Replies to post #9139 on Foreign Correspondence

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Kevin Rudd and Tony Abbott come out fighting over the economy

The two sides are staking out their positions. Who's likely to win
the argument on debt, jobs and the end of the resources boom?

Posted by Greg Jericho Monday 5 August 2013 12.14 EST

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The economic debate is focused on Australia's transition post-
China resources boom. Photograph: Jack Atley/Bloomberg

In their press conferences opening the 2013 election, both Kevin Rudd .. http://www.alp.org.au/kevin_rudd_election_speech .. and Tony Abbott had .. http://www.theguardian.com/world/video/2013/aug/04/tony-abbott-election-announcement-response-video .. a bit to say about the economy. Mostly it was standard talking points, but it laid down a nice framework for the next 34 days.

After the usual blather, they quickly got into focus. For Rudd it was “new challenges brought about by the end of the China resources boom ... The boom, of course, has fuelled so much of our nation’s wealth. That boom is over.”

Not the most cheerful way to start a campaign, but it certainly is true. Our mining sector is no longer booming, but it’s still doing OK. Mineral exploration remains at historically high levels. The problem is that GDP growth is all about comparing where things are with where they were the previous year, and it is clear that mining investment is not growing at the same pace that it was:


Mineral exploration Actual and expected mineral exploration.
Source: ABS

So how do we cope with this? For Tony Abbott, the solution is (of course) getting rid of the carbon tax, but also delivering “$1bn a year in red-tape cost reduction, particularly to small business”.

The problem with cost reductions from red tape is that the figures are pretty hard to accurately account for. The Productivity Commission’s 2011 report, Identifying and Evaluating Regulation Reforms .. http://www.pc.gov.au/projects/study/regulation-reforms/report , for example, noted of past claims of cost savings, “despite the estimated savings, business surveys report little reduction in compliance costs. There are various reasons why this might be so – not least that some of the savings may be more apparent than real.”

The other issue is that, as fact-checking website PoltiFact has noted .. http://www.politifact.com.au/truth-o-meter/statements/2013/jul/31/tony-abbott/coalition-says-labor-adding-red-tape-adding-21000-/ , the LNP’s claim of additional regulatory burden under the ALP government is vastly overstated.

So $1bn in savings? It sounds good, but I’ll wait until I see more than Tony Abbott saying “we believe” before I will believe.

The big issue on which both sides furiously agree to disagree is debt. Tony Abbott noted that “our gross debt is skyrocketing towards $400bn”, while Kevin Rudd took a broader view saying:

And while others continue to make false claims that somehow this country is in a debt and deficit crisis, they can never answer this simple question: if that is the case, why does Australia, among only eight countries in the world, continue to have a triple-A credit rating and stable outlook? Nor can they answer why the Australian government debt per head of population is one of the lowest across all the developed countries in the world.

Now Abbott might be over-egging the amount a bit – the government’s recent economic statement .. http://www.budget.gov.au/2013-14/content/economic_statement/html/index.htm .. has gross debt reaching $370bn in 2016-17 – but aside from that, both sides are correct. The economic argument, of course, relates to whose point of view is more valid. Australia’s debt level is low compared with the rest of the world – and as I noted in my first post, even the increase in debt in the past five years has been lower than average.

But why Rudd refers to debt per head of population is a mystery. The ALP has recently put out an infographic on Facebook showing that we are only second to Estonia in terms of lowest debt per capita. Of course we are second only if you leave out a few countries such as Sweden, Norway and Finland.

But economists pretty much only talk in terms of debt per GDP. And on this score we’re still looking OK. The LNP prefers gross debt (because it is bigger), but even that has Australia sitting nicely:


Gross debt General government gross debt, 2012 (% of GDP).
Source: IMF World Economic Outlook

I suspect the per head of population measure is being used because it sounds simpler – people understand population more than they do GDP – but it’s still an odd way to measure it.

The triple-A rating is a good pointer for showing how we sit with regard to the rest of the world, but we shouldn’t worry too much about it. A triple-A credit rating is nice to have, but when a government starts viewing it as the arbiter of a good economy, that way lies madness, and usually massive austerity. Better to aim for employment growth than worry about what Standard & Poor’s or Moody’s are saying about your budget.

And on employment we saw both sides take their positions. Abbott focused on “the numbers of unemployed marching towards 800,000” (it’s currently around 700,000) while Rudd noted that “businesses in Australia have added just under 1m jobs over the last five and a half years” (the actual figure is around 940,000). An update on this will come on Thursday, when the ABS releases the latest figures. A nice little tester to get the campaign going.

