tag:theconversation.com,2011:/uk/topics/federal-budget-2011-340/articlesFederal Budget 2011 – The Conversation2011-11-29T02:52:06Ztag:theconversation.com,2011:article/45002011-11-29T02:52:06Z2011-11-29T02:52:06ZSlimmed down surplus as Swan unveils mid-year budget: experts respond<figure><img src="https://images.theconversation.com/files/5982/original/swan2-jpg-1322533105.jpg?ixlib=rb-1.1.0&rect=68%2C40%2C1890%2C1259&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Treasurer Wayne Swan is maintaining a slimmed down surplus for 2012-2013 - but storm clouds are rolling over the global economy.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>The Federal Government is still aiming to deliver a slimmed down surplus next financial year, but has downgraded economic growth forecasts amid a slowing world economy and <a href="http://www.smh.com.au/world/european-recession-looming-oecd-20111128-1o38y.html">news</a> that Europe may already be in recession. </p>
<p>Announcing the government’s <a href="http://www.budget.gov.au/2011-12/content/myefo/html/01_part_1.htm">mid year economic and fiscal outlook</a>, Treasurer Wayne Swan said the 2012-2013 surplus would be $1.5 billion, down from $3.5 billion. This financial year’s deficit forecast has blown out to $37 billion, up from $22.6 billion. </p>
<p>To deliver the surplus, the government has unveiled a number of saving measures, increasing the public sector efficiency dividend by 2.5%, which could lead to up to 6000 public sector jobs. The Baby Bonus will also be cut, and funding to the higher education sector has been deferred. </p>
<p>Swan said Australia’s real GDP growth was now expected to be 3.25% in the current financial year, down 0.75% from initial budget projections in May. It is projected to be 3.25% in 2012-2013, down 0.5% from projections. </p>
<p>The cuts follows the release of the Organisation for Economic Co-operation and Development’s (OECD) twice-yearly global growth report <a href="http://www.businessweek.com/news/2011-11-28/oecd-reduces-growth-forecasts-blames-euro-doubts-economy.html">cutting global growth forecasts</a> and calling for European policy makers to deal effectively with its sovereign debt crisis. </p>
<p>Here’s what our leading academic experts make of it:</p>
<h2>John Vaz, Course Director-Master of Applied Finance, Department of Accounting and Finance, Monash University</h2>
<p>Let’s look at what is being proposed and the potential downsides from actions to “guarantee” a stimulus. As an old friend of mine in funds management used to say: if you want a guarantee, buy a washing machine. </p>
<p>Labor is acting like a bullied child with the insecurity to match. The austerity measures delivered by Treasurer Wayne Swan reek of political and personal interest – not national interest.</p>
<p>Fundamentally, Labor is dancing from the tune of the Opposition and the innate insecurity of Labor governments who want to be seen as good economic managers.</p>
<p>The record will show that in fact Labor governments (since Whitlam) have a good record of economic management and in fact have implemented major structural reforms – not to mention retirement savings reforms to prevent future fiscal problems. Put it in perspective, the forecast surplus is 0.1% of GDP.</p>
<p>The case to achieve a surplus in a pure economic sense cannot be made as the consequences of actions necessary to achieving a surplus are far more negative. The government cites a poor global position as the reason for taking this action when it is fact politically motivated.</p>
<p>If the global position weakens and China slows, thus impacting our economy, then the government may well be forced to execute a stimulus in a similar rush (to the last time when billions of dollars were wasted in short term quick projects) that will result in waste all over again. In fact, it could lead to a worsening of the budget position. </p>
<p>The proposed cuts, if they seek to make the public service more efficient, can be supported. If they seek to reduce unnecessary middle class welfare for those who dont need it, then that is also a good thing. But what cannot be supported is cuts to services that reduce employment particularly when services are relied upon in the economy more broadly. </p>
<p>The Opposition is doing its usual lathering about cutting the public service – a good no-brainer strategy that has bad no-brainer consequences. The Opposition will say the government is too soft and not cutting the public service enough. </p>
<p>Savings of $11.5 billion are proposed over four years will by and large come from taking money out of the economy that was put in to stimulate it. </p>
<p>Taking a cut to expenditure will create more uncertainty and mixed messages about the economy. How credible is it to say we can achieve a surplus of 0.1% while we are headed into potentially dangerous territory due to global economic conditions? </p>
<p>If things worsen globally (which the government says it is concerned about) then the government’s fiscal position will worsen. Having already made cuts, will need to think about stimulus. </p>
<p>The government’s own forecasts are contradictory to the reasons they have put forward for the cuts. “The weak and fragile economic position of the major advanced economies presents considerable risks to the domestic economic outlook.” </p>
