Iain Hall's SANDPIT

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Medicine without the sugar chaser

Like others I woke up this morning to the news that the government has had a very sharp turnaround in the polls many people are unhappy with the budget. Well just tell me who is surprised? I’m not because the government have gone the difficult path of doing the right thing. something that is often rather unpopular. Its times like this that we learn the true calibre of our leaders. Perhaps its time for those who are cheering so loudly for Labor in the commentary should take a moment or two to consider just how we got to this place where a government has to bring down such a harsh and, lets be frank, unpopular budget.

That is exactly what happened. Rudd was worse than Whitlam. In the six years Labor was in government, the growth in Australia’s real federal expenditure was close to highest in the Organisation of Economic Co-Operation and Development – even though Australia was a resource economy with a sturdy banking sector and no housing bubble, and thus not susceptible to the financial shock in the US and much of Europe.

It is difficult to move the macro-economic needle quickly in a $1.5 trillion economy that is the 12th largest in the world (larger than Spain, which has 47 million people). In 2009, Rudd managed to jolt the needle, ramping up federal spending as a percentage of GDP.

He was also more profligate than Julia Gillard and she was no prize, loading future budgets with the Gonski education program, the national disability insurance scheme and the multibillion asylum seeker debacle without seeming to have a Gonski about how it would all be paid for.

Now that the bills are coming due, neither Rudd nor Gillard are around. It is the morning after. The clean-up. The payment due date. And the demographic challenge has loomed into focus. So let’s not confuse who did the spending and who is having to pay.

It would also be remiss not to mention the supposed “crisis” in NSW. The people who instigated the current revelations about Liberal politicians, lobbyists and fund-raisers were a Liberal senator, Bill Heffernan, and a Liberal Party executive member, Holly Hughes. Not exactly a cover-up.

New South Wales has a new premier untouched by scandal. He has a thumping majority in Parliament and firm hand on the budget. The Independent Commission Against Corruption is doing its duty to the discomfort of both sides of politics, unhindered by political interference. Its work will lead to better governance of all political parties.

A clean-up is not a crisis. We’ve already had a false crisis and are about to pay for it.

Without this malignant disease of Labor, err “economic management” we would not have the bitter medicine now its as simple as that and having to swallow that medicine with out any of the customary sugar coating its only natural that many folks are going to screw up their faces and complain bitterly about the taste. To my mind its rather like having Chemo  when you have been diagnosed with cancer. Yes the drugs make you feel awful and you hair has fallen out but you will persist because you know that the alternative is too dire to contemplate. Now I don’t like much of this budget more than anyone else but going back to Labor would be like going back to cigarettes after finally getting them off the shopping list.
Its all about will and determination Comrades
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28 Comments

  1. Ray Dixon says:

    When you get sick, Iain, you go to a Doctor and if he knows his stuff he prescribes a good medicine for you. The problem is your precious Coalition do not know their stuff and have prescribed a placebo for the bulk of the electorate while giving a massive dose of feel good drugs to the end that doesn’t need them.

  2. Richard Ryan says:

    Chemo? If you have terminal cancer—–chemo won’t save you. The Liberal Party is the “Terminal Cancer” of the working class. Forces within the Liberal Party are now waiting to plunge the knife into Abbott’s back . Tony Abbott is now as popular as Rolf Harris at a children’s party. Methinks he won’t even get a full term. Shalom.

  3. Richard Ryan says:

    Tony Abbott is a fraud, a fake, an imposter, and a habitual liar.

  4. Richard Ryan says:

    “Well I can understand why just at the moment politicians aren’t much trusted, because we’ve had too many politicians who say one thing before an election to win votes and then do the opposite after the election”……..Tony Abbott, Newcastle Radio June 13 2013.

  5. Richard Ryan says:

    Abbott is also a hypocrite.

  6. Iain Hall says:

    Richard
    You don’t have much capital in the prediction stakes, didn’t you learn anything from your many wrong predictions that “ABBOTT will never be PM”?

  7. Iain Hall says:

    Ray
    As someone who has to take some pretty powerful drugs everyday I long for some that actually make me feel good.

  8. les h matthews says:

    You do write some old tosh at times….

