The Australian fiscal crisis

May 2nd, 2014 at 9:13 am by David Farrar

gives us a good picture of what NZ might be facing if we had continued with massing increases in spending, as proposed by Labour.

Australia, like NZ once did, faces a structural or permanent deficit. Turning it around will not be a quick thing. An Audit Commission has just identified 86 ways to reduce spending by $70 billion a year – which would get the Government back into surplus by 2023.

The recommendations are large, and many will not be politically palatable. They include:

  • End of universal health care and a $15 charge for doctors visits
  • Cutting 15,000 public service jobs and selling state-owned assets
  • Slower rollout of the NDIS and raising the pension age to 70, while including the family home in means testing for the aged pension.
  • Abolish seven Commonwealth agencies, merge 35 and privatise nine
  • Reject paid parental leave in favour of focusing on child care
  • Strip the dole from young unemployed people who don’t move to areas with jobs and freeze the minimum wage for 10 years

As I said, some quite unpalatable. But both the Government and the Opposition will have to produce their own policies on how to get back into surplus.

Meanwhile in NZ, we will hopefully have a Budget in three weeks showing a return to surplus next year.

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39 Responses to “The Australian fiscal crisis”

  1. RRM (10,099 comments) says:

    Strip the dole from young unemployed people who don’t move to areas with jobs

    You say that like it’s a bad thing!

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  2. thePeoplesFlag (283 comments) says:

    Hidden due to low comment rating. Click here to see.

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  3. EAD (1,450 comments) says:

    ??????????

    Wow just wow – “Australia, like NZ once did, faces a structural or permanent deficit”. We are experiencing a so called “boom” and are arguably at the top of the business cycle and after 6 years we still can’t run even a tiny surplus and you are saying we don’t run a structural deficit?

    What happens when the baby boomers start retiring en-mass? What about the rapidly shrinking ratio of tax paying workers to dependents (retirees, working for families, students, welfare recipients, government workers et. all)?

    I guess the job of the political hacks is to make it seem like their team is vastly different to other team and let the supposed differences get amplified through their respective “echo chambers” until we believe we are are running round in circles supporting teams with huge ideological differences.

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  4. Duxton (658 comments) says:

    @ the PeoplesFag:

    So, can I put you down as a ‘Maybe’?

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  5. mjw (401 comments) says:

    This is not an audit commission. It is a “Commission of Audit” – in other words a politically motivated ad hoc enquiry. The chair is the former head of the Business Council of Australia. The four members include a Howard Government head kicker (Amanda Vanstone), and an Investment Consltant. Further, it’s findings simply reflect its terms or reference, as it was told to look for things like co-payments and privatisation.

    The fact that Abbott has to dress this up as some kind of “Audit Commission,” passing it off as something independent and inscrutable, simply shows that the ideas cannot stand on their own merits.

    Don’t be fooled. This is straight out of the “Yes, Minister” political playbook.

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  6. dime (10,213 comments) says:

    thePeoplesfwag – relax, there is no talk of making losers like you move to towns where there are jobs.

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  7. Manolo (14,169 comments) says:

    Silent T and comrade Norman could well try to repeat the exercise in ruination over here.

    The Left is too keen to tax the rich and middle classes and spend waste millions of dollars on harebrained projects and social re-engineering. NZ can and should do without these economic terrorists.

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  8. HB (331 comments) says:

    how much is NZ currently borrowing per week?

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  9. hemihua (31 comments) says:

    1. Raise taxes
    2. Redistribute. There will always be half a population richer than the other half.
    3. The population comes to believe they are ‘entitled’ to these extras as opposed to priviledged.
    4. Any parties that dare remove these ‘entitlements’ are labelled ‘neolib’, ‘fighting the poor’ etc etc.
    5. Any that don’t scale back in time… Greece.

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  10. SW (249 comments) says:

    “As proposed by Labour” – really? I don’t recall Helen’s last campaign proposing lots of new govt spending – but I could be wrong?