<p>Yet they say we will have close to trend growth (in spite of the global ecnonomic concerns) and yet they are putting in place cuts that may weaken this. Are we over-reacting? The government’s own chart (below) shows how relatively better we are positioned in debt terms and why we need to maintain the economy at its current level of activity, rather than chase this surplus carrot set up by the opposition and reflect the governments political insecurity rather than pure economic motives.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/5985/original/budgetchart-png-1322537095.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/5985/original/budgetchart-png-1322537095.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=354&fit=crop&dpr=1 600w, https://images.theconversation.com/files/5985/original/budgetchart-png-1322537095.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=354&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/5985/original/budgetchart-png-1322537095.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=354&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/5985/original/budgetchart-png-1322537095.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=444&fit=crop&dpr=1 754w, https://images.theconversation.com/files/5985/original/budgetchart-png-1322537095.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=444&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/5985/original/budgetchart-png-1322537095.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=444&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source"> Mid-Year Economic and Fiscal Outlook</span></span>
</figcaption>
</figure>
<p>Just ask any retailer about the two speed economy if they think the economy needs to have spending cuts applied.</p>
<h2>Sinclair Davidson, Professor of Institutional Economics at RMIT</h2>
<p>While the government has cut expected tax revenue and also made some cuts to middle class welfare, I’m not convinced they have done enough to ensure a budget surplus in 2012-13. </p>
<p>Right now there is a wafer-thin projected surplus of $1.5 billion. I suspect come May next year the government will have to cut more spending. To be fair, they don’t have to announce all they have in mind right now, but we can be sure that they will be having to look for more savings in the coming months. </p>
<p>I suspect we will see a lot more cutting in the May budget next year. The Baby Bonus has been cut by $400 per baby, down to $5000 and also indexation will stop. Right now the indexation stops at three years, but I suspect that indexation will remain stopped. Bear in mind the government brought in a different scheme for paid maternity leave, so there is probably more room for cutting there.</p>
<p>What I found interesting is the 4% efficiency bonus on public servants (by increasing the efficiency dividend by 2.5%) which means 5000 - 6000 public service jobs will be cut. I suspect this is above the natural attrition rate, so they are talking about shrinking the public service. It remains to be seen where these cuts are going to occur; I think that’s quite a big change. Whether they have the stomach to pull it off, I don’t know. </p>
<p>Some of the funding promised to universities has been delayed into the future. They are going to keep the rewards for enrolling economics students, but everything else has been deferred into the future. That might cause a bit of pain in the university sector as everybody is already facing tough budgets next year.</p>
<p>I think the government has the right attitude; I don’t know whether they will actually deliver a surplus. We have to give Wayne Swan the credit for not giving into the temptation to put returning to surplus off for another year. </p>
<h2>Mike Rafferty, senior research analyst, Workplace Research Centre, University of Sydney </h2>
<p>Most economists know that a budget surplus or deficit for any one year is an accounting residual of no real economic importance. But as these things go, in order to prove his and Labor’s economic credentials Wayne Swan has elevated the achievement of a Budget surplus into a political campaign, and a major test of Labor’s economic management.</p>
<p>The trimmed down global growth forecasts mean revenues from income and corporate taxes will be down, and expenditure on things like unemployment benefits will go up. That makes the surplus target tougher to achieve.</p>
<p>The mid-year review has a few revenue measures, addressing tax concessions, and expenditure measures, addressing benefit levels and tests. It also signals some cuts in future public sector numbers, which raises issues about the government’s capacity to deliver services.</p>
<p>Appropriately enough, however, the mid-year review does most of its work by playing with the budgetary accounting conventions that produce the net position.</p>
<p>How is this done? Well the review brings some revenues into the current year making this year’s deficit bigger. It also pushes some expenditure back or forward a year. Net result is the very small surplus forecast of $1.5 billion for 2012/2013.</p>
<p>Should we be concerned at what looks like tricky behaviour to achieve next year’s surplus?</p>
<p>If the fiscal residual was meaningful, perhaps we could support the Opposition’s expected indignation at Labor’s creative accounting. But it simply isn’t that important, except that both parties have elevated it to such political prominence. Elevated or sunk to new levels of political populism?</p>
<p>The biggest problem is both political parties know that one year’s surplus or deficit is not a very good ways of assessing economic management. But both have dug such big holes in honour of the budget surplus that even the idea of stopping digging bigger ones is hard to accept. </p>
