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Howard’s end: how the Coalition’s last budget created the ground for the current deficits

The good times are over. That’s the message both parties are sending out ahead of the budget and September’s election. Shadow treasurer Joe Hockey promises major cuts to spending and welfare if the coalition…

What sort of economic legacy did the long-serving Howard-Costello prime minister-treasurer double act really leave? AAP/Alan Porritt

The good times are over. That’s the message both parties are sending out ahead of the budget and September’s election.

Shadow treasurer Joe Hockey promises major cuts to spending and welfare if the coalition is elected while the government, having been forced to walk away from its budget surplus promise, is now cutting previously guaranteed benefits like increases in family benefit payments.

The focus on these sorts of welfare cuts begins the dismantling of policies that were central to John Howard and Peter Costello’s budgets, especially the pair’s final big-spending 2007 budget which bestowed generous tax concessions - in areas such as superannuation - and transferred income to families that came to be dubbed “middle class welfare”.

In my comment piece on last year’s federal budget for The Conversation I began with the proposition that “good policy should be free of surprises”.

Although governments need to pay for additional expenditure promises – like Gonski and the NDIS in this case – there is also the need to address the underlying structural problem of reducing existing expenditure when revenues fall.

All this is at a time when the carbon tax, the mining tax – and just about every tax – is not raising the expected revenue, and Treasury’s forecasting performance is not looking good.

The point is that fiscal policy should be made in the context of a long-term vision for the economy. This includes getting everyone who wants to into work, providing the public infrastructure needed to increase productivity, the right mix of private and government provision of health and education; and reform of the regulatory environment. We should see clear lines being drawn between the major parties with regard to their philosophy. However, in recent decades we haven’t seen much of this.

Under John Howard, the Liberal-National Party coalition government sought to position itself as good economic managers in contrast to Labor. It recorded budget surpluses after 1997-98 in every year except one (2001-02), with surpluses reaching around 1% of GDP during its fourth term. The record economic growth led to huge windfalls in receipts from company income tax.

Falls in unemployment, jobs growth and wages growth greatly increased personal income tax receipts. While government expenditure as a proportion of GDP was fairly stable, albeit rising slightly, this has to be seen in the context of a switch from public provision of services to private provision. Consequently, there was less provision of government services but increasing government expenditure.

In the 2004-05 federal budget, treasurer Peter Costello announced the baby bonus, a lump sum payment of A$3000 to parents receivable after the birth of each child. It has risen from A$3000 since commencement on July 1, 2004 to A$4000 in 2005 and to A$5000 on July 1, 2008, and is indexed to inflation. Wayne Swan subsequently reduced the baby bonus to A$5000 from September 1, 2012 and to A$3000 for second and subsequent children from mid-2013.

In the same budget there were other significant increases in benefits to families with children as well as tax cuts for all Australians. As more than one commentator pointed out, there was an incredible degree of giving with one hand and taking away with the other, with inevitable administrative cost and waste.

The biggest single item of government expenditure is on social welfare. The majority of the recipients are middle income households due to the generosity of family payments. In 2007, even families with A$100,000 in income were eligible for child support. In effect, what the Howard government built up is a system of massive transfers from middle income taxpayers back to middle income consumers. It might well have been more efficient to let these middle class households keep the money instead of paying extra tax.

In 2007, during the election campaign, further planned personal income tax cuts of A$34 billion over five years were promised by both the Howard government and matched by the ALP, with the ALP firmly in its policy-copying “me too” election mode. The result of policy-matching meant that the Howard Government effectively locked in the next government to their tax reforms, including raising tax thresholds and reducing the top tax rate of 45 cents per dollar (ultimately lowered to 40 cents per dollar).

Significant changes were also made to superannuation policy in 2007. The majority of workers could now withdraw their superannuation tax free after upon reaching the age of 60. Most self-employed can claim their superannuation contributions as a tax deduction. In addition, semi-retired people can continue to work part-time, and use part of their tax-free superannuation to top up their pay.

Despite the relatively generous tax treatment of capital gains, the new superannuation tax treatment led to the selling off of some assets, particularly rental housing, as people sought to take advantage of the opportunity to add funds to their superannuation accounts and claim them back later tax-free.

People were allowed to transfer up to A$1 million into their superannuation accounts before June 30, 2007, after which an annual maximum of A$150,000 of after-tax contributions could be made. The effect of this change in the rules was enormous. In the June quarter of 2007, A$22.4 billion was transferred to superannuation accounts by individuals. This compares with A$7.4 billion in the June quarter of 2006. June 2007 was the first time in Australia that member contributions exceeded employer contributions.

Treasurer Wayne Swan will deliver what is likely to be the Gillard government’s last budget in difficult economic circumstances. AAP/Dean Lewins

There was criticism of the tax and spend policies of the Howard government: much of it focused on the apparent generosity of the taxation cuts and income transfers to families. The policy was also seen to be in contrast to the generally accepted role of fiscal policy to dampen spending in times of economic boom. Giving tax cuts in 2007 and beyond coincided with a time when consumer spending was considered to be running too high.

The biggest criticism of the Howard government’s generous spending was its concentration on consumption rather on improving the supply-side of the economy.

Productivity growth had slowed considerably during the fourth term of the Howard government. Many areas of Australia’s infrastructure were showing signs of much-needed reform to enable the continuation of productivity growth and economic prosperity. Rail and road transport, ports, broadband speed, water and energy emerged as needing quite urgent reform. It has to be said, however, that the ability of the federal government to address infrastructure problems was hindered by the lack of a working relationship with state governments.

It is ironic that the big spending of the Howard government didn’t save it from losing the 2007 election to another supposed fiscal conservative, Kevin Rudd. Indeed, it could well have been that his fiscal profligacy played a part in Howard’s election loss as voters lost faith in his economic credentials.

The Gillard government is now living with the legacy of two previous prime ministers but her own government’s economic management has played the major part in her inevitable election loss. Next week’s budget will do little to repair her reputation with voters and, in their current mood, is likely to damage it further.

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136 Comments sorted by

    1. Chris Sherley

      Lecturer/researcher of marketing at Charles Sturt University

      In reply to Peter Ormonde

      Exactly Peter, however, the problem lies with voters not the government, as is suggested in the article. The job of a party (in fact its only function) is to get elected, that means meeting the demand of their voters.