    You are correct that in Labours last term spending increased significantly, but if you haven’t noticed (which I’m sure you have), National haven’t decreased govt spending as a percentage of GDP since gaining office. In fact, its been slightly increased.

    If you were to respond, I imagine it would be something like, but Labour have opposed every spending cut National have introduced. That ignores, 1) oppositions tend to oppose things they don’t reverse when in govt 2) National hasn’t decreased spending- therefore every cut must have been with an increase in spending somewhere else – ie National and Labour have different priorities.

    In short, your assumption is that Labour would have massively increased spending during a recession because they had increased spending prior to the recession. I’m not convinced that is a fair assumption to make?

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  11. dime (10,213 comments) says:

    “In short, your assumption is that Labour would have massively increased spending during a recession because they had increased spending prior to the recession. I’m not convinced that is a fair assumption to make?”

    remember the “mini-budget” labour were planning if they won in 08? if not an increase in spending then what? just a tax hike?

    i cant remember the lollies they promised in 08…

    they would have LOVED to get in on some of that QE action.

    imagine all the cash they could have poured into pet projects.

    your argument is basically “just cause the guy was in that women’s room at 3am while she was sleeping with a huge knife, doesnt mean he was there to rape her”. you could argue that, history will tell us though, he was there to rape her.

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  12. igm (1,413 comments) says:

    What . . . Australia have CGT, that being the envy tax that Parker says will cure all NZ’s ills.

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  13. SW (249 comments) says:

    Dime – Yea I can’t really remember the ‘mini-budget’ to be honest. What I do remember of Labour’s campaign was that it was more about John Key than Labour (quite a mistake IMO, but a bit like Nat’s campaign at the moment?).

    That is colourful rephrasing of my argument ha.

    If I can borrow your trun of phrase, my argument would be more like “if the last guy in the house was guilty of rape, is it a defence for the new guy to say I am only raping her a tiny bit more than the last guy, and he would have started doing it a lot more if wasn’t still here”.

    In other words, if spending was so crippling under Clark, why has National not reversed it at all after 6 years in government?

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  14. tom hunter (5,134 comments) says:

    … if spending was so crippling under Clark, why has National not reversed it at all after 6 years in government?

    Because lots of people got free stuff from the government and would get very angry if someone tried to take it away from them – which was exactly the intention of left-wing parties when they set all these things up.

    You should be ecstatic at this triumph of the Left.

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  15. CharlieBrown (1,054 comments) says:

    Tom – I think the basis for his assumption is based on Labours election policies.

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  16. SW (249 comments) says:

    Dime – I’m also questioning whether spending under Labour is often highly exagerated.

    Loook at Figure 2 in this article for example. Tell me that, historically speaking, the Fifth Labour Government was fiscally reckless: http://ips.ac.nz/publications/files/99f91186d74.pdf.

    It seems to me that Mr Muldoon is the historical outlier, not the Fifth Labour government?

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  17. SW (249 comments) says:

    Tom Hunter – mate its been six years. At won’t point do you concede that National are actual comfortable with amount of spending left by Clark and that it isn’t actually crippling? If it is crippling, do you not think it is reckless of National to just continue because they might loose some votes?

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  18. Sir Cullen's Sidekick (900 comments) says:

    I think none of these measures will be taken by Australia. Time to move on…..Only CGT can save NZ.

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  19. tom hunter (5,134 comments) says:

    At won’t point do you concede that National are actual comfortable with amount of spending left by Clark
    I concluded before National was elected in 2008 that they would be very comfortable with the amount of spending. In fact I predicted a Holyoake-style government that would fiddle at the margins.

    .. and that it isn’t actually crippling?
    Someone earlier commented that it has taken this long to eke out a pathetic little surplus, which indicates that we have a huge structural deficit that is being covered by current mild economic conditions. God knows what things will be like when we hit another recession, which has to happen sooner or later. Will we borrow another $50 billion or so to paper over the cracks? Being held hostage to events is a good definition of “crippling”.