<p>If you want to know what the political parties really think about the Budget and this mid-year review, look for the politicians without the shovels.</p>
<h2>George Aryrous, Senior Lecturer, School of Social Sciences and International Studies, University of New South Wales:</h2>
<p>It is a political mini budget but with economic consequences, and that is the problem.</p>
<p>It is this obsession with a budget surplus at any cost despite the cycle of the economic situation that is the political element. It seems to be a measure of political credibility but pursuing that and depending on how it is achieved, can have dramatic economic consequences.</p>
<p>I would agree with the position [that we should be expanding the economy at this point]. Given the success the government had with that approach just before the global financial crisis I am surprised they are not thinking along the same lines now.</p>
<p>They had the foresight and the strength of political character back then to not pursue a surplus and to spend ahead of the downturn to prevent it happening and it was a success and I would have thought they would have learned the lesson and perhaps pursued the same strategy this time around.</p>
<p>There is always scope at any point in the economic cycle for intelligent budget policies that remove distortionary taxes or subsidies to people who don’t really need them (like the Baby Bonus) but ideally that would be to re-direct that revenue, especially at a critical point such as now when we are looking toward a downturn, into spending that will keep the economy afloat rather than just seeing it as a net saving.</p>
<p>[The surplus] is meaningless because some of the judgements are so arbitrary, the timestamp that is put on different forms of spending and revenue income, things that fall before or just after June 30. It is pretty arbitrary so the fact that is $1.3 billion surplus or deficit doesn’t really matter, it is the general thrust of overall fiscal policy that is important.</p>
<p>And if the general thrust is towards more austerity and contraction at this time of the economic cycle then I think that is bad medicine.</p>
<h2>Associate Professor Steve Keen, School of Economics and Finance, University of Western Sydney</h2>
<p>It’s madness to be talking about cutting the deficit right now when the only thing that got us through the crisis the first time around was the huge deficit spending that Rudd did. That was worth about a $40 billion stimulus, or close to 4% of GDP, plus the first home lenders boost, as I call it, which was a really bad idea but it actually injected $100 billion of additional borrowed money into the economy. And then, finally, China kicked in - its stimulus package meant that they got an enormous boost in their demand for our imports. It was all those three things together that got us through.</p>
<p>Now those things are gone. Thank God the home owners scheme is gone, and the housing bubble is going into reverse. The government’s stimulus has ended, and going from deficit to surplus is going to be a negative impact and China’s stimulus seems to have petered out and we’re now getting negative manufacturing figures from China. </p>
<p>So all those things mean there are negatives coming our way and the government’s intention to return to surplus is simply impossible in the current circumstances. It’s insane. With the economy petering out they are still living in this mythical world where cuts to government spending actually stimulate the economy – and that’s sheer nonsense. They’ll be forced by circumstances to go back to deficit again. It points out how inane the political conversation is in Canberra when they’re focusing on getting back to surplus as if the economy’s booming, when it’s not.</p>
<p>It’s neoclassical economics; the same people who didn’t see the crisis coming dominate the Treasury, they dominate the Reserve Bank of Australia, they dominate the political advisors to the both main parties and they simply don’t know what caused the crisis. </p>
<p>They think it was what’s called an exogenous shock; they think the shock is over and therefore it’s time to go back to surplus again. They have absolutely no understanding of what caused the crisis in the first place. </p>
<p>If they cut the spending out now, rather than having one part of society - the private sector - reducing its debt levels, they’ll have two sectors doing it and we’ll go into a deeper funk. That’s simply the wrong policy right now.</p><img src="https://counter.theconversation.com/content/4500/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sinclair Davidson is a professor in the School of Economics, Finance and Marketing at RMIT University and a senior fellow at the Institute of Public Affairs.</span></em></p><p class="fine-print"><em><span>George Argyrous, John Vaz, Michael Rafferty, and Steve Keen do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Federal Government is still aiming to deliver a slimmed down surplus next financial year, but has downgraded economic growth forecasts amid a slowing world economy and news that Europe may already…Sinclair Davidson, Professor of Institutional Economics, RMIT UniversityGeorge Argyrous, Senior Lecturer, UNSW SydneyJohn Vaz, Course Director Master of App. Finance, Monash UniversityMichael Rafferty, ARC Future Fellow 2012-2016, School of Business, University of SydneySteve Keen, Associate Professor, School of Economics and Finance, Western Sydney UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/34822011-09-21T04:52:33Z2011-09-21T04:52:33ZGolden Treasurer: is Wayne Swan really the world’s best?<figure><img src="https://images.theconversation.com/files/3772/original/swanitch.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Wayne Swan steered Australia through the GFC, but can he weather the tough times ahead?</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Spare a thought for Peter Costello. His successor as Federal Treasurer, Wayne Swan, has just been named <a href="http://www.euromoney.com/Article/2897778/Category/1/ChannelPage/0/Finance-minister-of-the-year-2011-Swan-confounds-his-domestic-sceptics.html">Finance Minister of the Year</a> by Euromoney magazine. </p>
