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The 2014 Federal Budget, Smokin’ Joe & Political Chaos

May 28th, 2014 · Greg Atkinson · 15 Comments

It’s has taken me a while to put some thoughts down about the 2104 Australian Federal Budget simply because I am suffering from budget fatigue. Maybe the rot set in when Kevin Rudd & Wayne Swan were prancing around during the GFC talking about a national economic emergency. Or perhaps it was just years of Swan delivering budgets which had little connection with reality, with himself and Ken Henry both off in some parallel universe. In any case, when Tony Abbott and Smokin’ Joe Hockey rolled out the budget emergency theme the fatigue really set in.

As readers will know, I was no fan of the Rudd/Gillard/Rudd years and was very critical of every budget Wayne Swan handed down. So I was hoping to be impressed with the new team and see a fresh new approach to the budget process. Unfortunately that’s not what we got.

To be clear, the budget needs fixing and the blame for the mess the nation’s finances are in, is mostly due to the economic incompetence of the previous government as I wrote in various articles such Rudd Economics 101: When in doubt spend like crazy(2009) or in Swan’s lazy 2011 budget and Australian economic madness

Of course some people compare Australian government debt to other nations and argue the nation’s finances are in good shape however they forget to mention household debt levels or that Japan for example has around US$3.2 trillion yen in foreign assets. These wise heads also fail to mention that Australia has managed to go from a budget surplus to a large budget deficit during a commodities boom that bought in billions of dollars in extra revenue.

Call me old fashioned, but I’d say if you cannot balance the books when business is booming then you have a real problem.

In any case I have been warning for some years that the boom days would come to an end and that measures should be taken to re-balance the economy. These measures were not taken so the economy will essentially be re-balanced by force not by planning, as we can see happening already across the manufacturing sector.

My main criticisms of the 2014 Federal Budget are that the “emergency” has been over-hyped, there is little in the way of tax reform and that many measures seem to have been put together in a rush with not a lot of consultation. Yes government spending needs to be reduced and debt paid down but calling the current situation an “emergency” is hype with a capital H.

Looking at a few specific budget areas here are my quick comments:

  • Reduction in business tax rate – good move.
  • Medical Research Future Fund – excellent initiative and something I have been talking about for some years.
  • Retirement age to increase to 70 – not good bordering on mean. Sure people are living longer but not everyone is and some people will just get a few years on the pension before they venture off this planet if they retire at 70. Politicians and desk drivers also seem to forget that some jobs involve more than just pushing a pen. Is the government expecting builders for example to keep working on site until they are 70?
  • Doctor co-payment – seems to have been a lot of focus on just $7 and I just say $7 in the context of what people spend these days on mobile phones, i-Pads and coffee. There is a safety net for concession card holders (i.e. they pay for a maximum of 10 visits per year) so I would suggest that the outcry over this is unjustified.
  • High income earners levy – to be fair high income earners already pay a higher rate of tax so this measure seems a little politically motivated to me. (i.e. to deflect some criticism that the Liberals only look after the high end of town) If politician’s perks, pensions and waste in the public sector was cut this measure would not be needed.
  • Infrastructure Funding – sounds promising with $11.6 billion being set aside for this but I get nervous about government infrastructure projects as they are often politically motivated and poorly executed.
  • Cuts to CSIRO/ANSTO – the media coverage of this has been woeful and it usually fails to mention that a review into how the CSIRO conducted research/operations was done during the term of the previous government and numerous changes were recommended. Some of these changes are now being implemented and include cuts to administrative and managerial staff which is hardly going to affect future scientific discoveries.

There were also reductions and changes made to family and unemployment allowances etc. which are probably needed but I would prefer to have seen these implemented after a wider review and simplification of the tax system. Or perhaps Joe can’t find the Ken Henry Taxation Review which seems to have been filed away in the too hard basket. (Hint – I believe the review is filed next to the report from Rudd’s Australia 2020 Summit)

Of course there is no such thing as a budget everyone will be happy with, but Smokin’ Joe didn’t t help the budget selling process by comparing the price of doctor pre-payment to a glass of beer and being somewhat dismissive of concerns both real and imaginary.

The mass media doesn’t help the process either, and in an age where online click-bait articles rule there is more focus on bringing in readers rather than putting together information articles that calmly explain the finer point of the budget.