    If it is crippling, do you not think it is reckless of National to just continue because they might loose some votes?
    I thought it was reckless to do WFF and interest-free student loans just to gain a few extra votes but that’s politics, and yes I think it’s very reckless. But given the Left’s endless desire to involve the State in solving societies problems (would they exist if not for this purpose?) I don’t see how the other lot would be less reckless, and likely more so.

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  20. DJP6-25 (1,390 comments) says:

    Cutting 15000 ‘public service jobs’ , abolishing and merging some Commonwealth agencies, and denying the dole to youngsters who don’t want to move sound pretty doable. The Abbot government need to bypass the media, and communicate via social media,YouTube, Cable News, and email.

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  21. Fentex (1,136 comments) says:

    Australia, like NZ once did, faces a structural or permanent deficit.

    You really love that phrase “structural deficit” don’t you? It remains illusory to me or at least some odd use of ‘structural’ with a very different meaning than I comprehend.

    NZ has largely reduced it’s deficit by some altered budgeting and poorly bargained selling of assets, not dismantling, rebuilding or reconfiguring of anything ‘structural’.

    What we did in the 1980’s was structural change, not the recent minor reassignments of priorities.

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  22. tom hunter (5,134 comments) says:

    … not dismantling, rebuilding or reconfiguring of anything ‘structural’.

    What we did in the 1980′s was structural change, not the recent minor reassignments of priorities.

    Agree entirely with that part of what you’ve said, but in the interests of (cough) bipartisanship, what major structural changes do you think the NZ government should make, starting with the public sector?

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  23. wikiriwhis business (4,200 comments) says:

    Terrorism comes in two forms – financial and religious. Political terroism is over.

    The is only one victim of terroism; the poor.

    Bombs are always ignited in public places where bankers and politicians, entertainers etc never appear.

    Financial bombs only affect the poor.

    Political strategies will only ever affect low deciles. The middle class is winding dowm because it can’t keep up with these political strategies.

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  24. Paul Williams (880 comments) says:

    David, I think it’d be wise to note that it was a review of expenditure only, no consideration of revenue measures was included in the terms of reference and that it’s not the first OTT Commission of Audit a federal government has used to manufacture a crisis and justify severe cuts. That said, some of it is reasonable and worth considering as medium-term policy objectives. Including radical reorganisation of the various levels of government. There is undue duplication which ought to be reduced.

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  25. hemihua (31 comments) says:

    Funny thing is, it’s all the government intervention that gets us in these messes in the first place. Then more intervention trying to fix previous stuffups gets us deeper in the hole. The US is a prime example of this. Banks were forced to lend to risky, low income borrowers who should never have had such debt in the first place. Easy credit leads to asset price bubbles. Banks turned these debts CDO’s to try and mitigate the risk – these were one of the triggers for the GFC. The government’s (or the Feds) solution to the GFC? Print money. Which has inflated asset prices and increased inequality. And who knows what other consequences of this are waiting for us down the road. The precedent has now been set that we can print our way out of a crisis – this really doesn’t bode well for fiscal responsibility.

    If the govt hadn’t been pressured into such legislation by various do-gooders, would the world financial system be in the state it is now? Impossible to tell of course, but if we were i’d hazard a guess it would be due to similar market interference.

    So I don’t think you can call it terrorism. If it is, your ‘terrorists’ are the well meaning but economically clueless lobbyists demanding market distortions in favour of their interest groups – rich and poor alike.

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  26. bc (1,395 comments) says:

    Politics 101: Create an extreme scenario, so that when you implement a watered down version the masses are thankful for it.
    There is no way any government will do all that.

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  27. tom hunter (5,134 comments) says:

    Well it’s been an hour and I think I’ve had my answer. Not only nothing from SW and Fentex but low or 0:0 uptick:downtick’s on most comments, whether for right-wingers like moi or lefties like Paul Williams.

    In short, not enough people give enough of a shit to push any “structural change” in NZ. It’s exactly the same as was the case with the France’s unbeatable deficit thread a month ago:

    Once a fellow’s enjoying the fruits of government health care and all the rest, he couldn’t give a hoot about the broader societal interest; he’s got his, and if it’s going to bankrupt the state a generation hence, well, as long as they can keep the checks coming till he’s dead, it’s fine by him. “Social democracy” is, in that sense, explicitly anti-social.