      Unitl the voting public start to value increasing taxes and decreasing welfare expenditure then we will continue to struggle economically.

      For any that may read this, please don't misunderstand what I'm saying, I think that the government has an ethical obligation to the voting public to conduct intelligent finance, I also think that it is better for a party in the long term. However, to any party that is less important then being in government now.

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    2. Wade Macdonald

      Technician

      In reply to Chris Sherley

      How ethical is the public vote against a pre-determined two horse race Chris?

      We will start valuing taxes when the government learn how to increase the productivity of national assets instead of seeing them privatised or left unmanaged.

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    3. Peter Lang

      Retired geologist and engineer

      In reply to Wade Macdonald

      Wade,

      We have to privatise to improve productivity. Public ownership does not give productivity, it kills it.

      Assets can be very poorly managed or unmanaged for decades if held in public ownership, but cannot if privately owned, because the organisation goes broke, then is taken over by new owners to make it financially viable - which means improving the productivity.

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    4. Peter Lang

      Retired geologist and engineer

      In reply to Alice Kelly

      Alice Kelly,

      You must be joking, or you are very young. Do you remember what Telstra was like before it was privatised? (by Howard of course).

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    5. Henry Verberne

      Once in the fossil fuel industry but now free to speak up

      In reply to Peter Lang

      Yes you are correct Peter, Telstra was over staffed etc.

      But since you mention Howard, he stuffed up the whole process and Labor' s NBN will finally lead to Telstra becoming another player in a competitive market and an end to their unhealthy influence.

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    6. Wade Macdonald

      Technician

      In reply to Peter Lang

      And those foreign magnates who take over and gain some supposed increased productivity pass on the reduced costs to the consumer do they Peter?

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    7. Janeen Harris

      chef

      In reply to Alice Kelly

      You rarely hear anymore about the disabled on newstart, many of whom have significant disability. Maybe to lower welfare spending it would be effective to raise benefits to a livable amount and look at cutting the enormous investment being made to dubious welfare agencies, education courses that lead nowhere, and social services that do little service other than referrals. If they think these people are ready for the workforce then govt. could set an example to business and employ disabled people more instead of palming them off on the dole to rot.

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    8. Peter Lang

      Retired geologist and engineer

      In reply to Henry Verberne

      Henry,

      I don't agree Howard stuffed it up. He was blocked by the intrangent, relentlessly negative Labor Party in the Senate. So Howard had to negotiate a very second rate alternative to get it through the senate, in parts separated over years. What a mess.

      Recall that when Hawke-Keating Labor was in government, Howard backed their privatisation of the CBA and much more. Beasley contacted Howard just before the vote in parliament to ask Howard if he was going to support the privatisation of CBA. Howard said Yes.

      Later, when Howard asked Beasley if he was going to support Privitisation of Telstra, he said No. Labor duriung the Howard government was a relentlessly negative opposition.

      So I suggested trying to blames Howard government for Labor's woes is misdirected.

      Let's be realistic, it was probably the best government the country has had in 60 years - and I agree Hawke government did a lot of good (with Liberal support for most of it)\ for it's first two terms.

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    9. Phil Dolan

      Viticulturist

      In reply to Peter Lang

      The myth that only the public sector can manage things efficiently is put about by a lot of people who generally believe in globalization. Massive international companies are run by bureaucrats who profit whether the company does or not and none of their money is at risk. They do not invent anything, only buy out smaller companies which helps reduce competition. They send money around the globe to avoid tax so putting all the government revenue raising onto salary earners as they cannot avoid it. Of course, they encourage gambling too as that's an easy way to get money.

      If a public asset is sold the money evaporates and the future earnings are lost.

      The Hydro Electric Commission it Tasmania is a nice little earner and it's owned by the government. If that was sold, the Tasmanian people would not benefit one iota and they would have lost an income.

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    10. Alice Kelly
      Alice Kelly is a Friend of The Conversation.

      sole parent

      In reply to Peter Lang

      I do remember telecom, and I always enjoy a chat with the technicians who come to bandaid the labyrinthine mess surrounding my property. They are very well informed about all the latest corporate speak and what it means . And the way they would have approached a problem in the past.

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    11. Peter Davies

      Bio-refinery technology developer

      In reply to Chris Sherley

      Chris-The problem I have with your opening paragraph is the assumption public demand is a distillation of reality when in fact such "demand" is also being created through false perceptions promoted by the parties seeking election. It is increasingly circular, incestuous and self serving and trending worse in recent times.

      "Stop the boats" is a good example. People are dying because of such policies (held by both major parties) and whilst nominally not Australians (as if this should make a difference…

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    12. David Thompson

      Marketing Research

      In reply to Janeen Harris

      Alice and Janeen
      Be careful what you wish for. We just had a revolution under Hawke and Keating. That revolution was "neoliberalism".

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    13. David Thompson

      Marketing Research

      In reply to Felix MacNeill

      Felix
      Got a name for those neoliberal economics texts? I was just looking over my university economics textbooks. No mention of "neoliberalism" anywhere, but plenty of stuff on productivity and ownership structures.

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    14. Felix MacNeill

      Environmental Manager

      In reply to David Thompson

      I think 'neoliberalism' is a description from outside, rather than a label chosen by the actual authors and academics...but anything from the University of Chicage would be a far bet...

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    15. Peter Ormonde
      Peter Ormonde is a Friend of The Conversation.

      Farmer

      In reply to Felix MacNeill

      "Neo-liberalism" is a critical and slightly derisive description David. Like say "quackery" or "ratbaggery"... so you won't find the likes of old Milton Friedman or Hans Hayek labelling themselves thus.

      My only concern with the expression is that it gives liberals a bad name - which is a serious distortion of history really. In the US for example to call something "neoliberal" probably means they're Trotskyites or something menacingly radical.

      The English liberals were in fact on the left…

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    16. David Thompson

      Marketing Research

      In reply to Peter Ormonde

      Peter, if you want good lessons from economic history on the negative relationship between government ownership and productivity, the history of the United Kingdom in the 1960/70s is a good start.

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    17. Peter Lang

      Retired geologist and engineer

      In reply to David Thompson

      You could add Russia, Cuba and North Korea as some other examples.

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    18. David Thompson

      Marketing Research

      In reply to Peter Ormonde

      Peter O, all I got out of that is that you seem very confused about the modern political economy and the history of ideas. You should enrol in some MOOC courses on microeconomics. As for Adam Smith, he is the father of anti-government ownership. That is what "political economy" means.

