Economic debate: Bowen bowed

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Last night’s ‘economic debate’ on QnA was a fairly partisan affair, with the crowd cheering even the lamest lines from ‘their team’.

It did, however, cement in my mind what a joke the whole pre-election ‘costings’ charade has become. The simple fact is that governments have a lot of help costing and implementing their values once in Government and that neither side is likely to have a multi-billion dollar black hole.

Debt aversion, for better or worse, is part of the Australian political landscape (thanks to Keating), and both sides pay more than lip service to this fact. The fact that the ALP shredded their economic credibility by (stupidly) promising a surplus and delivering a large (and widening) deficit speaks to this fact.

The disappearing surplus was the ALP’s gift to Hockey last night, and he used it to devastating effect. Each time Bowen seemed to have Hockey pinned on some detail, Hockey was able to fight back by appealing to the success of the Howard Government in balancing the budget – and the failure of the ALP to deliver as promised.

Hockey’s pitch was: let’s get the adults back in charge. It won the day.

Bowen’s riposte was that Hockey’s numbers did not add up – but he was unable to prosecute his brief. Bowen became frustrated and bogged down in detail, and lost confidence when he was pinned down on what Gonski would cost over the final two years. Bowen’s Gonski flub followed a smaller flub on the NDIS where he had been unable to nominate where the final 15bn required to fund the program would come from.

Though both Bowen and Hockey both dodged questions on costings, it seemed worse when the sitting Treasurer (who claimed costings were all ‘public and laid out) would not state the numbers. It eroded his apparent competence.

In the end, Hockey was able to morph the public distrust of ‘cuts’ that Bowen was fomenting into a case for ‘prudence’.

I don’t know if the questions were plants, but two questions on big ticket ALP schemes that are not fully funded gave Hockey the opening he needed to mount an emotive case for prudence. Gonski and the NDIS could be made sustainable, he said, only if there was restraint in all other parts of government spending – and history showed that only his side could achieve this.

While Hockey did not nominate what parts of Government spending that would come under the knife, it didn’t hurt his case much. He enjoyed a free ride on the strong public perception that the ALP is bad with money.

By keeping the debate high level, and focusing on the diverging recent history of the two parties, Hockey bent Bowen back and snapped him. Bowen was underprepared, and Hockey got under his skin and made him frustrated and catty.

If you believe the polls the ALP really needed a win. They didn’t get one. The main consolation for ALP strategists is that few swinging voters are likely to have been watching.


  1. Thanks for the review. I watched the first three-quarters and missed the discussion of the NDIS and Gonski, which sounds like it would have been worth watching to see Bowen caught. Pretty much agree with your thoughts re the curse of the disappearing surplus and Bowen’s growing frustration, but I can’t see why Hockey pulled the “I’m in the car and don’t have the numbers with me” line earlier in the day on the funding of the Coalition’s PPL scheme.

    On PPL, the point that the Coalition has failed to make is that the PC report that recommended PPL was based on addressing a market failure – it was not grounded in equity or justifiable entitlement as the media class and public seem to have presumed. The PC’s thinking was that children benefit from having their mums home for at least 6 months, and that the then-proposed minimum-wage PPL would encourage women to spend an extra 10 weeks at home with their newborns. It would also encourage longer lifetime workforce participation by women. All very hand-wavey if you ask me, kind of like one of John Daley’s Grattan Institute reports… I’m not sure what institutional pressure the PC.was under at the time, but it looks like they succumbed to it. But if you take the PC report seriously, the type of scheme you would end up with is the Coalition’s scheme. The current scheme is unlikely to encourage most women to spend much more time at home, whereas the Coalition’s scheme will almost guarantee the vast majority of women will stay home for at least 6 months – the PC’s stated objective. For what that’s worth. ,

    1. The focus on the minimum wage v the market wage is odd. Lefties who often talk in terms of rights are now saying that women don’t deserve this workplace entitlement at their market wage. I am no fan of the policy, but if you are going to have this entitlement, surely the right wage is the market wage and the best way to pay it is via universal/ social insurance.

      Any other policy gets the incentives on both the supply and demand fairly screwy.

      1. Yeah, but if you pay market wage then it has the cons of being regressive and (depending on where the upper cap is [1]) sending money to those have less or no financial need.

        [1] I assume that would be one, I can’t imagine (taking an extreme case) the government would be paying Gina Rinehart hundreds of millions of dollars if she were to take time off to look after a baby.