    I often wonder why I read your blog at all, I mean away from politics you seem like a reasonably decent person.

    Having said that what am I doing not only reading your blog but periodically making comment which you then inevitably cut to pieces anyway?

    I need a new hobby and you need a few ‘real person’ friends instead of the virtual ones you chat with.

    The people will prevail, always have always will.

  9. Ray Dixon says:

    Well Iain, if you were Gina Rinehart, Abbott would give you all the feel good medicine you wanted and then some. For free. But all he’s giving you (and me) is a bitter and useless pill that won’t solve the ills he claims it will.

  10. Iain Hall says:

    Les

    You do write some old tosh at times….

    Sure, anyone who writes has good days and bad days, useful insights and as you say they produce some utter tosh but on this occasion I think that I’m closer to the former rather than the latter.

    I often wonder why I read your blog at all, I mean away from politics you seem like a reasonably decent person.

    I suspect that you may actually enjoy reading blogs that you disagree with more than those that you agree with your own political views. I know that in my case its why I so enjoy being outraged when I read lefty blogs or lefty media.

    Having said that what am I doing not only reading your blog but periodically making comment which you then inevitably cut to pieces anyway?

    Come on is it that hard to admit that you get enjoyment out of a good argument? Especially when your interlocutor is as affable as I am 🙂

    I need a new hobby and you need a few ‘real person’ friends instead of the virtual ones you chat with.

    Sadly my life does not give me many opportunities to socialise in the “real world”so I make do with my electric friends,

    The people will prevail, always have always will.

    Sure but to keep up with my medical theme here I feel that I should remind you that necessary medicines are often far from being sweet to the taste.
    Ray

    Well Iain, if you were Gina Rinehart, Abbott would give you all the feel good medicine you wanted and then some. For free. But all he’s giving you (and me) is a bitter and useless pill that won’t solve the ills he claims it will.

    I’m rather stoic these days, its what you have to be to get by with my condition Heck I can even dry swallow any pill these days. As I said in my previous post we are seeing a classic case of a very tough first budget and you can bet that subsequent budgets will be more moderate and as a consequence substantially more popular.
    Now tell me honestly do you think that Labor will wind back any of these reforms if they got back into power? Shorten is refusing to answer that question BTW

  11. Jeff G. says:

    I guess the important question is “what happens next”? What parts of the budget will the ALP, Greens, PUP, etc. decide to block? What are the Libs happy to sell to get the budget through? And once the budget is through (which will take some time) then what will Abbott and Hockey do next? What is their big vision for the country? Do they even have one? The only major reforms I think is even in their minds is deregulating universities and bringing back Workchoices.

    Byron asks on another post about the meetings of state premiers. I am starting to form the view that a lot of this is actually a ruse to get an increase to the GST up and running. Deny the states revenue, let them whinge for a while, then float the idea and get it going. As I have often said, I would support an increase in the GST, though I think there should be no GST on fresh food, utilities or other essential goods and services. Rather than taxing what people earn or cutting what they need, we need to tax what they spend.

  12. Iain Hall says:

    Jeff

    Byron asks on another post about the meetings of state premiers. I am starting to form the view that a lot of this is actually a ruse to get an increase to the GST up and running. Deny the states revenue, let them whinge for a while, then float the idea and get it going. As I have often said, I would support an increase in the GST, though I think there should be no GST on fresh food, utilities or other essential goods and services. Rather than taxing what people earn or cutting what they need, we need to tax what they spend.

    Increasing the GST would be a terribly regressive move for anyone on a fixed income, as would broadening the base of the tax. Further it would incentivise the black economy further than it does already.

  13. Jeff G. says:

    Then the government needs to crack down on the black economy Iain. People who evade taxes are criminals. Criminals should not be taken into account when making policy. We should all play our part by dobbing in any business or tradie who does jobs “for cash”. Is there a hotline for this? If not then there should be. And any increase in the GST should be offset by increases in fixed incomes like welfare payments.

    It’s not necessarily a regressive policy and I am sure it will happen, just you watch.

  14. Iain Hall says:

    Just how do you think that such a thing could be made to happen Jeff?
    You see there will always be private deals done for cash or for reciprocal favours, its the way of the world, further I don’t think that you are such a purist who has never got a discount for cash, or paid for a service in grog or some other consideration.