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    19. Peter Ormonde
      Peter Ormonde is a Friend of The Conversation.

      Farmer

      In reply to David Thompson

      Depends why they were nationalised in the first place David. Late Victorian England developed this strange sort of welfarist notion when it came to critically important industries like steel, mining and the like... too big and too central to fail.

      So after years of financial neglect and bad management leading to a poisonous industrial climate - the state steps in and acts like a hospital for ailing industry, whacks the thing on life support, supposedly to inject funds and increase productivity…

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    20. David Thompson

      Marketing Research

      In reply to Peter Ormonde

      Peter O, it is impossible for English liberals to have been Bolsheviks. Bolshevism was born in the early 20th century. It was overwhelmingly an extreme reaction against English liberalism. This makes sense as Marx absolutely hated English liberals, which isn't so surprising given Marx was one of the most hateful, bitter, misanthropes ever to draw breath. Never mind, he lived in safety and security in London during the heyday of English liberalism - ironically a refugee from the disaster of failed left-wing revolutions in his native Germany and France.

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    21. Peter Ormonde
      Peter Ormonde is a Friend of The Conversation.

      Farmer

      In reply to David Thompson

      Socialism - at least the initial conceptions of it - doesn't necessarily require or even imply government ownership David.

      Find me some quotes from Adam Smith about government ownership. I look forward to them. I love Mr Smith ... a serious Scottish preacher that lad.... could really flay a self-interested market distortion.

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    22. Peter Ormonde
      Peter Ormonde is a Friend of The Conversation.

      Farmer

      In reply to David Thompson

      David... you seem intent on picking at nits - even imagined ones - which are the most annoying I find. I was using the term bolshevik - as opposed to capital B Bolshevik - in the sense of being extreme and radical. I know full well the origins of their claimed majority - which is of course what the word means.

      As for studying microeconomics I'd rather run a flea circus. Have spent more than enough of my life studying shop keepers and the theory of markets.

      I like markets - so did Marx…

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    23. James Hill

      Industrial Designer

      In reply to Peter Lang

      Here's one example for the geologist in you Peter.
      Vast tracts of the Riverina overlying large groundwater resources were held by the Banks as result of foreclosures on loans.
      During the drought of the seventies these stations presented as the "Howling wilderness", of Major Mitchell's description, with withered and scraggly sheep, the colour of the earth almost being blown way by said wind.
      On the property of my acquaintance, the overseer lived, with his family, in a series of hundred year old…

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    24. James Hill

      Industrial Designer

      In reply to Peter Ormonde

      If you want simple sloganising forget about three words, try instead three letters: GFC.
      Voters are prising open that door come September according to the polls.

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    25. Peter Ormonde
      Peter Ormonde is a Friend of The Conversation.

      Farmer

      In reply to Peter Lang

      And China. And the Scandawegians. And India. And Germany. And France. And Italy. And Spain. And South Korea. And Canada.

      But not all the same. Not all for the same reasons. And not always with the same result.

      If you'd like to catch up with the role and operations of State Owned Enterprises (SOE's) in the OECD you could have a squiz at this:http://books.google.com.au/books?id=TzQtVdcbWnwC&printsec=frontcover&source=gbs_ViewAPI&redir_esc=y#v=onepage&q&f=false

      It a review of SOE's in the OECD. Shocking isn't it?

      What's it like back there in 1954 Mr Lang? Still fighting the Cold War I suspect.

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    26. James Hill

      Industrial Designer

      In reply to David Thompson

      David, Adam Smith by contrast to your claim argued that "Natural" monopolies, that is enterprises where competition was not possible, should stay in the hands of government.
      Hardly the father of anti-government ownership.
      The Stuart monarchs, starved by parliament, established private monopolies to raise money, and this did what to the economy?
      Howard repeated this behaviour with Sydney Airport, and what an abomination that has become.
      But Howard was a posturing political opportunist and ignoramus, who had probably never heard of Adam Smith, let alone read him.
      Smith was not quite as simple-minded or for the simple-minded as some would claim.

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    27. James Hill

      Industrial Designer

      In reply to David Thompson

      Those failed left wing revolutions which inspired Bismark to set up the world's first welfare state to successfully forestall any further revolutions?
      How Marx and Engels must have hated Bismark.

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    28. David Arthur

      resistance gnome

      In reply to David Thompson

      @David Thompson

      The problems of the UK in the 1960/70's weren't due to public ownership of assets, but rather of a failure to prop up old and failing technologies rather than swap them for something more productive; nationalisation of assets was no more than an ineffective attempt to prop up failing industries.

      Of course, the intransigence of Soviet-encouraged union leaders (their "study tours" of the USSR consisted of show factories, call girls and much vodka) didn't help; the same applies to their Australian equivalents.

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    29. David Thompson

      Marketing Research

      In reply to James Hill

      James, no need to speculate. Marx and Engels loathed Bismarck! And if you are looking for the context of Bismarck's 'welfare state', 1848 was way before his time. No, it was another geopolitical conflict that brought Bismarck to the fore 20 years later - Germany's victory in the Franco-Prussian War and the subsequent unification of Germany, with the Prussian emperor made Emperor of the new German empire, with Bismarck its Chancellor.
      What is now called the "welfare state", Bismarck called "Practical…

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    30. James Hill

      Industrial Designer

      In reply to David Thompson

      Now come on David, 1848 was not before Bismark's time, he lived through it!
      Dig a bit deeper into your sources.

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    31. David Thompson

      Marketing Research

      In reply to David Arthur

      "John Button's plan for the Australian car industry was neoliberalism?"
      David, "neoliberalism" is not a term I normally use. I am merely using it as others here have. If you deny Hawkeating's "neoliberalism", then you deny the word has any meaning at all. What next, Margaret Thatcher must have been a socialist, after all, look how much more money she spent on welfare!

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    32. David Thompson

      Marketing Research

      In reply to David Arthur

      David, your choice of the passive only emphasises your attempt to silence and hide the subject:
      "The problems of the UK in the 1960/70's weren't due to public ownership of assets, but rather of a failure to prop up old and failing technologies"
      A "failure" by whom? ;)

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    33. David Thompson

      Marketing Research

      In reply to James Hill

      "The Stuart monarchs, starved by parliament, established private monopolies to raise money, and this did what to the economy?"
      Actually, we can't blame the Stuarts for that. The world's most infamous and wealthy was granted by that Tudor heathen whore - the barren Queen Bessy in 1600.
      What did it do to the economy? Ultimately it led to Britain taking over the world, and changing mankind more than any other nation in history. However, that took the executioner's blade, and the genius of liberal thinkers - philosophers, jurists, economists - and entrepreneurial chutzpah of the British people to make a reality.