<p>It is a bit like seeing the plodding nerd at school, busy doing next week’s homework, winning the dux award.</p>
<p>Some detractors will say it’s outrageous luck that Swan is the Treasurer of a resource-rich country situated in the booming Asia-Pacific. </p>
<p>Others will claim there was hardly a star-studded field. But one thing’s for sure – Peter Costello‘s bile ducts will be overflowing. </p>
<p>Costello was, recall, Australia’s longest-serving Treasurer. His greatest achievements were to steer the country clear of the 1997 Asian financial crisis, notch up a string of budget surpluses and serve up five successive years of personal tax cuts. </p>
<p>There is widespread conjecture that Costello feels aggrieved he never won more plaudits for his long reign. </p>
<p>When he was Treasurer, Costello would delight in teasing his opposite over his command of his brief and Swan’s inability to land a punch. </p>
<p>In the corridors of parliament, he was reportedly heard singing the old Al Jolson <a href="http://www.youtube.com/watch?v=VB5_FScm41Q">number</a>, “Swanee, how I love you, how I love you, my dear old Swanee”. Now Swan has the same bragging rights over the bumbling Joe Hockey.</p>
<p>Nonetheless, Swan is a hard-working treasurer, often appearing on breakfast television to bore us to tears about fiscal trajectories, productivity and what not. </p>
<p>His illustrious predecessor, Paul Keating, won the Euromoney gong in 1984 for his decision to float the Australian dollar and allowing foreign banks to compete here. </p>
<p>Keating wouldn’t have a bar of breakfast television – he’d rather listen to the strains of Mahler than banter with Mel and Kochie on Channel 7’s Sunrise. </p>
<p>But all the personality politics aside, Swan’s most significant achievement was to ensure that Australia avoided being sucked into the vortex of the global financial crisis. </p>
<p>The Labor government deserves the credit for Australia being only one of three OECD economies to avoid recession when the global financial crisis struck three years ago. But they have never cashed in properly on this achievement.</p>
<p>Swan personally deserves this honour for his diligence in craftily using the intellectual firepower of the Federal Treasury. </p>
<p>He followed former Treasury Secretary Ken Henry’s advice to “go early, go hard, go household”. It was clockwork Keynesianism.</p>
<p>Keating had always blamed Treasury for blindly stumbling into the 1990-91 recession and, so there was serious pressure to avoid a repeat. </p>
<p>For all this, though, Swan showed that he was not just a talking clock by refusing to prescribe expenditure cutbacks in his first budget because he suspected that the global economy was heading for tough times.</p>
<p>An interesting fact about Swan is that he likes to surf in his all-too-scarce leisure time. A good surfer, they say, always looks for the seventh wave for a good ride. </p>
<p>But there are always dark undercurrents at play. </p>
<p>While it was Australia greatest Treasurer, Ted Theodore, who gave Surfers Paradise its name, Treasurers and the surf do not really mix. </p>
<p>Fifty years ago, the beach-combing and fun-loving Harold Holt, as Treasurer, was shattered by the recessionary damage he inflicted upon the Australian economy. </p>
<p>While the award gives Swan a boost, the accolade does not, of course, promise invincibility to future economic challenges. </p>
<p>Just two years after his own anointment, Keating faced the embarrassment of the “banana republic crisis” in May 1986, when the newly floated Aussie dollar sank following a terms of trade collapse. </p>
<p>Keating did not help the dollar’s plight by warning that Australia was in danger of becoming a banana republic if it did not reduce its consumption of imports. Then there was the 1991 recession. </p>
<p>It now appears, if the <a href="http://www.adelaidenow.com.au/business/world-in-dangerous-phase-imf/story-e6fredj3-1226142486148">IMF forecasts</a> are right, that the same problem will be Swan’s next big wave to avoid.</p><img src="https://counter.theconversation.com/content/3482/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alex Millmow does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Spare a thought for Peter Costello. His successor as Federal Treasurer, Wayne Swan, has just been named Finance Minister of the Year by Euromoney magazine. It is a bit like seeing the plodding nerd at…Alex Millmow, Senior Lecturer in Economics, Federation University AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/13912011-05-22T20:43:10Z2011-05-22T20:43:10ZAustralia’s aid funding: does our performance match our promises?<figure><img src="https://images.theconversation.com/files/1207/original/Ausaid.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Australia's foreign aid commitment falls far short of the level promised in 1970.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>In the <a href="http://cache.treasury.gov.au/budget/2011-12/content/download/ms_ausaid.pdf">foreword</a> to the international development assistance component of this year’s Federal Budget, Foreign Minister Kevin Rudd gives cogent reasons for Australia’s position on foreign aid funding.</p>