  15. les h matthews says:

    I’m siding with Iain this time. The black economy keeps industry ticking over when the weather is a bit damp.

    GST 15% across the board by 2017.

  16. Ray Dixon says:

    Iain,

    we are seeing a classic case of a very tough first budget and you can bet that subsequent budgets will be more moderate and as a consequence substantially more popular.

    It’s only “tough” on the lower end, Iain. Those who can least afford it. The rest of this budget is actually a cop out and goes too easy on the high end and large corporations. Where’s the “heavy lifting” being done by the likes of the highly (obscenely) profitable big Banks, for instance? This budget doesn’t reduce spending or debt (things they promised to do), and in fact it adds to it. The only way they could make the subsequent ones “more moderate” would be by getting stuck into the likes of the Mining companies and other large corporations, but they wouldn’t dare do that because the top end are their ‘mates’ and they dare not ‘offend’ them by asking the likes of Rinehart to pay a bit more tax, so where will they get the money to offer the lower end any sweetners? They’re stuck between a rock and a hard place and my guess is that after this budget they’ll just keep it status quo until the next election which they’ll go to with a proposal to increase the GST. That’s their MO, tax the lower end, the poor and the middle ground while giving breaks to the top end. We’ve already seen that with this increase to fuel excise and the medical co-payment – the Coalition cannot run a fair economy because they are hamstrung by their ideology and alliances.

    tell me honestly do you think that Labor will wind back any of these reforms

    Yes, for starters I’d say they’d definitely drop the co-payment, the increase to fuel excise and the harsh requirements on under 30 year olds getting any assistance.

    I agree with you on the GST, though. Increasing it would be too harsh and would give too much incentive to the black economy.

  17. Iain Hall says:

    Ray

    It’s only “tough” on the lower end, Iain. Those who can least afford it.

    Those at the bottom as you describe it are certainly squealing pretty loudly at present, however from my examination of the responses much of that squealing is about their perceptions rather than reality, the noises about the Co-payment are a good example of this take a couple of people that I saw on Q&A last night they were very worried but once you dug down they would have qualified for the exemption anyway. Even the much ventilated example of young dole recipients is greatly exaggerated because there are exceptions and those who take up learning would qualify for youth allowance.

    The rest of this budget is actually a cop out and goes too easy on the high end and large corporations.

    I tend to agree with this claim Ray frankly I think that the deficit levy should have cut in at a much lower level, say 100k. That said its always a tricky thing when it comes to taxing business set it too high and you kill the incentive to make money too low and you don’t have enough revenue.

    Where’s the “heavy lifting” being done by the likes of the highly (obscenely) profitable big Banks, for instance?

    There in lays the underbelly of superannuation my friend, because so much of the future retirement financing is tied up in good returns from listed companies like the banks

    This budget doesn’t reduce spending or debt (things they promised to do), and in fact it adds to it.

    Maybe it does but wouldn’t you be deriding it for inaction if the government did no nation building at all?

    The only way they could make the subsequent ones “more moderate” would be by getting stuck into the likes of the Mining companies and other large corporations, but they wouldn’t dare do that because the top end are their ‘mates’ and they dare not ‘offend’ them by asking the likes of Rinehart to pay a bit more tax, so where will they get the money to offer the lower end any sweetners?

    The focus and the rhetoric of this budget is all about getting the bitter medicine into the economy this time around, and while I understand that as a Labor man you want the big end of town to pay more but I can’t help but recall how your mighty Labor party stuffed up the mining tax. As I said earlier its all about finding the balance point at which business won’t try too hard to avoid payment and collecting adequate revenue.

    They’re stuck between a rock and a hard place and my guess is that after this budget they’ll just keep it status quo until the next election which they’ll go to with a proposal to increase the GST. That’s their MO, tax the lower end, the poor and the middle ground while giving breaks to the top end. We’ve already seen that with this increase to fuel excise and the medical co-payment – the Coalition cannot run a fair economy because they are hamstrung by their ideology and alliances.