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    34. David Thompson

      Marketing Research

      In reply to James Hill

      How about we drop the 'G' from GFC? It was only the 'North Atlantic' Financial Crisis. It had nothing to do with Australia.
      Unlike the North Atlantic putzes, we had a government with a fortune in the petty cash tin - a housewarming gift from the previous administration's more than a decade in power, who even had the manners to pay off the $100 billion the previous guys owed their glue dealer.
      Oh, and there was also that little quirk that aggregate demand didn't collapse, because no banks, businesses, punters, or even their houses, had any exposure to north Atlantic toilet paper. Why not? Because that awful neoliberal neofascist Howard/Costello had liberalised markets so much that they liberated anybody from being allowed to buy such shonky instruments. Just like the Stuarts, eh?
      Never mind. Rudd used the no-financial-crisis and no-drop-in-aggregate demand to fast-forward already budgeted expenditure, and a hell of a lot of pork, picked from the tea ladies tips.

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    35. James Hill

      Industrial Designer

      In reply to David Thompson

      Howard's middle class welfare jacked up the mortgage market by a Trillion dollars during his ten year orgy of me-ism, otherwise known as aspirationalism.
      And the interest bill under an "interest rates are too low", Treasurer Joe, will rise to $100 BILLION a year, every year.
      Joe's solution, which does show that he has been paying attention ( that exemplary private education not going to waste?) is to extend government bonds out to fifty years, ushering in the prospect of three-generation, fifty…

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    36. James Hill

      Industrial Designer

      In reply to David Thompson

      I like "The World Turned Upside Down, A Century of Revolution, 1560 to 1660" by Christopher Hill, as a further illustration of your point.
      But surely you would have to put "Tudor heathen whore" in italics as I have done to indicate a minority, sectarian prejudice against the dynasty which re-established the national Anglican Church of Alfred the Great?
      Even if the Tudors (Welsh for theodore, or God adoring, a true Tudor trait) did have that Welsh dragon on their coat of arms and Saint David was actually a Celtic Christian, they did, historically, do a god job of bringing the pagan Anglo Saxons to Christ without the assistance/interference of Rome,(more probably Constantinople?).
      Do please allow the Brits ( and Australians) to have their own history, unsullied by vile foreign prejudices. Heathen whore indeed.

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    37. David Thompson

      Marketing Research

      In reply to James Hill

      Point taken. I should have used scare quotes, as I'm using judgements of her enemies - "whore, heathern, etc.". I reckon she was a goddess! :)

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    38. David Thompson

      Marketing Research

      In reply to James Hill

      And to reinforce my point, I reckon the most important document in modern economic history was the Act of Settlement.

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    39. David Arthur

      resistance gnome

      In reply to David Thompson

      The failure was a communal failure - of the workers to co-operate with management in improving work practices, of managements and decision-makers to invest in new and upgraded technology and equipment to improve productivity.

      That I write about matters to which I was only an observer is not an attempt to hide anything, but rather an attempt to explain something to someone who has marginal involvement in reality.

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    40. David Arthur

      resistance gnome

      In reply to David Thompson

      Err, Hawke's "Accord" and Keating's broadening of superannuation were nothing like Thatcher or Reagan, let alone the scorched earth extrapolations of Thatcher/Reagan initiated by their successors.

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    41. margaret m

      old lady

      In reply to Peter Lang

      There is enough evidence to prove that privatisation is not always successful. Public ownership run to provide a service to the people who paid to build and maintain the service is the only way the Australian people will maintain services we enjoy or once had our essential services the only monopoly I agree with.

      The Abbott and Hockeys and Conservative parties of this world want our society to change to the American working poor style it is an evil system that is on the way cannot find any other word that fits it.

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    1. James Hill

      Industrial Designer

      In reply to Ronald Ostrowski

      Even worse Ronald are the reactions of overseas investors who see their property under threat from LNP incompetence and MSM treachery.
      But what can they do?

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  1. Wei Ling Chua

    Freelance Journalist and Author at www.facebook.com/mediadisinformation

    The Voting public is not to be blamed. The problem lie with the design of the political system. This is the reason why China will not follow the Western political system.

    They have created a system that is more rationale, democratic and responsive to the wishes of the people. There are many well written articles and reports in China that Western journalists simply not interested.

    It is a lengthy topic, I will have the digital version of the book out within weeks titled: 'Democracy - What the…

    Read more
  2. Lincoln Fung

    Economist

    I probably don't need to read the article to point out the central argument is wrong and totally unconvincing to politically independent and competent analysts, economists and policy makers who are not mechanical and dogmatic in their thinking.
    It has been nearly 6 years since the Howard and Costello government was voted out and the current ALP government came to power. SIX YEARS!
    Budget policy can change every year and the current government has had FIVE YEARS and FIVE budgets to change the course.
    What has happened?
    We've got huge debts and every years there were budget deficits.
    Yes, the government can use various excuses, but it is not right for economists to accept any of those.

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    1. Ted Stead

      Consultant

      In reply to Lincoln Fung

      Lincoln, can you elaborate on why debts denominated in the currency over which the government has sovereignty are ever an issue?

      And could you also please elaborate on why deficits are bad for an open economy with a current account deficit and a positive savings ratio?