<p>He reaffirms the government’s commitment to increase aid to 0.5% of our gross national income (GNI) by 2015, from 0.33% in 2010-11. </p>
<p>While the commitment to continue to increase Australia’s aid budget is commendable and welcome, a table at the back of the budget papers gives an important historical context to this commitment.</p>
<p>It allows us to answer the question: does our performance match our promises? </p>
<p>In the 2011-2012 financial year Australia’s ODA budget will be a total of $4.7 billion, 0.35% of GNI. </p>
<p>It has been climbing, rather fitfully but consistently for the past decade. However, it is instructive to put this into a longer historical context. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/1201/original/Aid_Budget_Dollars.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/1201/original/Aid_Budget_Dollars.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=458&fit=crop&dpr=1 600w, https://images.theconversation.com/files/1201/original/Aid_Budget_Dollars.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=458&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/1201/original/Aid_Budget_Dollars.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=458&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/1201/original/Aid_Budget_Dollars.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=575&fit=crop&dpr=1 754w, https://images.theconversation.com/files/1201/original/Aid_Budget_Dollars.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=575&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/1201/original/Aid_Budget_Dollars.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=575&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Figure 1: Growth in the Australian ODA budget in Current dollars and constant 2010-11 dollars.</span>
</figcaption>
</figure>
<p>Although the growth in dollar terms is real (Figure 1) the commitment to reach 0.5% of GNI by 2015 is not much more than getting back to the position the country was in 40 years ago, when the ODA budget was 0.45% of GNI (Figure 2). </p>
<p>The Australian aid budget declined as a proportion of GNI from the early 1970s and reached a nadir in 2000-01. </p>
<p>The climb back commenced in 2001-02, but the level is still considerably lower than it was in 1971-72. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/1202/original/Aid_Budget_of_GNI.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/1202/original/Aid_Budget_of_GNI.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=389&fit=crop&dpr=1 600w, https://images.theconversation.com/files/1202/original/Aid_Budget_of_GNI.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=389&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/1202/original/Aid_Budget_of_GNI.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=389&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/1202/original/Aid_Budget_of_GNI.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=489&fit=crop&dpr=1 754w, https://images.theconversation.com/files/1202/original/Aid_Budget_of_GNI.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=489&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/1202/original/Aid_Budget_of_GNI.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=489&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Figure 2: Australian ODA budget as a percentage of Gross National Income.</span>
</figcaption>
</figure>
<p>The substantial decline in aid funding as a percentage of GNI followed more or less immediately on the solemn agreement reached by donor nations, including Australia, and expressed in a UN General Assembly resolution in 1970 to increase aid to 0.7% of GNI:</p>
<p>“In recognition of the special importance of the role which can be fulfilled only by official development assistance, a major part of financial resource transfers to the developing countries should be provided in the form of official development assistance. </p>
<p>"Each economically advanced country will progressively increase its official development assistance to the developing countries and will exert its best efforts to reach a minimum net amount of 0.7 per cent of its gross national product at market prices by the middle of the decade.” </p>
<p>A commitment to get to 0.5% is no longer looking so heroic.</p>
<p>How does Australia fare in aid funding when compared to other developed nations? </p>
<p>At 0.33% of GNI, Australia is ranked 16th in 2009 among 23 OECD nations. Below Australia are New Zealand, Portugal, United States, Greece, Japan, Italy and South Korea. Portugal and Greece are relying on international support to stave off national bankruptcy, and the United States is dealing with massive financial problems. </p>
<p>At the top of this leagues table, and all well above the UN target of 0.7% of GNI, are Sweden, Norway, Luxembourg and Denmark. </p>
<p>In comparison with other OECD countries, we’re not looking too flash.</p>
<p>And yet the shadow treasurer, Joe Hockey, had to be pulled back into line with Opposition policy on development aid – a commitment to the 0.5% target – after saying in a post-budget interview: “If you want to really know what will rile Australian families, the foreign aid budget is increasing by $6 billion over the next four years.”</p>