      2. The lefties would be cool with it if it was (directly) paid for by the employer. Labor is the party of means-tested benefits, caring little for the incentive effects. A static view of the world, in keeping with the symbols-emphasis of their values. The Liberals traditionally care more about incentives, at the expense of having more ‘middle-class welfare’. A more dynamic approach, but ostensibly less fair than the means-testing approach. It’s an unavoidable trade-off. My point is just that the policy rationale for the current scheme was incentives, not welfare. Families get more than enough welfare. So if you want to provide good incentives, at least have a policy that works. Better still, have none at all, as I don’t buy the market failure argument.

        1. Rajat, the govt is there to help people who (for whatever reason) are having difficulties. It can happen for a myriad of reasons. I earn very well, I DO NOT NEED money from the govt, for things that the govt decides are good in my life. If I want to have kids I do, otherwise I do not. I have and used my savings to “survive” kids! Means-testing is absolutely key. And otherwise just lower my taxes. But I do not want to see the taxes I pay used for rubbish like this. Help people who actually need help or give me my money back.

          1. The government is not only there to ‘help people’ for ethical reasons. It also has a role in correcting market failure, although whether it often achieves this end is debatable. I was saying that the PC’s rationale for the scheme was market failure – that left to their own devices, women would go back to work “too soon” for the health/development of their child. I personally don’t buy it and it it looks like you don’t either, but that was the stated justification. The stated justification was not to help families or women in some broader way for distributional reasons.

          2. The “stated justification”…. enough said! Now it’s the govt who decides what’s good for mothers / families? Real liberalism. 50k and the mother/father stay home, otherwise who cares about the child? Even more ridiculous. Now let’s see how they are going to pay for this, where the money is coming from.

      3. I am no “lefties”, but I am a REAL liberal. Do we really need to use tax payers’ money to pay 50k for someone to stay home for 6 months???? This is the mother of all entitlements. This is something you’d have in Italy, Spain or Greece. If you want to have something, then you do minimum wage. If you are earning 100k and need 50k help from govt to stay home with your child 6 months, then we have a problem. Alternatively, let’s base it on the taxes that are actually paid, that is, after all deductions, including negative gearing, super contributions etc.

        “The end of the age of entitlement” Joe Hockey

        Just ridiculous.

  2. Only the liberals could restrain spending?

    Only the ALP has delivered on negative real spending which has occurred on more than one occasion! Who hasn’t been reading budget papers?

    1. This all budget thingy is very funny! Since the govt is the one deciding what money is worth and how much money is out there, they will never run out of money. So the only issue with larger deficits is inflation which reduces the value of money. But who really cares about the value of money? Only who has money. If you are poor and do not have money, you do not care. Let’s assume the govt decides to give 100k to every citizen. Inflation shoots up, if you have money you have lost but if you don’t you have actually earned something. So for me the only real agreement in society is inflation. As far as inflation stays within 2 – 3 % govt can spend how much they like.

      1. PS but their spending should be fair and productive or it’s going to be a failure…. asking too much ???

    1. Seems pretty heavy-handed to me. and worrying to see the RBNZ attempt to judge appropriate values for asset prices. Isn’t this what mortgage insurance is for? Still, better than raising rates to target house prices I suppose.

      1. Banks are taking too much risk: they know they are too big to fail, so why not?
        This LVR rule makes perfect sense to me (overall, but the devil is in the details) and should be done no matter what the rates are at.
        Mortgage insurance does not work in a major crisis: the insurer goes under immediately, as it happened in the US.

        Banks in Australia are risky business:

    1. Like Friedman, I would prefer a negative income tax. In my case, it would work like a flat tax of, say, 33% (preferably lower) combined with a non-means-tested payment of, say, $15k pa (preferably less) to every adult, with loadings for disability, old age and dependent children. That would mean everyone earning $45k would be a net payer. I realise it would be much less progressive and more ‘expensive’ in a budgetary sense (ie more churn) than the present system but the work incentives would be a lot healthier than at the moment because of much lower EMTRs. Plus, a lot simpler to administer and far fewer incentives to engage in avoidance strategies!

      1. I agree with negative income tax and a flat tax rate, but the #1 issue for any tax system is tax evasion, unfortunately (that includes means-testing too). I would hate to pay money to people who are below a certain amount of income just because they fail to declare the proper tax. Finding a way to avoid tax evasion for me is #1 priority. Probably the solution is to get rid of paper money entirely, and only have computerized transactions between parties. All deductions are also to be reviewed as they can be faked quite easily.

  3. Astonishing, just astonishing that Rajat is defending Abbott’s PPL policy. Its an awful policy — yet more middle-class welfare from the LNP — that cannot be allowed to go ahead.