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    2. Lincoln Fung

      Economist

      In reply to Felix MacNeill

      Felix, to answer your question, firstly, I am not a self-proclaimed 'economist', but with a PhD degree in economics from the ANU. So what is your definition of economists?
      Secondly, my objective is to inject some sanity into the debate. If you understand basis macroeconomics you would know that government expenditure is a policy tool to get the economy to the most desirable state and can be changed to achieve that objective. The underlying assumption is to get the budget balanced over a economic…

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    3. Lincoln Fung

      Economist

      In reply to Ted Stead

      Ted, firstly, government debts, like private debts, incur interest costs at least, irrespective which currency it is denominated in, not to mention situations may change in the future that even the principal of the government debts may be forced to pay or may need to pay. Currently due to very low interest rates due to the state of the international economies, the costs of interest payments for governments are relatively low compared to otherwise. Just think about the case where interest rates were…

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    4. Lincoln Fung

      Economist

      In reply to Peter Ormonde

      Peter, you raised a good question, although the previous discussions have not gone to that far.
      You are correct that there are different uses of government expenditures. However, even with your examples, one may find issues with governments debts in worthwhile causes.
      For example, the school education revolution programs, one can argue that there were both design and implementation problems that some of the investments are not effective and productive, say even the state governments were trying…

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    5. Henry Verberne

      Once in the fossil fuel industry but now free to speak up

      In reply to Lincoln Fung

      Lincoln, please illustrate these huge debts by quoting figures and percentages of GNP etc rather than making unsubstantiated, emphatic comments. Comparative figures also are needed.

      My position is that of most economists: our debt is relatively small as a proportion of GNP.

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    6. Lincoln Fung

      Economist

      In reply to Peter Ormonde

      Peter, for your last paragraph's mention of "the Howard government didn't have this courage to invest in the future - which is why they have left nothing at all of lasting value."
      Although I am not a defender of either government, I think the future fund established by the Howard government may provide an example that does not support or is contrary to what is argued there.
      I have to say that I don't know how many billions that was and whether that is significant as compared to the NBN amount, though.

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    7. Lincoln Fung

      Economist

      In reply to Henry Verberne

      Henry, yes you are correct if that is compared to other high debts countries in the current levels and that is clearly one way to argue it. But there are other aspects, such as rate of increase and the increased amount in a year.
      Perhaps you can calculate that to substantiate I am "making unsubstantiated, emphatic comments" and to see for yourself?

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    8. Ngoc Luan Ho Trieu

      logged in via Facebook

      In reply to Lincoln Fung

      Lincoln
      There are three issues in fiscal management; (i) the revenue constraint; (ii) economic efficiency of gov spending; and (iii) distributive efficiency of gov spending.
      I think Prof Lewis' article focused on (ii) and (iii), that is, squandering excessive revenue in time of economic (mining) booms without paying much attention on how and where to spend, leaving bad budgetary problems in the long run, especially in downturns of the business cycle shows lack of vision. May I add here that if…

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    9. Peter Ormonde
      Peter Ormonde is a Friend of The Conversation.

      Farmer

      In reply to Lincoln Fung

      Same deal to some extent as the comments regarding paying off debt actually Lincoln. The Future Fund is designed to generate income to fund the Commonwealth's unfunded superannuation debt. In fact the Fund is specifically nobbled from playing too much of a role in the economy or in any specific business - can't buy any shares in Telstra for example.

      That's not to say it's not a good thing. If we can it's a good idea to pay down debt and build some income generating assets. But the original idea has far more to do with debt reduction than much else. I just wish they could start lending money to farmers. Or buy a bank or two.

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    10. Lincoln Fung

      Economist

      In reply to Ngoc Luan Ho Trieu

      Ngoc
      I really don't understand your logic and you really lost me in your arguments.
      As I have mentioned earlier, I am not a defender of either government.
      However, your arguments seem inconsistent and appear saying one thing is good but ignore the history. E.g. save for the future and save for downturns. Didn't the Howard government paid the debts and established the future fund with billions of dollars of money in it? Those are not save for the future and not save for the downturns? And those were done with no the new mining tax. And dare I say that money in the funds is better than money squandered in some government investments.
      Those who argue that the Howard government should have far greater foresight and forecasting power than others so they could foresee things that others even couldn't see later than their time?
      Is that reasonable expectation?

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    11. Ted Stead

      Consultant

      In reply to Lincoln Fung

      Lincoln, saying that the currency of denomination of government debts is not relevant would seem absurd. The Australian government is sovereign in its own currency, and as such is never financial constrained in spending Australian dollars. Current operations means that the government borrows before it spends, but this disguises the fact that the government must actually spend before it can borrow, as it is the sole creator of net financial assets in AUD.

      The intergenerational fairness argument…

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    12. Felix MacNeill

      Environmental Manager

      In reply to Lincoln Fung

      Lincoln, if you can't distinguish between 'huge' and 'rapid' you really need to go back to your old teachers at ANU for a refresher.

      Despite the patronising lecture and gratuitous insults towards the end, and all the words you've put in my mouth that I never said (do try not to project) all I suggested was that referring to our current level of national debt as 'huge' was, by any normal measure of comparative size of national debt, either historic or by international comparison, was a pretty hard claim to defend.

      Perhaps you could try responding to the actual issue, rather than scatter-gun insults and irrelevancies.

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    13. Ngoc Luan Ho Trieu

      logged in via Facebook

      In reply to Lincoln Fung

      Lincoln
      Squandering excess revenue => changing budget spending structure => lock in big spenders => using up all the savings very fast when excess revenue disappear.
      Lesson: In time of excess revenue from a boom, if you change the the spending habit you have to change the revenue collection system too so that there won't be mismatch between revenue and spending structures.
      Since you mention minining tax, I think the newly introduced MRRT has "missed the boat", but it does not mean that the gov…

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    14. Lincoln Fung

      Economist

      In reply to Felix MacNeill

      Felix, I don't know who is scatter insults and irrelevancies.
      Why should it matter whether a person is economist or not in having an opinion?
      You perhaps need to consider your question and attitude: it is different from bullying by alleging another person self-claimed economist? And as I said why should that matter any way.

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    15. Peter Ormonde
      Peter Ormonde is a Friend of The Conversation.

      Farmer

      In reply to Lincoln Fung

      It actually matters quite a lot Lincoln.

      Engineers should have passed a few exams before building a bridge. Doctors hopefully have a bit of a handle on dodgy tickers and diabetes and pills and the like.

      But when it comes to economics well heck anyone can do it - everyone just understands it because - well they buy groceries and fill the petrol tank so hey they're economists and their opinions on the operation of the financial system and its interaction with the real world for example as…

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    16. Felix MacNeill

      Environmental Manager

      In reply to Lincoln Fung

      Lincoln, do put the paranoia aside for a moment; 'self-proclaimed' (check the difference between 'proclaimed' and 'claimed') related to the fact that you title yourself 'economist' - it wasn't a challenge to your qualifications, much less your right to comment here, which I never disputed. All I actually said was that for an economist to suggest that our current level of debt was 'huge', when the vast majority of economists rate it as quite small by historic or international comparisons, was pretty dodgy.