<p>Kevin Rudd is right when he says that the global statistics on poverty “are unacceptable”, that reducing poverty “is also in our national security and national economic interest” and that “our aid is achieving results and saving lives”.</p>
<p>But it is also true that Australia, along with other developed countries, made a commitment 40 years ago to lift overseas development assistance to 0.7% of GNI.</p>
<p>Although we are heading in the right direction it will be a long time before we achieve what was promised in 1970.</p><img src="https://counter.theconversation.com/content/1391/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Harry Minas has received funding from AusAID, World Health Organization, World Vision Australia. The Centre for International Mental Health is a World Health Organization Collaborating Centre.</span></em></p>In the foreword to the international development assistance component of this year’s Federal Budget, Foreign Minister Kevin Rudd gives cogent reasons for Australia’s position on foreign aid funding. He…Harry Minas, Director, Centre for International Mental Health, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/12042011-05-11T20:59:55Z2011-05-11T20:59:55ZThe trouble with ‘taxeaters’ (aka middle-class welfare recipients)<figure><img src="https://images.theconversation.com/files/1029/original/Swan_lock_up.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Treasurer Wayne Swan supervises journalists examining his budget. His tax plans are a "fiscal illusion".</span> <span class="attribution"><span class="source">AAP/Andrew Taylor</span></span></figcaption></figure><p>Thinking about tax policy gives individuals the opportunity to devise their own “great society”. As economics laureate James Buchanan <a href="http://catalog.libertyfund.org/index.php?page=shop.product_details&product_id=972&flypage=flypage.tpl&pop=0&vmcchk=1&option=com_virtuemart&Itemid=1">explains</a> “Many economists, along with other social scientists and social philosophers, enjoy playing God, by which I mean laying out in detail their own private versions of the ‘good society’ without being required to suggest ways and means of implementing their precepts or even to defend the consistency of these precepts with democratic political processes.”</p>
<p>UCLA economist <a href="http://www.econ.ucla.edu/people/faculty/Demsetz.html">Harold Demsetz</a> warns of nirvana policy mistakes when playing God. People engaging in nirvana policies make three mistakes. </p>
<p>First is the belief the grass will be greener on the other side, second a belief in free lunches and third, people could be different. Anyone proposing policy that relies on any of these nirvana views will be disappointed. </p>
<p>Tax debates often revolve around people being different.
Can people be different? Probably not. </p>
<p>In tax debates there are all sorts of conflicting visions of humanity. Those who prefer lower levels of taxation are pilloried as being selfish, anti-social, greedy, and the like. While the beneficiaries of taxation are described as the poor, the disadvantaged, the disabled, and so on. </p>
<p>Libertarians have a wonderful term “taxeater” to describe the beneficiaries of taxation.</p>
<p>There is a lot of angst and discussion about the need to cut “middle-class welfare” and the failure of government (any government) to do so. <a href="http://www.deirdremccloskey.com/">Deirdre McCloskey </a>explains why this is so; the median voter has become a taxeater. </p>
<p>That isn’t what we normally imagine. Most people think that government exists to provide public goods and welfare to the poor and needy. Most government programs are designed to benefit the middle class; economists have formalised this idea as “Director’s law”.</p>
<p>McCloskey demonstrates this with a very simple example. She asks if one-quarter of the US government tax take went to poor Americans how much money would they receive. Some back of the envelope calculations show that each poor American would receive US$30,000 – for a family of four that would be $120,000. </p>
<p>In other words, there would be no poor people if government was really redistributing income to the poor.</p>
<p>Is there an equivalent Australian number? This coming financial year the federal government plans to raise $342 billion and spend $362 billion. Assuming the <a href="http://www.thesmithfamily.com.au/site/page.cfm">Smith Family</a> are correct and about 13 percent of Australians live in poverty, the McCloskey calculation for Australia is about $28,500 per person. </p>
<p>Putting that number into context, the federal government spends more than 25% of its budget on welfare. </p>
<p>The biggest beneficiary of taxation is government employees and the middle class – home of the median voter (and, dare I say it, university professors). </p>
<p>The tax churn that <a href="http://www.cis.org.au/research-scholars/cis-research-scholars/author/17-saunders-peter">Peter Saunders, of the Centre for Independent Studies</a>, so eloquently warned us about is no longer a bug in the tax system; it is a feature of our democracy. </p>
<p>Many voters believe they are getting a bargain from the government (and given the distortions in the tax system, they very often are getting a bargain). </p>
<p>Voters are victims of fiscal illusion - a set of strategies that the state adopts in the hope of altering voters’ fiscal consciousness. </p>
<p>In particular the state hopes to convince voters that the tax burden isn’t nearly as onerous as it is, while the benefits of public spending are greater than they are.</p>
<p>Those who complain about excessive middle-class welfare and the need to cut it out are quite right; it is wasteful and unnecessary. </p>