    The clear message is to make damned sure that any wealth you have got is kept well clear of such a situation when the bills come due.

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  28. SW (249 comments) says:

    “In fact I predicted a Holyoake-style government that would fiddle at the margins.” See I wasn’t sure, mainly due to the rheteric under Brash (perhaps buying into Helen’s scare tactics too much).

    To your second point – I wouldn’t say the last 6 years has been ‘mild economic conditions’, it was a severe recession. Regardless, National cut income taxes (from what I have read I think the ‘fiscally neutral’ line is not correct – please prove me wrong with data if you have it). If you want to reduce revenue like National have done, and strongly argued for during the Cullen surplus era, then that will also cause defecits when the economy goes South. Spending is only one side of the coin.

    As to public debt – it has nearly doubled under National – but despite that it is literally a drop in the bucket compared to private debt. I guess what is more concerning might depend on how scared of government one is?

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  29. SW (249 comments) says:

    Sorry Tom – more than happy to keep discussion going! Just might not respond immediately

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  30. SW (249 comments) says:

    Again – can you really make the point that the State is going bankrupt when the State makes up about 36% of our GDP (or thereabouts) yet is not even close to making up 30% of our overall debt. This despite public debt close to doubling over the past 6 years.

    I agree someone is going bankrupt but don’t think it is the NZ government!

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  31. seanmaitland (501 comments) says:

    @SW “In short, your assumption is that Labour would have massively increased spending during a recession because they had increased spending prior to the recession. I’m not convinced that is a fair assumption to make?”

    Given that Phil Goff specifically stated they would borrow a lot more and spend it during the recession at the last election, its a very fair assumption to make.

    And look how that trick has worked out elsewhere.

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  32. OneTrack (3,362 comments) says:

    Sw – ” I guess what is more concerning might depend on how scared of government one is?”

    I am really scared of a Green , Labour, NZ First, Mana-IP government. Does that count?

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  33. seanmaitland (501 comments) says:

    that was what the whole “Show me the money” line Key used at the 2011 leaders debate was about – Labour making promises that were going to require borrowing several billion more on top of what the government currently was.

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  34. tom hunter (5,134 comments) says:

    Sorry Tom – more than happy to keep discussion going! Just might not respond immediately

    No need to apologise. As I pointed out this thread generates little or no interest. People are comfortable with the status quo – you included.

    I agree someone is going bankrupt but don’t think it is the NZ government!

    If they’re citizens of NZ then sooner or later their bankruptcy will become the NZ government’s problem – and they will become even more dependent on the State. In private sector terms it’s what would be identified as a combination of unfunded liabilities and off-balance-sheet debt.

    The USA is well into this stage. After two or three decades of massive private sector debt growth they’ve got nowhere to turn except the State – which dependency they increasingly seem unable to escape. Wonderful news for the Left – in the short-term.

    Spending is only one side of the coin.

    Yeah, yeah. When I asked for suggested structural changes I just knew this was going to be your main focus. The only real problem we face is a lack of revenue – and it always will be. So let’s have a CGT, like GST it will start at a low rate with restricted applications and then grow both aspects over the years. When GST was introduced it was claimed that its level of 10% would allow the highest income tax rate to be cut to 33%, which it was. Now GST is at 15% and the highest income tax rate is at 33% and certain to be pushed higher once Green-Labour is in power.

    Like I said: a limitless welfare state.

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  35. nickb (3,696 comments) says:

    Great comments as always Tom.

    I’m beginning to despise National even more than Labour. At least Labour have a credible reason for being. National are a bunch of fakes who want power for the prestige that accompanies it. The inevitable celebration on the right blogosphere when a puny surplus emerges will turn my stomach.

    This was the one chance we had to wind back the economic vandalism of the Clark years. All we got was a partial sell-off in 4 SOEs which raised far less than projected. Not to mention the funds were used to merely support the current level of unsustainable spending.