      All you've done so far is to attack me and have a great big whinge. I don't suppose you ever considered offering some actual evidence or logic instead?

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    17. Ngoc Luan Ho Trieu

      logged in via Facebook

      In reply to Lincoln Fung

      Lincoln
      Few issues to be addressed here: (i) what is the periodicity of the economic cycle and how this periodicity changes in time of GFC; (ii) is balancing the budget or keeping it in surplus a sole objective of a good fiscal strategy; and (iii) how much a deficit can be before it caused "huge" debt.
      These issues are not very related to the thrust of the above article which stressed more on "... the need to address the underlying structural problem..."
      It is easy to implement policies to reduce…

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    18. Luana Gomez

      Big Mama

      In reply to Ngoc Luan Ho Trieu

      Don't worry guys. My husband saw his comment sometimes ago and acted like he had no idea what IPA means. For a PhD of economics from Canberra not to know it and can't google it, he probably is just a Martian and studied by correspondence, possibly not that knowledgeable about earthlings and the Australian economy.

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    19. David Arthur

      resistance gnome

      In reply to Peter Ormonde

      You're being a little harsh on the Howard govt there, Peter - they left us with

      - the basis of gun law reform (although they weren't harsh enough on urban handguns and too harsh on farmers with single-action rifles),

      - with a consumption tax (which could be the basis of some sensible climate policy, by gradually pricing fossil fuel out of use),

      - and they left the carbon accounting office in place (although it continues to conflate greenhouse gas emissions from other sources (benign) with those from fossil fuels (malign)).

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    20. David Arthur

      resistance gnome

      In reply to Peter Ormonde

      Would have made more sense to cover the roofs of school halls with solar PV panels - schools consume power during the day, when the sun shines.

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    21. David Arthur

      resistance gnome

      In reply to Ngoc Luan Ho Trieu

      Ngoc, the minerals export boom could have been even better for Australia, IF the mineral processing was done in Australia.

      For example, Australia exported ~$35 billion of iron ore in 2010-11, and also the ~$25 billion of metallurgical required to turn that iron ore to iron and steel.

      If the value-adding had been done in Australia, then Australia would have exported ~$181 billion of iron and steel instead. Australia's tax base would have been bigger, there'd have been less unemployment, and…

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    22. David Arthur

      resistance gnome

      In reply to Lincoln Fung

      "Why should it matter whether a person is economist or not in having an opinion?"

      In that case, having a PhD in economics is no commendation. No surprises there, considering all the bumpf we've seen from economists extolling the Clean energy Futures package and the EU ETS.

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    23. Ngoc Luan Ho Trieu

      logged in via Facebook

      In reply to David Arthur

      "...to conflate greenhouse gas emissions from other sources ..."
      That reminds me of the statistics they published on the GHG produced by bulls' cows' sheeps' pigs' "...." in Australia

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    24. David Arthur

      resistance gnome

      In reply to Ngoc Luan Ho Trieu

      Gday Ngoc, I didn't realise they publish separate stats on ruminant belches or on decomposing dung.

      Mind you, allowing dung to "break down" naturally is to forego an opportunity to generate a bit of energy without using fossil fuel.

      A cleaner future could be ensured if carbon taxes specifically targetted fossil fuel consumption, because that's the source of additional carbon in the biosphere/climate system; "biological" greenhouse gas emissions are "carbon-neutral" in the sense that they consist of greenhouse gases returning to the atmosphere from which they were fixed by photosynthesis.

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    25. Ngoc Luan Ho Trieu

      logged in via Facebook

      In reply to David Arthur

      I am pretty sure they did. I am also sure that I've seen a cartoon in one of the popular newspaper showing cows releasing GHG into the atmosphere thru their backside. So comical so impressive that my mind could not get rid of it to reserve the limited capacity of my brain data storage for something else.

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    26. Ngoc Luan Ho Trieu

      logged in via Facebook

      In reply to David Arthur

      For your information "...According to Dairy Australia, livestock is the dominant sector for emissions of methane and nitrous oxide and in 2005 was responsible for 11% of Australia’s greenhouse gas (GHG) emissions. (Methane has a global warming potential 21 times that of carbon dioxide; nitrous oxide has 310 times the global warming potential.) Fermentation in the animal gut is responsible for most livestock GHG emissions, but methane and nitrous oxide are also emitted from manure..."
      (and if interested see http://www.daff.gov.au/animal-plant-health/animal/strategy/ocvo-scanning-report
      number 13)

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    27. Ngoc Luan Ho Trieu

      logged in via Facebook

      In reply to David Arthur

      I appreciate your ideas. My reservation centres around the comparative disadvantage Australia bears in steel heavy industries (iron & steel, aluminium, paper and paper products). The small labour force, high production cost might render our products uncompetitive in world market.
      Perhaps we need to develop or sharpen less labour intensive but more capital intensive and knowledge based (green tech, bio tech, nano tech, tourism, agribusiness, financial services) with the additional money from the boom. The main problem with the last boom is that a high proportion of the additional boom money has gone abroad while the state and federal govs collect some but insufficient even for budget balanlancing not to mention for the much needed industro socio reforms.

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    28. David Arthur

      resistance gnome

      In reply to Ngoc Luan Ho Trieu

      Thanks for that response. However, I'd actually suggest that Australia does not have a competitive disadvantage heavy industries; they are capital-intensive, as you rightly observe, and Australia is well-supplied with a surplus of mature competent well-trained workers.

      You'll find all these workers if you can get Centrelink lists of Disability Support Pensioners. What happens is, Australian companies cull their workforces every Christmas or so, and make redundant workers over 45 years of age…

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    29. Ngoc Luan Ho Trieu

      logged in via Facebook

      In reply to David Arthur

      Australia needs more people, not less. I would beg them not to leave for diversity. Life without them would be boring.

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    30. David Arthur

      resistance gnome

      In reply to Ngoc Luan Ho Trieu

      Thanks for that, Mr Ngoc. Australia doesn't have enough water for more people, whether it "needs" them or not, except perhaps in the Kimberley where a new city can be supplied from Lake Argyle. Mind you, as SW WA dessicates, the residents of this new city will most likely be environmental refugees from SW WA. The next few decades will probably demonstrate that this nation has probably already exceeded the number of people it can sustainably support.