<p>But they seldom offer coherent strategies, beyond vague references to “leadership” and “the need for tough decisions”, to convince the middle class, and the median voter, that they need to pay more tax or use fewer government services.</p><img src="https://counter.theconversation.com/content/1204/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sinclair Davidson is a Senior Fellow at the Institute of Public Affairs.</span></em></p>Thinking about tax policy gives individuals the opportunity to devise their own “great society”. As economics laureate James Buchanan explains “Many economists, along with other social scientists and social…Sinclair Davidson, Professor of Institutional Economics, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/11992011-05-11T05:21:43Z2011-05-11T05:21:43ZA tale of two budgets – but only one will be heard today<figure><img src="https://images.theconversation.com/files/1031/original/aapone-20110213000298263319-coag_canberra-original.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The budget doesn't address all of COAG's key health priorities.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>The Federal Government has a strong tale to tell about the main health initiatives announced in last night’s <a href="http://www.budget.gov.au/">budget</a>. But there’s another, untold part of the story that belongs to the bigger narrative of health reform in Australia. </p>
<h2>The winners</h2>
<p>The long-term shortfall in funding for mental health services have well and truly reached public consciousness. Action was overdue and has now been taken. </p>
<p>Mental health initiatives take the form of $1.5 billion in new funding over five years. They cover expanded coordinated care for people with chronic mental illnesses; funding for additional psychological services and e-therapy; as well as accommodation support for people with acute mental illnesses and provisions for their re-entry into the workforce.</p>
<p>There’s to be a new <a href="http://www.budget.gov.au/2011-12/content/glossy/health/html/health_overview_11.htm">National Mental Health Commission</a>. This is in addition to new funding for mental health services for adolescents and young adults that <a href="http://www.patmcgorry.com.au/blog/pmcgorry/blueprint-mental-health-reform">some of the more vocal advocates had sought</a>. </p>
<p>As part of substantial new funding for regional Australia, there is $1.8 billion over five years for regional hospitals and other health services, such as oncology and MRI scans. </p>
<p>With the government’s dependence on the key regional Independents for support, it would have been a very courageous decision – in the words of Sir Humphrey of <em>Yes Minister</em> fame – not to have funded regional health services.</p>
<p>The future of the bowel cancer screening program also seems assured with refunding of the existing program. </p>
<h2>Not in first place</h2>
<p>There’s only modest new expenditure in key areas identified by the <a href="http://www.coag.gov.au/coag_meeting_outcomes/2011-02-13/index.cfm?CFID=214434&CFTOKEN=2016258833db486b-DD44236F-F523-7EC2-F40F803CB9ECE721">Council of Australian Governments (COAG) in February</a>.</p>
<p>These are aged care, indigenous health and dental services. Substantial <a href="http://www.pc.gov.au/projects/inquiry/aged-care">aged care expenditure awaits a Productivity Commission Report</a> while dental services will receive substantial funding but only in 2012-13 under an agreement with the Greens.</p>
<p>The rumoured means testing of the private health insurance rebate did not eventuate. It would have required another “courageous decision” although one unlikely to produce the dire consequences of overloading public hospitals that its vocal critics contended. </p>
<p>The <a href="https://theconversation.com/nhmrc-funding-cuts-to-create-lost-generation-of-scientists-736">rumoured cuts to health and medical research funding</a> also did not eventuate. Perhaps the <a href="https://theconversation.com/dont-get-carried-away-our-medical-research-funding-fight-isnt-over-885">well-organised pre-budget campaign by medical scientists</a> was successful here. </p>
<h2>What’s not being talked about</h2>
<p>There is another tale to tell that is unlikely to attract much attention today. It is whether, as we read this budget, we can form a view about the success of this Labor Government’s big picture reforms to the Australian health system. </p>
<p>At the February COAG meeting, Prime Minister Gillard reached an historic compromise with the states, particularly Western Australia, to modify an earlier agreement that ex-prime minister Kevin Rudd had fought for.</p>
<p>Embedded deep in the budget papers - so only a determined reader can discover it - is the outcome of the Rudd-Gillard governments’ policy push to reform the Australian health system since Labor’s election in 2007.</p>
<p>The determined reader can see that it has only made piecemeal progress.</p>
<p>Rudd’s approach had been to try to solve the major problems existing in state health services, particularly New South Wales and Queensland. </p>
<p>The Commonwealth was to assume complete funding for community health services as well as majority funding of public hospital services. It would then be able to make and implement strategic decisions across state health systems.</p>
<p>The intention was also to end cost shifting and, more generally, the overlap in roles of states and the Commonwealth as funders and service deliverers. </p>