Finally, one thing Rudd pointed to: “We need fresh investment in agribusiness because there are rich opportunities for Australia in satisfying the new food demands of Asia.” Now, the agribusiness call has come a bit out of left field. The government released a National Food Plan .. http://www.daff.gov.au/nationalfoodplan/white-paper .. white paper in May, but given agriculture contributes only about 2.5% of our GDP (compared to about 10% for mining and 66% for services) it’s a bit of a stretch to think it will save us from the end of the mining boom.

It may, however, be an indicator that the Liberal party’s “Asian food bowl” pipe dream has caught hold in Queensland. Watch this space to see just what Rudd has planned on this front.

http://www.theguardian.com/business/grogonomics/2013/aug/05/kevin-rudd-tony-abott-economy

Abbott pushing the government debt furphy .. http://en.wikipedia.org/wiki/Furphy , more commonly known as 'bullshit', reminds of Romney .. if only he could, beyond odds, go the same way .. i think if at least all Australians remembered how well Labor got us through the immediate aftermath of the global financial crisis 2007-8 (yup, we all know it is far from over) then Labor would have a real chance .. lol, just now it would be 'unreal' if they were able to get up, their present six year stint is against them in some eyes, too .. here's one on an old theme ..

Time to slay the austerity myth

Stephen Koukoulas23 Jul, 6:31 AM62

There was more evidence overnight that budget or fiscal austerity is economic snake oil when it comes to the objective of reducing government debt in a climate of economic weakness or recession.

According to Eurostat, government debt in the 17 countries that make up the Eurozone exploded to 92.2 per cent of GDP in the March quarter 2013 from 88.2 per cent of GDP a year ago and 66 per cent of GDP in 2007. In other words, Eurozone government debt is 8.75 trillion euros or approximately 12.5 trillion Australian dollars.

In many respects, the news of the debt explosion was not unexpected. The on-going recession which has seen GDP fall for six straight quarters and the record high unemployment rate are keeping a lid on government revenue, thereby limiting any narrowing in budget deficits and adding to the level of debt. Indeed, the Euro was firmer against the US dollar at just under 1.32 while stock markets in the region were generally little changed.

That said, the updated news on government debt in the Eurozone was an unfriendly reminder of some of the problems that fiscal austerity and the repair of the budget is creating, especially for countries already with high debt and which still are in recession.

Massive cuts in government spending, tax hikes, public sector job cuts and privatisations have clearly not reduced government debt. If fiscal austerity worked as per the textbook, debt levels would obviously be lower by now. But budget austerity when the private sector is weak or already shrinking knee-caps economic growth, pushes the unemployment rate higher and undermines the fiscal position of the government which in turn sees debt levels rise.

Within the Eurozone, the countries with the highest government debt to GDP ratios are Greece at 160.5 per cent, Italy 130.3 per cent, Portugal 127.2 per cent and Ireland 125.1 per cent. Those countries with the lowest debt to GDP ratios are Luxembourg at 22.4 per cent, Bulgaria 18.0 per cent with Estonia having the lowest government debt to GDP ratio at 10.0 per cent.

Perhaps most disconcerting is the revelation that 24 out of 27 member countries of the European Union saw their debt to GDP ratios increase over the past year with only Latvia, Lithuania and Denmark registering a lower debt level than a year ago.

There is no hint in the recent data that the overall debt to GDP ratio has peaked or will peak soon. Only when the Eurozone locks in an economic pick-up that is strong enough to lower the unemployment rate will there likely be a meaningful reduction in government debt. Economic growth, not austerity, is the medicine for fiscal repair.

In terms of reducing government debt this may not be evident until 2015, given that the consensus view for Eurozone GDP growth in 2014 is just 0.5 per cent which is still too weak to see the unemployment rate fall and government revenue rise.

For the record and by way of comparison, Australia’s government debt is 11 per cent of GDP having risen by 15 per cent of GDP from the low point in 2007 prior to the global banking crisis when there was negative net debt of 3.8 per cent of GDP. Over that time, the debt to GDP ratio rose by 27 per cent in the Eurozone, confirming the fact that the debt widening in Australia was relatively minor.

Furthermore, Australia’s government debt is forecast to peak at 11.4 per cent in 2014-15 before falling as the budget returns to surplus and on current conservative projections net debt will be eliminated around 2020.

With these facts in mind and when compared with most countries in the Eurozone (and the rest of the world for that matter), it is little wonder Australia has a triple-A credit rating with a steady outlook. Our debt levels are chicken feed in absolute terms and certainly when compared with the debt mountain in the Eurozone.

http://www.businessspectator.com.au/article/2013/7/23/economy/time-slay-austerity-myth