      Regarding encouraging certain people to leave…

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  3. Geoff Taylor

    Consultant

    Who do we follow, Chris Richardson or Paul Krugman?

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  4. alexander j watt

    logged in via Twitter

    We should leave the running of the economy to a sophisticated computer program, which can occasionally be tweaked by anonymous technicians, who only have the long term wellbeing of the country in mind.

    Our economy is like a patient lying anesthetized on the table, while toddlers conduct surgery on it with plastic spoons and pink fuzzy bunnies hop around singing nursery rhymes.

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    1. David Thompson

      Marketing Research

      In reply to alexander j watt

      Actually, we should leave the running of the economy to individuals and their various associations.

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    2. Peter Ormonde
      Peter Ormonde is a Friend of The Conversation.

      Farmer

      In reply to David Thompson

      Your mate Adam Smith had some rather interesting views on business associations:

      “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”
      ― Adam Smith, The Wealth of Nations: An Inquiry into the Nature & Causes of the Wealth of Nations

      Now where are those comments of the goodly Mr Smith on the evils of government ownership and intervention Mr T?

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    3. David Thompson

      Marketing Research

      In reply to Peter Ormonde

      Indeed Peter. In Smith's day, the great evil was monopolies. In those days, a monopoly was granted by the State to be the sole producer of some product/service, or the sole British trader with a foreign state. His phrase "political economy" meant 'be economical - that is sparing - with the political'. In other words resist all attempts by the State to grant (basically SELL) all monopolies, and do not create them defacto with tarrifs, import quotas, or other indirect taxes. In Smith's time, the great…

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    4. David Thompson

      Marketing Research

      In reply to Peter Ormonde

      You want me to provide single sentence quotes, like some 16 year old writing an HSC exam question of Hamlet? I thought you'd already read all this? Clearly you have not. Smith spends two books breaking these fundamental principles down. If you have read Smith and you missed the bits against monopolies and trade barriers, and the centrality of comparative advantage and labour as causes of the wealth of nations, there's nothing I can do for you here. And if I did have time, my going rate is $150 per hour.

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    5. Peter Ormonde
      Peter Ormonde is a Friend of The Conversation.

      Farmer

      In reply to David Thompson

      No David I'm looking for the sections that substantiate your allegations of paternity... to wit: "As for Adam Smith, he is the father of anti-government ownership. That is what "political economy" means." A simple DNA test with some reference to quotes - or you just making stuff up?

      As for the last part of the treatise regarding the purported meaning of "political economy" I'm afraid that will remain completely fatherless ...

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    6. Felix MacNeill

      Environmental Manager

      In reply to David Thompson

      David, I'm sure I could get evidence-free patronising for less than $150 per hour.

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    7. David Thompson

      Marketing Research

      In reply to Peter Ormonde

      Ah, hold on. I just read right through one of your posts above. The one where you say Adam Smith opposed free markets and laissez faire. Rather Smith and Marx were on the same team. OK, I think that wraps it up for the time being. Except I can't really get this doozy out of my head:
      "The English liberals were in fact on the left of the conservative capitalist spectrum and Marx are from the school."
      I've put it through some translation software. No luck so far.

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    8. Peter Ormonde
      Peter Ormonde is a Friend of The Conversation.

      Farmer

      In reply to David Thompson

      "The English liberals were in fact on the left of the conservative capitalist spectrum and Marx are from the school."

      David... you shouldn't just make stuff up. Not when you are claiming something so easily checked.

      I did not say that or anything like it. I stated the simple (and easily verified) fact that liberals of Europe were in fact quite radical reformers - the revolutions of 1848 were regarded as liberal. Marx criticised liberals because they focussed exclusively on reform of the…

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    9. David Thompson

      Marketing Research

      In reply to Peter Ormonde

      Let's re-run it word for word:
      1. Friedman and Hayek are - according to you and other "critical and slightly derisive" types - "neo-liberals".
      2. You said "My only concern with the expression ['neo-liberalism] is that it gives liberals a bad name - which is a serious distortion of history really." Ergo, Friedman and Hayek are nothing like the 'English liberals'
      3. "The English liberals were in fact on the left of the conservative capitalist spectrum..."
      So we've got Locke and Smith as enemies…

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    10. Peter Ormonde
      Peter Ormonde is a Friend of The Conversation.

      Farmer

      In reply to David Thompson

      David,

      It's probably not the place or the time to start with introductory logic so I'll stick to the facts:

      You claim Adam Smith is the father of "anti-government ownership." Do you have the slightest shred of evidence to support that assertion?

      You also assert that "political economy" means an "economy of politics" ... ie minimal political interference or role for the state. Do you have any evidence - any source other than your own personal interpretation - to substantiate this view?

      So far you have failed to taint your assertions with the most meagre fact. In other words Dave, put up or shut up.

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    11. David Thompson

      Marketing Research

      In reply to Peter Ormonde

      No. So far, I have shown that you have never even opened a book penned by Locke, Smith, Marx, Friedman, or Hayek.

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    12. David Thompson

      Marketing Research

      In reply to David Thompson

      Just out of interest, who are you cribbing from? Sounds like Chomsky to me. You also need to take some critical thinking courses. For your own good.

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    13. Peter Ormonde
      Peter Ormonde is a Friend of The Conversation.

      Farmer

      In reply to David Thompson

      I'm far too old to crib David. And I certainly wouldn't crib from the old Noam... not that I'd imagine you've read any more Chomsky than you've read of Adam Smith or Marx.

      You just make stuff up - like this is an Andrew Bolt blog or sumfink.

      Must admit though I did get a decent laugh out of your notion of "political economy". Most original!

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  5. Peter Lang

    Retired geologist and engineer

    The Conversation continues to display its partisan bias. We get continuous stream of articles from Howard haters, abbot haters, Conservative haters, renewable energy proponents, anti nuke zealots.

    Now we have another one. Why not focus on explaining why the Rudd-Gillard Labor Governments have been the worst government the country has had for more than 60 years. They've seriously damaged out economy, investor confidence, business confidence. It will take a decade to unwind the mess they have…

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    1. Alice Kelly
      Alice Kelly is a Friend of The Conversation.

      sole parent

      In reply to Peter Lang

      Some could argue howard and costello squandered the economic legacy of Paul Keating, ( the only other treasurer in au to achieve international economic management status, aside from Wayne Swan) which set them up in the first place.
      Knowledgeable as you are, you already knew this

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    2. Henry Verberne

      Once in the fossil fuel industry but now free to speak up

      In reply to Peter Lang

      Gee Peter, sometimes the truth hurts doesn't it! Conservatives tend to bleat "bias" whenever their ideology is challenged or their beloved LNP receives some criticism.