    Well thanks for acknowledging the difficult circumstances that Labor has left us but I don’t think that it follows from that they want to increase the GST. That said you can’t possibly think that anyone will even notice 1c per litre or that it will make any difference to even the poorest drivers. As for teh co-payment taht too will be quickly forgotten and accepted

    tell me honestly do you think that Labor will wind back any of these reforms

    Yes, for starters I’d say they’d definitely drop the co-payment, the increase to fuel excise and the harsh requirements on under 30 year olds getting any assistance.

    Nah it will never happen like that, Once any revenue stream is flowing no government is ever that keen to make it dry up, especially when their opponents have worn the displeasure of creating it in the first place.

    I agree with you on the GST, though. Increasing it would be too harsh and would give too much incentive to the black economy.

    Glad to hear that Ray 😉

  18. Ray Dixon says:

    Those at the bottom as you describe it are certainly squealing pretty loudly at present, however from my examination of the responses much of that squealing is about their perceptions rather than reality

    I wasn’t just talking about “those at the (very) bottom”, Iain. I said “the lower end”, and that includes most people because, let’s face it, if the average wage is $50,000 – $60,000 that puts most people in the area that will be hit the hardest by this budget. In fact anyone with a family earning under $100,000 will be hurt too. Here’s the “REALITY”, Iain:

    Low-income couples with children and single parents will bear the brunt of the Abbott Government’s first budget, losing up to 15 per cent of their disposable income when the measures hit in full, according to independent modelling.

    The findings from the National Centre for Social and Economic Modelling (NATSEM) at Canberra University stand in contrast to the Government’s insistence that the budget is “fair” and “shares the burden”.

    …. NATSEM principal research fellow Ben Phillips has studied the effects of the budget and says it is “not fair at all”.

    “We’d estimate around 1.2 million families that would be on average around $3,000 a year worse off by 2017-18, whereas the top income groups – so the top 20 per cent of households – would have either no impact or a very small positive impact,” he told PM.

    Mr Phillips found that a single parent of two school-aged children who was looking for work would lose $4,243 a year or 14.8 per cent of their disposable income by 2017.

    Just have a look at this chart too:

    Status………………..Income p.a….Benefits (ALP)….Benefits (L/NP)….Difference p.a…..Reduction

    Sole parent, children 8 & 12:……..$0………..$32,855………..$28,612………… -$4,243………… -14.8%

    Sole parent, children 8 & 12:…$40,000…….$13,258………..$9,015…………. -$4,243………… -8.7%

    Couple, children 8 & 15:……..$60,000…….$16,695………..$10,345………… -$6,350………… -10.9%

    Couple, children 8 & 15:……..$90,000…….$10,695………..$4,345…………. -$6,350………… -8.8%

    And the higher the income, the less the loss, even with the 2% temporary extra added to the big earners. These figures are frightening, Iain, because it takes so much away from the low, average and even slightly-above-average family. I’m surprised you’d support that. No wonder even Coalition voters are reacting the way they are.

    But the most frightening part for me though (in my posittion – ie not really affected by the cuts), is that I can see what impact this attack on average households will have on the general economy. It’s as clear as day: The reduced spending power of so many ordinary folk will stunt growth and possibly even lead to a recession. And wouldn’t that be a feather in Abbott’s cap, Australia’s first recession in over 20 years?

  19. Ray Dixon says:

    What did I say about the impact this budget might have on the economy? According to the latest ANZ/Morgan survey, it’s already having a massive impact on consumer confidence:

    Nervous shoppers are threatening to close their wallets following the Coalition’s hard-hitting budget, with consumer confidence falling at the fastest rate since before the global financial crisis, a major bank survey shows.

    The ANZ-Roy Morgan Consumer Confidence survey charted a fall of 3.2 per cent since the budget, taking its index to 100.4 – a significant 14 points lower in a month and the fastest rate of descent since October 2008.

    The dire news is fuelling retailers’ fears that the budget itself, including the messy politics engulfing it, may have dampened business investment and consumer sentiment just when economic growth was showing signs of improved health.

    Q: How do you turn a strong, robust and growing economy into a recession?

    A: Put Tony Abbott & Joe Hockey in charge and wait 6 months.

    Well done guys.

  20. les h matthews says:

    Hear! Hear!

    Well said Ray!

