bank governors in Sydney on the 22nd:

"I believe in freedom, enterprise and liberty — they are the things that facilitate opportunity … I think our role as finance ministers is to facilitate ambition and lift the yoke of regulation, red tape, taxation and centralised control."

This robotically-generated mentality is an integral part of the neoliberal bag of tricks, but the long standing macro fetishism of policy-makers has provided an ideal environment for it to readily flourish.

In the same FT interview, Hockey pompously declaims:

"I have a unique goal to try to drive the world to greater growth and prosperity."

Notes SMH reporter Matt Wade:

‘Mr Hockey's global growth message is at the heart of Australia's presidency of the G20 this year. The government has chosen to make that topic, especially job creation, one of the two core themes for this year's G20 agenda.’

Hockey ups the ante at the G20 meeting, as reported:

Treasurer Joe Hockey has committed Australia to an economic growth rate of 3 per cent, well above the official forecast of 2.5 per cent, and foreshadowed sweeping reforms in the budget aimed at cutting unemployment. … He defended the language used about the aim for higher growth, saying the important thing was that finance ministers and central bank governors had "decided to put a number on" an increase in growth.

But Hockey does not know how jobs are created. Nor do other Finance Ministers or central bankers.

The idea that these luminaries should congregate in Sydney (and soon in Brisbane) to gasbag about employment growth would be humorous if it were not so depressing.

From Wade again:

Pushing for stronger global growth is nothing new for international forums.Mike Callaghan, Australia's former G20 deputy, warns that G20 meetings have regularly agreed to boost growth and create jobs but the follow-up has been ‘poor’.

Quite.

G20 meetings generate hot air rather than jobs, but Hockey has picked up thepatois like a natural.

Not merely Finance/Treasury Ministers but Finance/Treasury Ministries lack the wherewithal. Central agencies staff are ill-educated as to how national economies in a global capitalist system function, survive and develop. They know their statistics, but are weak on their meaning. Their knowledge of history is feeble.

The power of the Australian Treasury really doesn’t begin to grow until after 1950. Previously a bean counter Department staffed by accountants, Treasury increasingly was staffed with economists self-confident yet narrowly trained. Treasury has fought a battle for bureaucratic supremacy ever since, and has ultimately successfully beat off all challengers — not least by having other Departments and agencies colonised by clones.

Thus bureaucratic ‘expertise’ (including that of the Productivity Commission) is at an historical low in terms of an understanding of the sources of economic renewal, jobs growth, taxable capacity and quality of life. The Treasury adopted a cargo cult mentality towards the resources sector in the late 1960s – as its saviour from long dependence on the unstable rural sector – and fused this with undergraduate nostrums of ‘comparative advantage’ to provide the sum of its intelligence. Hockey’s ignorance is thus afforded bureaucratic complicity.

Hockey talks about spending on infrastructure — a rare idea of substance.  

But gains aren’t to be made by wholesale selloff of existing public entities. Current privatisations have been myopically centred on the cash cows. The adverse implications for long term budget management are considerable — a point hammered for years by economist John Quiggin.

But what will the loot be spent on?

If it merely goes into roads and ancillary subsidisation of the developer sector, it will disappear into the bottomless pit of the ubiquitous Public Private Partnership rort (commercial confidentiality assured).

Privatisation and contracting out have gradually emasculated the longstandingengineering expertise of public sector agencies that underpinned nation building — and, incidentally, war-time capacity). The effective management of privately-provided public infrastructure is now a pipedream.

Simultaneously, the twenty year disdain for vocational training – at both State and Federal level – has further undermined the capacity for industrial renewal and decent jobs generation. An open slather 457 Visa framework compounds the dysfunctionality.

Moreover, slavish colonial cringe ‘free trade’ agreements with Asian powerhouses – and even lowly Thailand – are merely going to reinforce Australia’s colonial status.

Dig it up, ship it out.

An indication of the intelligence impasse may be seen in the Coalition Government’s cavalier jettisoning of the Australian auto industry in its entirety.

That industry has received generous subsidies, but it has been of substantial significance in terms of employment – both, quantitatively, 45,000 in assembly and components manufacturing, and location-wise – and of technical development spinoffs. The costs have been documented by the partisan Productivity Commission but the benefits have been ignored. There is no doubt that the foreign-owned companies have blackmailed successive governments, but industrial blackmail is endemic to national capitalist economies.

Research sponsored by the University of Adelaide’s John Spoehr estimates that the overall long term adverse impact of the closure of Holden’s production dwarfs the cost of recent annual subsidies to Holden. But input-output modelling is marginalised in circles of official expertise, and the Spoehr study has been studiously ignored by Hockey et al in spite of its substantial media exposure.

But what about the innate generative capacity of an economy experiencing sectoral catharsis?

Optimism is called for, says know-it-all SMH columnist Peter Hartcher:

Still, it's one thing to allow the collapse of a failed industry. It's quite another to generate new industries and new jobs. Especially at a moment when the mining boom is fading and the economy softening.

How can Hockey be so confident? One reason is precedent: "We've done it before, we can do it again," says the Treasurer. He's right about that. The near-hysteria over the collapse of the car sector suggests amnesia in the opposition and much of the media. Australia stripped back its tariff wall in the 1980s and 90s, saw enormous job loss in manufacturing, yet went on to record its longest boom in recorded history.

Note Hockey’s royal plural. Hartcher’s history is also glib.