    As for Hockey’s ability to bring the budget back to surplus, can I please ask how he will achieve this while scrapping the carbon tax but keeping all the compensation, cutting company tax by 1.5% while delivering the uber-generous PPL scheme, and scrapping the mining tax while still delivering Labor’s generous NDIS and education policies.

    Its nonsense, and everyone here knows it.

    1. I have to disagree. Practical people know that the shocks are large and so all that matters is the desire to balance the budget. The LNP, by appeal to their track record in the Howard Government, have convinced voters they have credibility on this issue. You may disagree – but that’s a fact.

      All the coating stuff is just detail.

      Promises can be delayed or recast, and existing expenditure can be re-profiled.

      Both sides of politics do this all the time. The public expects it – which is why the ‘black hole’ scare campaigns aren’t scary.

      1. If its all about track records and reputations then fine, I won’t disagree that the electorate believes the LNP are better at balancing the books. The reality of the latter years of the Howard government were very different however — they spent like drunken sailors — and if Hockey actually does what he’s promising the budget won’t be back in the black anytime soon.

    2. Btw, what’s so awful about women getting a work entitlement to maternity leave?

      If WBC or BHP promised 6m on these terms would you have a problem?

      So what if we wind up their policies, take the money via a levy, and spread it around via a government paid entitlement?

      Is that really middle class welfare? Or is it the only way to have a decent entitlement for women that does not penalise the demand for female labour (the requirement for firms to pay 6m leave for women from heir own account would lead to a decline in demand for female labour).

      1. Women ? women ? Old thinking here. What about dads and parental leave. And gay couples? Let’s start calling this wit the correct name. Parental leave. If the dad is on higher salary it could also be more convenient for the dad to stay home.

        My main issue with PPL is with the amount of payment / govt support. Really, we simply can’t afford that much. The same as we can’t afford all super-concessions. Negative gearing, etc. We are in structural deficit here.

        Why max it at 150K? I think we should give 1 billion to Gina Rinehart to stay home with her children.

        1. ssec, pretty much said what I was going to say. I don’t have a problem with PPL. What I have a problem with is paying people on six figure salaries 6 months of their annual income.

          1. What if the corporates did it (they do) – do you have a problem with that? Is it an issue if MBL or WBC pays 6figures or maybe even seven for maternity leave?

            Why do they do so?

            Why isn’t the cost benefit analysis they make not a fair CBA for all of us?

            I understand the theory of progressive taxation, but a woman on 200k already pays a lot of tax and probably uses very few services – so she is a net winner for the rest of the taxpayers.

            The reason WBC pays her maternity leave is because it is great to find someone so talented.

            Do we want to encourage these women to work and have kids? I think so.

            If so, then maybe we want higher income taxes AND ppl that is even more generous. It is mot a simple question of progressive or regressive taxation and welfare, it is a question of optimal incentives.

            There are many moving parts.

          2. if it’s a private transaction , it’s just part of the salary package and it’s a private arrangement. Regarding the top limit why 150K and not 250K? Where’s the logic? Why a limit at all then? Someone on 500k is paying even more taxes. Lastly, someone on 150K could be paying not much in taxes after all deductions. And what about staying home mothers with with family income at 150k? no luck there?

          3. Large corps have figured that it is worth absorbing the costs to get access to more high quality female labour. They take advantage of their scale to distribute the costs, and find that it pays off.

            Smaller firms cannot do this as they lack the scale.

            If it is worth it for the large it would probably be worth it for the small if only they had a way of spreading the costs about.

            Fortunately, there is a means of achieving this — it is government.

          4. I agree that it’s about incentives. The PC said women don’t spend enough time at home with their newborns. They said there are external benefits from mums spending more time at home than they presently do. If that’s the rationale, then the incentive to stay home needs to be somewhat proportionate to the opportunity cost of working (ie salary). Up to a limit I would say, because at some point it would be efficient from society’s perspective if a highly talented woman went back to work straight away even if the kid suffers because of it. That is, the positive externality from the mum staying home is of limited magnitude. But the notion that there is a positive externality at all is the only economic rationale for PPL. Why else would you have it?

          5. rajat and ricardo keep avoid answering the key question: where’s the top limit and why? and why 6 months? and why discriminating working and non working mothers? spending 75K of public money to have someone staying at home with their child for 6 month is out of this world. and note that you have to go back to work or you lose the benefit. there are much more important issues we could spend our public money on.

          6. ricardo, it’s not the large businesses who will pay for (part) of it. It’s the shareholders. This levy is OK, but the mining tax evil ? talking about double standards here. it’s just more unfunded entitlements.