  21. Jeff G. says:

    You see there will always be private deals done for cash or for reciprocal favours, its the way of the world, further I don’t think that you are such a purist who has never got a discount for cash, or paid for a service in grog or some other consideration.

    I am not talking about slipping a tradie mate a pineapple or a bottle of Bundy for helping build your pergola, Iain. I am referring to businesses and sole traders who deliberately run a two faced operation, ‘price x’ for invoiced work and ‘price x minus 20%’ for cash jobs. This goes on quite a bit where I live. I have asked plumbers and sparkies for quotes and can remember at least three times being offered discounts for cash. This is nothing short of criminal. And if you are happy to deal with people who do it, that makes you an accessory to a criminal act.

  22. Jeff G. says:

    Jeff’s alternative budget:

    1. Raise the GST to 12.5%. Take GST off all fresh foods, medical items, essential services. Don’t care what Iain, Ray and others say, an increase in the GST WILL happen, probably sooner rather than later.

    2. Restore pensions and benefits to be fully indexed. I would consider an increase in pensions too.

    3. Bring in a tax on super draw downs.

    4. Abolish negative gearing or cap it at one property, or maybe a dollar value.

    5. Abolish middle class welfare. A family earning $70,000 doesn’t need bloody handouts to raise kids. Just go without the new 4WD, FFS.

    6. Keep pension age at 65 but encourage oldies to stay at work by introducing a flat income tax rate of 20% from age 65. Or maybe they can work tax free if they 25%+ of their wages directly into super.

  23. Ray Dixon says:

    “Jeff’s alternative budget”: Bring on an even earlier recession than Abbott & Hockey look like doing (the cuts to the middle and the neg gearing changes would cause that)

  24. Jeff G. says:

    No recession in my alternative budget. Get rid of some of the pork the middle and upper classes and distribute it down below. Also deal with some of the individuals and companies who rort this country by avoiding their tax obligations.

    Negative gearing sucks $6 billion from govt revenue every year. I would rather that money be spent on social welfare than to be given to the wealthier classes to increase their property portfolios. In my experience just about the only people who argue in favour of NG are people who own investment properties, or are planning to. Just guessing but I expect this applies to you Ray. You can’t expect turkeys to vote in favour of Christmas.

  25. Ray Dixon says:

    No, my property investments are all positively geared, meaning I don’t make a “loss” on them and claim a tax break against other income, because they ARE my income! So maybe stop personalising your stance.

    Yes, your plan to strip family assisstance to middle Australians would indeed bring about a recession. I don’t disagree that they’re overcompensated but the reality is that that assistance has propped up not only them, but the Austn economy. So any cut back has to be gradual. Abbott’s cut backs are too severe and too quick – and yours appear even harsher. Definite recession push from that, because those families are spending, albeit on govt money. Wean them off it slowly is what I suggest.

    As for neg gearing, I’ve already explained that the $6 billion you claim it costs the Govt is illusionary. Removing (or severely limiting) neg gearing would cost the Govt a lot more than that, not to mention the recessionary and social impact on the economy. Property investment, building and renovating are major economic driving forces, in case you didn’t realise.

  26. Jeff G. says:

    No, my property investments are all positively geared, meaning I don’t make a “loss” on them and claim a tax break against other income, because they ARE my income! So maybe stop personalising your stance.

    Right. And you’ve never benefited from negative gearing?

    I am not personlazing anything. The reality is that people who benefit from any policy think it’s a good policy. That doesn’t mean it is.

    The problem with negative gearing is that while it might help with property creation and the rental market, it also widens how unequal wealth is distributed in this country. There will always be rich people and poor people, but it is not the government’s job to help rich people become richer, by letting them buy investment properties and write off losses against their taxable income. I would rather that $6 billion be spent on some other stimulus for property and accommodation, like public housing, rent allowances, etc.

    Short answer, if you can’t afford to buy and run an investment property, tough titties. The taxpayer shouldn’t be helping you to do it.

    Re: middle class welfare, yes you are right, obviously it would need to be phased out over time. I didn’t specify a time frame in my alternative budget. But most economists agree that it is wasteful spending that has to be wound back. I’d rather that money be put into schools and hospitals.

  27. Ray Dixon says:

    And you’ve never benefited from negative gearing?