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    3. Ted Stead

      Consultant

      In reply to Peter Lang

      Let's not forget that the Howard government also left us with enormous private debt (which far more dangerous than government debt), left us using more of our income to pay interest despite lower interest rates, distributed more of the wage share from workers to corporate profit, and left us with more income inequality. They were great!

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    4. David Thompson

      Marketing Research

      In reply to Ted Stead

      WHAT? My credit card debt is not mine, but the Howard Governments!?

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    5. Ted Stead

      Consultant

      In reply to David Thompson

      Yes, of course that's what I mean. Or, could I mean that the combination of continued financialisation of the economy, reduced worker wage share, negative gearing etc. left us with more private debt than before? That is, the government implemented policies which encouraged the uptake of debt, and then claimed they were economic geniuses because they magically ran surpluses off the back of the associated economic activity.

      So while the positive contribution to demand from debt may have looked good for a while, it could only ever be a short-term strategy, because we now must still repay the debt, and that will continue to drag on the economy. Not isolated to Australia and the Howard government, of course, and is typical of what was going on elsewhere.

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  6. robert roeder
    robert roeder is a Friend of The Conversation.

    retired

    I agree with the thrust of this article and the previous comments to it. The question of what can be done to ensure that in the future elected governments stop their blatant self interest and tailor their policies to the real needs of this country not our wants. It's a no brainer that dangling a bag of gold pre- election induces people to be selfish and narrow minded.
    The internet provides an amazing social forum, the possibilities are limitless. In the past governments have made decisions which…

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  7. Greg North

    Retired Engineer

    There are certainly different ways of looking at who has done what Phil and you could say that neither political party takes a totally responsible attitude to financial management which should at least be based on some reasonable conservatism with the knowledge that some revenue incomes will always vary.

    Sure, Howard and Costello can have the finger pointed at them for middle class welfare or whatever you may want to call their wealth transfer churn and use of a windfall for something which is…

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  8. Tony Simons

    Director at Bedlam Bay Pty Ltd

    As well as profligacy and blatant vote buying Howard was in permanent election mode. Abbott and Gillard are transparently following Howard with a total lack of courage in winding back far too generous tax breaks. and superannuation and negative gearing. And the formerly jovial Hockey is now just a snarling parody. We desperately need leadership as seen with Hawke and Keating.

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    1. Janeen Harris

      chef

      In reply to Alice Kelly

      Misdirected welfare and tax concessions are coming from parliament. When you look at how they behave, it's not surprising things are a mess. Negativity is the job of the opposition. It seems to be ingrained in political culture, and causes a lot of unnecessary conflict and wasted time and effort. I'd like to see a cultural shift . I'm also not happy at how much public time is spent playing petty party politics in parliament. It is after all, not in the public interest and in the personal interests of the members of political parties alone. They should remember who pays their salaries, the Australian public.

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    2. David Arthur

      resistance gnome

      In reply to Janeen Harris

      "Misdirected welfare and tax concessions are coming from parliament. "

      With due respect, I'd suggest that while parliament rubber-stamps these measures, they are generally concocted within the bowels of Cabinets.

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  9. John Clark

    Manager

    Lincoln quite nicely identifies the flaw in the article in attributing the appalling economic performance of the labor Government to the Coalition SIX YEARS ago.
    Does anyone really believe that if the Coalition had continued in office we would be in this now precarious position. We are facing the prospect of falling revenues, and rising spending. The incoming Government faces the traditional task of paying for the Labor profligacy, this time compounded by projected spending for the next decade. There is a feeling that at present, times are tough. We will look back wondering how we could have been so wrong.

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    1. David Arthur

      resistance gnome

      In reply to John Clark

      Does anyone really believe that if the Coalition had continued in office we would be in this now precarious position? No.

      We'd be a damn' sight worse off.

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  10. ian cheong

    logged in via email @acm.org

    It is a bit of a long bow to blame the performance of a government on its predecessor. Bottom line is that every government needs to be accountable for what happens under its rule. If a government is exposed to problems it believes have been left to it by a previous administration, then it should fix them immediately.

    Are governments so naive that they are unable to comprehend risk, uncertainty, and strategy? or do they think voters are so dumb they will be unable to comprehend such concepts…

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    1. David Arthur

      resistance gnome

      In reply to ian cheong

      "It is a bit of a long bow to blame the performance of a government on its predecessor. "

      Au contraire, it's not a long bow at all; if GWB's administration hadn't diverted resources from Afghanistan to Iraq, Afghanistan would have been sorted before 2008, leaving a relatively undamaged US military to focus on Saddam.

      Instead, Obama's had to try to clean up both messes - and Guantanamo Bay.

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  11. James Hill

    Industrial Designer

    Yes, dragging money out of the economy in a state suffering from recession won't help at all except to jack up interest rates on scarce cash held by the "Idle Rich".(an unfair class warfare insult? take it up with Adam Smith)
    This is obviously the policy of "interest rates are too low " Joe, your treasurer to be, who also seems to want the GFC.
    The polls do suggest national economic suicide come September.
    Too late to change?
    Embrace your doom, all the Poll Drongos, embrace your inevitable doom.

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  12. Ngoc Luan Ho Trieu

    logged in via Facebook

    Get it straight: (i) Not many economists could predict the GFC and its impact on the world economy, some economists issued warning notes but they were overlooked by gov and pollies in the economic buoyancy of the pre-GFC time; (ii) GFC led to the stimulus package which can be considered as panic spending which raised the budget deficits and the debt level post-GFC; and (iii) blames should be on pollies, gov and the economists advising them in the last 13 years.

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  13. Lee Emmett

    Guest House Manager

    John Howard and Peter Costello should have used those years of surpluses to improve national infrastructure. Instead it was frittered away in redistributing wealth towards those at the top end of the income scale (eg. lowering top tax rates, bucketing assets into superannuation). The result has been locking in the current 'structural deficit' situation.

    Labor, Greens and Independents have tried to rein in some of these middle-class welfare measures, as well as introducing more equitable policies…

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