Of more concern to me is the truly toxic nature of Australian politics and the absence of much talent in the 4th Estate as well. It appears there is little consensus building at work across the political spectrum and groups of people who think yelling, pushing and intimidation are valid forms of political expression should think about how they would feel if similar tactics were used against them. Unfortunately much of this toxicity is stirred by by the media with the national broadcaster, the ABC, being just as unbalanced as most other media outlets.

So Joe, if you are looking for a few hundred million dollars to save, try leaving the pensioners alone and privatise state media assets instead.

Until then, let’s hope that the next budget includes some real tax reform and that people on all sides of politics chill out a little.

This article was written by Greg Atkinson who is the Managing Director of Ohori Capital. Greg is from originally from Sydney but now works and resides in Japan. He can be followed on twitter via GregAtkinson_jp

15 responses so far ↓

  • 1 Biker // May 28, 2014 at 10:59 am

    A remarkably balanced assessment. What may have been overlooked is the likely effects of the budget on consumer confidence… unless, of course, you believe this either temporary or illusory(?) If, as we expect, confidence declines, retail/employment/etc will be affected. To what extent are Australian markets already flatlining as a result of the budget?*

    * Or do you believe this is (all) China related?

  • 2 watcher // May 28, 2014 at 12:39 pm

    Thank you again Greg. Since this is a shareswatch site, how do you feel the budget and likely other matters will affect the markets until year end?

  • 3 Greg Atkinson // May 28, 2014 at 7:51 pm

    Biker – consumer confidence may take a hit and probably already has but how much this has to do with the budget and how much has to do with slowing in many areas of the economy is very hard to estimate.

    watcher – the stock market already seems in the over-bought zone to me so even without the budget I expect the ASX All Ords/ASX to finish the year not much higher where they are now and possibly lower. Having said that, my general view is that the budget is probably not going to have a major impact on stocks as there are bigger global economic forces at play and these will have a much bigger impact.

  • 4 Matthew // May 29, 2014 at 9:12 pm

    Hi Greg,

    Outstanding look into the budget and one I largely support. I have taken a stance of siding with the government on this one because no one else does. While I certainly don’t agree with it all, I agree with enough to give a 45degree metaphorical thumbs up.

    Only two points I have a slightly different viewpoint on relate to the retirement age, and the income levy.

    To the income levy first, I believe the watering down was unjustified, and I would have gone to earners over $125k given the result is on taxable income, and the average high income earner possesses many tax deductions.

    In relation to the retirement age, I don’t think it has been well communicated. The government are not telling you to work to 70, they just wont fund your retirement until 70. The super Guarantee was introduced in from memory 1992 in the hope that business would self fund retirement (essentially). The full impact of the policy does not come into play until 2035.

    Theoretically therefore by the time the pensionable age is 70, the 70 year old has been accumulating super for 43 years, or since they were 27. By this stage, if a low income earning employee has had no portfolio growth whatsoever they will still be able to retire at around 60 with cash in the bank to live off until they get to the pensionable age. For me that access is at 65, I and all others of my generation (being those commencing full time employment after 1992) will certainly have enough super to fund the gap, and if I don’t I am probably already on some level of government benefit.

    To me all the protest is a storm in a teacup, but that may just be me.

    From a consumer confidence / ASX / Property / Employment point of view I think we are in for a tough 5-7 years. However, as a very wise man once said to me there is no rule that says your business cant grow in a recession, and those in the right areas will do fine, the hope is too many are not left behind.

  • 5 Biker // May 30, 2014 at 12:56 am

    Yeah, but what a shame we can’t bleed those irresponsible debt-ridden uni students who fell off the perch!*

    * Serves ’em right. Education shouldn’t ever be on higher perches… .

  • 6 Greg Atkinson // May 30, 2014 at 7:29 am

    Hi Matthew,

    You make a good point about the retirement age. The problem I have with these types changes is that generally speaking people are not in the earning prime of their lives after 65 so I reckon we can cut them some slack. The tax man will get his hands on their money one way or another anyway.

    I agree the Australian economy could be in for some years of tough re-adjustment and have been surprised how well it has held up over the last couple of years actually.