    NO. NEVER. I’ve only ever invested in property to earn an income and/or make improvements and sell at a profit. I’m what is called an ‘active’ investor, whereas negative gearing only works for passive investors who have other forms of income against which they offset any losses made on the investment.

    I am not personlazing anything.

    No, you’re just asking (and making assumptions) about my personal business/taxation arrangements in a public forum.

    Moving along, most people (the great majority actually) who invest in a rental property are not “rich people” and very few become rich as a result of it. The $6 billion that negative gearing claims (theoretically) costs the Govt in ‘lost’ tax revenue is illusionary. There are about 1.5 million people making neg gearing claims meaning the average tax they save is about $4,000 each per year (not a lot), however, that doesn’t take into account other streams of revenue that property investment creates for Federal & State Govts alike, such as:

    *Stamp Duty and other Govt charges on the acquisition. The average being over $30,000, which more than offsets the income tax savings for many years.

    *GST on the purchase price (for new or commercial properties only) and on other transactions surrounding the purchase and ongoing costs such as the agent’s commission, the conveyancing costs, quantity surveyor reports, repairs & maintenance and improvements made to the property, The investor cannot claim the GST he/she pays on an investment property as a “credit” because residential rent is input taxed and not subject to GST. They just wear that.

    *Capital gains tax on the sale. For every $100,000 in gain the investor would pay extra tax on their income of at least $20,000. The average property held for the last 10 years would have gained over $300,000 in value, resulting in at least a $60,000 CGT.

    All of the above revenue would be lost to the Govt if negative gearing were abolished. Additionally there would be a loss of income for the agents, the solicitors, the tradies, the appliance stores and the employees of those businesses & stores etc that the investor spends money on. That’s more lost tax revenue for the Govt. Overall, abolishing negative gearing would result in the Govt collecting less tax, not to mention the massive slump it would cause to the economy. Sorry, I thought we were talking about the budget and avoiding a recession, not social engineering.

  28. Jeff G. says:

    No, you’re just asking (and making assumptions) about my personal business/taxation arrangements in a public forum.

    Ray, please don’t get me wrong, I am not having a dig or prying into your private/business life. I am just making the point, that people who benefit from property investment/NG are about the only ones who think it’s a good idea. Most economists now argue AGAINST neg gearing. They say it was necessary when it was brought in but should now be wound back. Paul Keating says the same thing. There is nothing wrong with property investment IF you can afford it (like you obviously can). But it is not the govt’s job to make people wealthier, even if it does kick the property market along.

    Moving along, most people (the great majority actually) who invest in a rental property are not “rich people” and very few become rich as a result of it.

    That may or may not be the case (do you have figures on this?) I am not really talking about mum and dad investors who buy a flat or two to boost their super. I’m talking about millionaires who use property (and other loopholes) to write off almost all of their tax, e.g.

    http://www.smh.com.au/comment/budget-pain-not-for-millionaires-who-pay-no-tax-20140512-zr9o3.html

    I don’t mind if negative gearing stays but it should be capped, either one or two properties and/or up to a certain value. Beyond that it is nothing but an anti-tax rort for the rich.

    The $6 billion that negative gearing claims (theoretically) costs the Govt in ‘lost’ tax revenue is illusionary.

    It’s not so much the $6 billion that bothers me but where it is going. I would rather the govt spend this at the bottom end. Public housing, rent assistance, building grants, tax breaks for first home buyers, that kind of thing.

    All of the above revenue would be lost to the Govt if negative gearing were abolished.

    That pre supposes that people would stop buying and selling property if NG was wound back. That is the argument of NG lovers, that ending or winding it back would kill off the property market. It is a bullshit argument. It Might affect it in the short term but people will always build, buy and sell houses.

    Overall, abolishing negative gearing would result in the Govt collecting less tax, not to mention the massive slump it would cause to the economy. Sorry, I thought we were talking about the budget and avoiding a recession, not social engineering.

    Don’t know where you get “social engineering” from as for saying that ending/restricting NG would cause a “massive slump”, I call BS on that. Yes it would cause some problems on the rental market in the short term. But markets equalize and re calibrate.

    I say again that NG is now a redundant policy that contributes to the property bubble and causes as many problems as it solves. And something should be done about it.

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