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  36. seanmaitland (501 comments) says:

    @nickb – oh please, you conveniently forget the across the board tax cuts, that while costing a few billion dollars have seen net income tax revenue increase by several billion per annum in the six years. Or the lowering of the company tax rate, and adjustment of the trust tax rate with the top income tax rate to stop tax avoidance in trusts that was happening at epic levels during the Clark years. Or the removal of depreciation on property. How about the capping of public service staff levels?

    Only a complete masochist would, under the impact of a massive recession, and having the second most populous city in the country destroyed by an earthquake, slash government spending, particularly on welfare. The economy would have completely tanked if National had done that.

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  37. Viking2 (11,674 comments) says:

    Only a complete masochist would, under the impact of a massive recession, and having the second most populous city in the country destroyed by an earthquake, slash government spending, particularly on welfare. The economy would have completely tanked if National had done that.
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    ==================
    Of course you can demonstrate that would be true.
    But you can’t. can you.

    It would have made costs much more competitive, It would have made labour more competitive and of course that is against any socialist principle ever, It would have reduced borrowing costs, it would have taken money from the middle class beneficiaries who spend it on oversea’s holidays and mad then earn that privilege. And lots more. i.e. if nanny had the guts to bite the bullet and remove anti competitive wage and contracting laws, removed do gooding law around local councils, had not propped up nor bailed out finance companies and banks, stopped subsidizing and lazy education sector and returned to supporting businesses intraining, and stopped writing cheques for Maoridom. Made CHCH pay for CHCH instead of continuing to own businesses and other assets that could have been sold off.

    Still its easier to add more borrowing like 50 billion more.

    Nah none of that would have worked would it?

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  38. SW (249 comments) says:

    Seanmaitland – It depends on your definition of ‘a lot more’. Goff proposed borrowing 15.6 billion over 3 years, 2 billion more than National were proposing over that period.

    Incidentally, National have borrowed 60 Billion over 6 years, so I’m assuming they have borrowed ‘a lot more’ over the past 3 years than promised in the 2011 election. It was a great line though, and won him many favourable editorials.

    As to Government Revenue, do you have figures that show inflation adjusted revenue over the past 20 years or so? Had a quick look but couldn’t find anything useful. I’m dubious about you claim that tax revenue has inncreased in real terms despite income tax cuts – happy to be proved wrong.

    Tom – Have you not considered that private debt growth (like in the US) is a symptom of the government simply putting more costs of essential services onto its citizens (like health care and education)? Sure, it means you can lower taxes and reduce government spending, which looks and has happened in almost every Western country over the past 30 years, but those costs don’t disappear. Instead, people borrow to pay what was prevously covered by everyones taxes (teritiary fees for instance – essentially none-existent before about 1993 – now $30-70K per student).

    In terms of structural change in NZ, my issue is more with the Current Account Deficit than the government books (40 years we have been in the red as a country!). Simply, it is the private sector that is essentially running a structural deficit, not the government.

    If I had an answer as to how to fix the CAD in NZ, I would gladly share it.

    But you obviously think the government is sinking our fine country, so what things would you remove from the governments ambit?

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  39. Fentex (1,136 comments) says:

    in the interests of (cough) bipartisanship, what major structural changes do you think the NZ government should make, starting with the public sector?

    Surely you meant “In the interests of New Zealanders”? I should not like to think people only conceive of bi-polar issues and policies for our nation.

    My biggest concern at all times concerning government is the threat of corruption and authoritarianism. So if I were given my druthers over what structural changes ought occur I would argue constitutional changes strengthening the accountability of government to citizens primarily through improved transparency and guarantees of civil rights.

    Regarding the public sector I think a strong and independent public sector is a proven aid in protecting us from corrupt politics as it’s ever present responsibilities buffer us from the whims of arrogant and aggressive seekers of office and authority. Shifting their workload to expensive contractors (writing as a well paid contractor) is stupid and corrosive.

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