  • 7 Stillgotshoeson // May 30, 2014 at 8:36 am

    I am not against the co-payment GP fee. It is a better option than raising the medicare levy and brings it more in line with a user pays system. With a cap in place to protect the chronic ill and elderly etc.

    A re introduction of a Reasonable Benefits Limit to superannuation I would have liked to see as well.
    Somewhere in the region of $1.5m to $2m. Super is supposed to fund lifestyle when you retire not accumulate great wealth with generous tax concessions.

    Lowering of company tax rates I am in favour of too.. going further I would like to see state pay roll taxes abolished as well. Costs to business is too high. they need to be lowered to give them incentive to stay in Australia.

    Lower income taxes and raise the GST also I also would have like to have seen.

    I don’t like the idea of the cuts to health and education being floated. A healthy, educated nation is more productive than a poorly educated unhealthy one.

    There would need to be checks and balances in place for the 70 retirement age. Some physically or mentally will not make it to that working age and will need to stop work earlier.

  • 8 Biker // May 30, 2014 at 9:03 am

    “Some physically or mentally will not make it to that working age and will need to stop work earlier.:”

    And many will die, before reaching either pension or superannuation age, if that’s also raised to 70.
    We really need to figure out how to tax _those_ quitters!~

  • 9 Stillgotshoeson // May 30, 2014 at 10:02 am

    Retirement age is a moot point if you die before you reach it.

    The government(s) will still get access to those monies left by the deceased either directly due to no heirs or the indirectly through the heirs as they spend it so I think we can leave those people that die early out of the budget. 😉

  • 10 Greg Atkinson // May 30, 2014 at 10:47 am

    Health is a tough one & it’s an area of expenditure most major developed nations are trying to keep a lid on. People are generally living longer and as they do they often require more health services so the question is how is that funded?

    Regarding education I believe there needs to be some discussion about what graduates the system is churning out. Are the right courses being offered? Are graduates gaining the skills in the areas needed for the economy? How much of the system is now geared up basically just to bring in dollars from foreign students?

    But you have to give points for Smokin’ Joe for taking on the tough issues – it’s rarely popular to make spending cuts to health and education.

  • 11 Biker // May 30, 2014 at 11:42 am

    “…you have to give points for Smokin’ Joe for taking on the tough issues…”

    Told you he was the right man for the job, didn’t I? On the bright side, we’ve achieved payback from those who put us right in this mess; the elderly, the disabled, the unemployed, those uni slackers, the schoolkids, etc. 😉

  • 12 watcher // May 30, 2014 at 12:27 pm

    Greg – I can tell you that Universities are only thinking about their bottom line, not the number of graduates required for a certain field.

  • 13 Biker // May 30, 2014 at 1:31 pm

    “…those who put us right in this mess…”

    I wish to retract this allegation. It should read: ‘Who lit this out-of-control fire…”

    A more sensible budget would have included funding of mandatory body searches (for flammable materials, matches, fuel, etc) of the the elderly, the disabled, the unemployed, those uni slackers, the schoolkids, etc.

  • 14 Greg Atkinson // Jun 2, 2014 at 8:49 am

    Watcher I don’t think it is unreasonable for a government to look at keeping a lid a spending on education and perhaps the deregulation of university fees is a step in the right direction?

    In any case as I understand, the average HECS debt is around $20,000 which is the cost of small car and that doesn’t seem to be such a massive burden especially since repayments don’t kick-in until the graduate is earning around $48,000.

    But I guess people these days want a car, and a degree, and the latest i-Phone, and a house and the government sure better find ways to provide these things hey? (oh and raising the GST is not acceptable nor are other tax increases)

  • 15 Biker // Jun 2, 2014 at 8:49 pm

    “…the government sure better find ways to provide these things…”

    Are there better ways? Surely we’ve found them in this budget, which is an honest, ethically-sound, no-surprises offering which only malcontents, dangerously-violent university students and Baby Boomer pensioners (who stole our future!) could oppose.

    We knew exactly what Tony and Joe would do, in taking us down this new, exciting uncharted path…. . We’ll all be able to stay in harness longer because countless new jobs will be created… and regardless of what happens in the next quarter, we know we’ll be led by a watertight, totally united, completely trustworthy team.

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