          7. Ssec, I covered this. One can justify an income limit on the basis that the positive externalities from mums being at home longer with newborns is finite. It may be efficient to pay a lawyer $50k to spend more time at home with the bub; it’s unlikely to be efficient to pay Gina $100m to do the same. Six months can be justified on the basis that that’s the time where the benefits of mum at home are greatest. Do me a favour and read the Exec Sum of the PC report.

          8. PC actually says 12m is optimal, but marginal benefits are smallish after 6m.

            The 18w recco from the PC and the disjunction with the facts they adduced had all the hallmarks of telling Bowen what he wanted to hear.

            You need to stop thinking of this as a payment for staying at home. It is a wage subsidy to women.

          9. you have not answered the question on what the max limit should be… paying someone 50K to stay home 6 months is not efficient rajat and we can’t afford it. there are more important things we can spend our public money on.

      2. Note how, in the master plan, the levy is going to be applied only on the larger businesses as they do not vote. They have to pay for all of Australia, incl small businesses. But the mining tax, that one is still evil as it killed the mining boom!

        1. Large firms pay maternity leave in any case. They will probably stop doing so when the govt scheme starts – which is why they are being asked to fund it.

          1. But what about all the smaller businesses? Their employees get the benefits but the businesses are not paying anything for it? Ah, sorry, forgot that small businesses are big coalition voters. Nothing is free, so we will all pay for it in some way.
            By the way, I recommend doubling the state pension for everybody. Why not? Wouldn’t that be nice too? (obviously not means-tested)

    3. Just to reiterate my numerous comments on this topic:
      1) I prefer no PPL at all – it should be a matter for private negotiation, like remuneration or flexible working conditions.
      2) The Labor scheme is basically a discriminatory baby bonus (for working women) that won’t have any material incentive effects on mothers’ time spent at home or female workforce participation.
      3) The Coalition scheme is expensive, but is the logical implication of taking the PC report seriously.
      4) I think the PC report is bunk and that is the root of the problem.

      Agree with Ricardo that it’s the ‘lived experience’ of parties in government that matters, not the nonsense they announce prior to elections. Ever since Hewson, politicians have learnt that the public likes to delude themselves. Why should people’s voting behaviour be any different to their eating/dieting behaviour or their spending/budgeting behaviour? Even though deep down they know their decisions are not costless, they don’t want the costs to be thrust in their face. It’s human nature.

      1. I agree, this is true. One of the reasons you can’t never balance the budget is that by doing so you make so many people unhappy that you always lose the elections. That’s what will happen to the coalition if they try in the next 3 years. They’ll lose the next elections.

  4. wow the Liberals had a budget surplus when we had a boom. Therefore when we have the terms of trade falling and thus nominal GDP growth well below trend they can deliver a surplus.

    no-one can!!

    1. Correct. This is something you will not solve in a couple of years. Many are structural issues that require years to be addressed (if they’ll ever be addressed in my life time).

    2. I agree to some extent. What matters to me is the wasted stimulus spending and the mismanagement of the various new tax policies and associated carbon tax compensation. Much of all that was foreseeable at the time and handled badly. But the average punter doesn’t understand NGDP – even most commentators don’t! – even though that is what really matters to everyone and everything. They sort of understand the ‘end of the mining boom’ meme, but that’s only a recent development; it doesn’t explain why we’ve had deficits for six years. That’s why I keep saying Hockey should be talking to Stevens now about changing the target. Unfortunately, I don’t think Hockey has the intellectual framework for it. Sinodinos or Cormann might.

      1. There’s also issues with longevity and aging population which are structural issues, not only in Australia. Health and retirement pension are huge black holes which are actually forecasted to get worse in the medium term.

  5. I said a little about this today. Health is a problem but the pension is not and has never been a problem. RIMU has always shown this. a 15% SGC would eliminate such a problem in the long term.

  6. Can I also say I have yet to hear an explanation from hockey or anybody else how interest rates can fall when the budget is in deficit, according to them rates should be rising!

    1. easy to predict rate falling and stay lower for longer especially with deficits:É

      a) taxes will have to go up
      b) govt will misspend the collected taxes
      c) so rates will go and stay low

      need examples? europe, usa and japan, basically everywhere.
      mining could save us again for a while longer.

    1. Yes, they are linked but in the opposite direction. Larger deficits = lower rates (as the economy suffers under the weight of govt waste and higher taxes to pay for the waste). Almost every advanced economy is showing that, right now! The next RBA hike cycle will be 50bps max until they resume cutting again.

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