The post-WWII long boom was dramatically more substantial than recent growth, but marred by a 1961 recession induced by Treasury stupidity.

read more: http://www.independentaustralia.net/politics/politics-display/joe-hockeys-budgetary-tour-de-farce,6454

Even the pro-Coalition media are now alert to blunders and broken promises by Tony Abbott and Joe Hockey — but are they alert enough, asks Alan Austin.

MOST OF THE HURT the Abbott government is threatening – to the poor, the disabled, the sick, refugees and aid recipients – can be reversed should the electorate reject it at the next election. The victims will certainly have suffered. That suffering can then be ended.

But what if damaging changes are made to Australia’s society which cannot be reversed?

Such is the risk with cuts to the minimum wage proposed by the audit commission.

Superficially, it would seem that wages cut in 2014 can be restored in 2016. But what if the impact of this seemingly temporary reversal for low income earners becomes a permanent reversal for Australia’s economy?

First, let’s consider the concept of enduring, irreversible damage.

Spain was probably the nation affected most disastrously and permanently by inept decisions taken during the global financial crisis (GFC). Although now often referred to as a ‘basket case’ economy, Spain was travelling well in 2007. It ranked 23rd in the world on the IAREM measure of overall economic performance, ahead of South Korea, New Zealand, Germany and France.

Then came the GFC.

Spain’s long term unemployment rate rose from 1.5% to 5.5% by the end of 2009. It continued to soar to 13.1% in 2013 with no sign of declining yet.

With three years of negative growth in gross domestic product (GDP), Spain fell from 23rd place to 45th.

Ireland was an even more prosperous economy pre-GFC, ranked 14th in the world. It crashed to 32nd place, with three negative years of negative GDP growth also. The long term unemployment rate exploded from 1.3% before the GFC to peak at 9.6% in 2012. It remains at 7.7% today.

Asian tiger Hong Kong, with a completely different economy, also suffered badly through the GFC, tumbling from 6th ranking in 2007 to 18th by 2013. The economy contracted in 2009 by 2.46%, the jobless rose from 3.2% in mid 2008 to peak at 5.5% with sudden deflation followed by rapid inflation.

Hong Kong’s GDP growth has stabilised but remains about half pre-GFC levels.

In fact most countries that suffered severe reversals of growth, income and jobs in 2008-09 are yet to return to pre-GFC levels.

But not all.

Australia, Israel, Switzerland, Sweden, New Zealand and Chile all have stronger economies today than in 2007, despite the GFC.

So, clearly, government decisions matter and blunders can have long-term damaging effects.
Which brings us to the proposal to reduce Australia’s minimum wage. Evidence suggests this would not only be devastating for individuals, whose income would drop substantially, but disastrous for the economy.

Spain, Ireland and Hong Kong all cut wage levels during the GFC.

And the rest of the world? A few other countries cut wages, some kept them unchanged and others increased wages.

What were the outcomes on IAREM rankings? Do any patterns emerge?

They certainly do. Startlingly so.

That these correlations have not previously been highlighted suggests some ineptitude in Australia’s mainstream economics commentariat.

Wage data can be found at tradingeconomics.com at the wages page or, where unavailable, manufacturing wages.

IAREM rankings are accessible for 2007 and 2013. These are based on scores reflecting outcomes in eight measurable areas — income, growth rate, median wealth, jobs, inflation, taxation, net government debt and economic freedom.

Action on wages in the 2007 top 30 economies can be readily sorted into four categories: countries which cut wages, those which kept them level, those which allowed a gradual rise and those which boosted wages substantially.

(A fifth group – those with no wage data – comprises Bahrain, Kuwait and the United Arab Emirates.)

Only seven of the top 30 economies in 2007 applied wage reductions as a strategy. All seven suffered particularly badly through the GFC.

Spain, Ireland and Hong Kong we have discussed. Malaysia was ranked 29th then dropped to 42nd. Estonia fell from 27th to 34th. The United Kingdom fell from 21st to 27th.

Luxembourg – with all the advantages of a small, wealthy nation – fell from 3rd to 6th place.

Five nations kept wage levels substantially unchanged or allowed erratic fluctuations. Of these, Taiwan, Japan and Singapore rose in the IAREM rankings. The Czech and Slovak Republics both fell.

Nine nations in the top 30 allowed small wage increases through the GFC. Of these, Canada, Germany and Korea South rose in ranking. Three barely budged — Austria, Denmark and Norway. The Netherlands, Iceland and Finland fell.

Six economies allowed strong increases in wages. All six boomed.

China moved up from 15th to 11th. New Zealand rocketed from a lowly 25th to 10th. Sweden shot up from 18th to 9th. Switzerland zoomed from 10th place into the top five. The USA, which allowed an early sharp wage rise, moved up from 19th to 16th place. And Australia, as is confirmed by most independent analysis, rose from 9th to top of the global table.

The correlation between strongly increasing workers’ wages and continuing prosperity seems emphatic. There are no exceptions. The correlation between cutting wages and economic disaster seems equally emphatic. Again, no exceptions.

There is no clear correlation, however, with modestly rising or stable or erratic wages.

It has been argued here earlier that the key to Australia’s current ascendancy was its extensive stimulus implemented rapidly at the onset of the GFC. This further analysis suggests a vital component of that strategy was allocating part of the stimulus to rising wages.

Tony Abbott and Joe Hockey both taunted the previous government with the jibe that Australia was in danger of following Greece or Spain.

If they implement current audit commission recommendations, it may well be what they deliver Australia.

read more: http://www.independentaustralia.net/politics/politics-display/abbott-and-hockey-threaten-permanent-damage,6461