Saturday, May 16, 2009

Budget Realities & Politics

Did I say I was busy in teh last post?! - you bet I have been. For the record, however, I have NOT been working on the Federal. or any State, budget.

As far back as 2000, John Howard's & Peter Costello's budgets were in, or near, "structural deficit". They recorded a "surplus" because they won an economic lottery - overseas demand for our minerals ensured huge amounts of taxes paid that were outside the normal economy's scope; and they sold more of Telstra and the country's Internet infrastructure. You can read more of the expert discussion on the ABC's 7:30 Report of 10-May-200. Further, in February 2005, Treasury Secretary Ken Henry warned the Howard Government that the US current account deficit could (would?) cause a severe economic correction in the US, with worldwide implications. John Howard's response was "There's no prospect, in my view, if you're asking me for my view, there is no prospect of the American economy crashing." ! Either his skills weren't as good as he wants us to believe, or he was being deceptive.

For their parts Labor PM Kevin Rudd and Treasurer Wayne Swan, have a budget that looks "tough, but socially responsible", but which is has some poor policy choices: a second attempt at an alcopops tax; lots of money for universities, and school infrastructure, but not much about the extra funds public schools and TAFE will need for students staying on after the COAG "compact"(15-20 year olds will be either at school, or receiving training to help with teh recovery)

Alcohol ought to be taxed on its alcohol content, not the type of drink (beer, spirits, alcopop, wine) Further, if the desired socailly engineered position is to reduce alcohol consumption and binge drinking, the cost ought to escalate at higher levels. ie not a linear tax based on %alcohol, but a tax based on an exponential curve.

The Lib/National Coalition's plan to raie the tobacco tax to reduce the budget deficit and discouage smoking won't work - it will just be a regressive tax. And the Liberal PArty still accepts donations from ... tobacco companies. Malcolm Turnbull knows the increase in tax won't stop smokers. Essentially they show the same traits as drug addicts - by and large they will pay whatever price is asked. So the increase is just an greater regressive tax, and tobacco consumption will be unchanged.

I think means testing the Private Health Insurance Rebate is worthwhile. Effectively it is means whereby the government pays 1/3 of the private premiums. Mind you, the Coalition will oppose this measure, despite their fundamentalism on "user-pays"! Turnbull is still playing the "I'm-in- Opposition,-so-'No' " game.

As far as the already-distributed cash handouts go, Australia relies heavily on the retail sector, because reforms to industry have effectively reduced the contribution manufacturing makes to our economy. In that respect, they will likey mean the structural deficit will not be as great as it could have been.