<p>These problems have bedevilled sensible health planning in Australia for decades. </p>
<p>In any event, the expected outcomes of the touted changes are much more unlikely now that the Commonwealth has moved to only majority funding of community health services as well as only now equally sharing funding of hospital services with the states.</p>
<p>Important reforms will still go ahead, with the introduction of funding in public hospitals based on the the number of cases seen and their complexity in treatment; the establishment of Local Hospital Networks; quality and performance monitoring in hospitals; and Medicare Locals. </p>
<p>But whatever they achieve individually and collectively - and that achievement is considerable - the measures announced in the budget last night fail to add up to major reform of the health system.</p>
<p>That reform has been left to wait another day.</p><img src="https://counter.theconversation.com/content/1199/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Dunt receives funding from the NHMRC.</span></em></p>The Federal Government has a strong tale to tell about the main health initiatives announced in last night’s budget. But there’s another, untold part of the story that belongs to the bigger narrative of…David Dunt, Professor & Founding Director, Centre for Health Policy, Programs and Economics, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/12032011-05-11T00:55:13Z2011-05-11T00:55:13ZTax, women and the Henry Review<figure><img src="https://images.theconversation.com/files/1022/original/photo_4259_20071128.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Does the budget lessen or deepen the male-female divide?</span> </figcaption></figure><h2>The Budget: What does it have to do with tax reform?</h2>
<p>This year’s budget claims to “progress the government’s tax reform agenda, improving fairness and integrity in the tax system”. Does it? The short answer is no. </p>
<p>The budget contains no sweeping tax-rate changes, no major tax-transfer reforms, no abolition of fringe-benefits tax or work-related deductions or abolition of <a href="http://www.moneysmart.gov.au/glossary/n/negative-gearing">negative gearing</a>. Some of you may be breathing a sigh of relief at this point. </p>
<p>Indeed, it’s not clear what the government’s tax reform agenda actually is. </p>
<p>But it promises to “work methodically” through the <a href="http://www.taxreview.treasury.gov.au/Content/Content.aspx?doc=html/home.htm">Henry Tax Review</a> before the Tax Forum in October when the “broader Australian community” will have our say on tax reform. </p>
<p>In the meantime, here are a few of the more interesting tax measures – and omissions – in Treasurer Wayne Swan’s fourth budget.</p>
<h2>Closing a few tax loopholes</h2>
<p>The government has seized the opportunity to close a few loopholes and poorly-designed tax concessions, implementing a few Henry Tax Review recommendations. </p>
<p>One “fix”, which will enhance fairness, ends the ability of higher income families to pass $3,000 each year, free of income tax, to each child under the age of 18. </p>
<p>In 1981, John Howard as Treasurer introduced rules to tax discretionary trust distributions and investment income of minor children at the top marginal rate. </p>
<p>This ended the opportunity for wealthy families to reduce tax by splitting income with their children. But in the last decade, significant increases in the low-income tax offset, which children can access, have made this avenue increasingly attractive. </p>
<p>The government estimates that this will raise $740 million over the next three years.</p>
<p>Another welcome measure is the phasing out of the current <a href="https://theconversation.com/federal-budget-2011-honk-your-horn-the-fringe-benefits-tax-is-changing-1115">car fringe benefit tax concessions</a> for salary-sacrificed or employer-provided vehicles that are driven further, replacing them with a single flat rate of 20% of costs (regardless of the distance travelled). </p>
<p>This is one of the few “wins” for the environment in this budget and it’s expected to save nearly $1billion over the next three years. </p>
<p>The government will also abolish the <a href="http://www.ato.gov.au/businesses/content.aspx?doc=/content/00149627.htm">entrepreneur’s tax offset</a>. This complex and poorly targeted tax concession was introduced as a sop to the small business sector by the Howard government. The abolition is estimated to save $365million. </p>
<p>These two changes both improve the tax system, even if they have been replaced with a blatantly political, but fortunately temporary, $5,000 tax rebate for new vehicles – dubbed in some quarters by as “ute” concession for small business. The Greens have said they will push for this to be linked to energy-efficient vehicles.</p>
<p>University students will mourn the end of their short-lived ability to deduct education expenses against youth allowance, as the government legislates to overturn the <a href="http://minscl.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2010/010.htm&pageID=003&min=brs&Year=&DocType=0">Anstis decision</a>, won by student Symone and her dad <a href="http://www.theage.com.au/national/students-tax-claim-upheld-by-high-court-20101111-17o9s.html">before the High Court last year</a>.</p>
<p>Current students get a windfall, as the restriction commences next year. </p>
<p>This closes a potential hole in revenues, while the immediate reduction in the upfront discount for HECS fees from 20% to 10% will raise revenue and hit some students – but only those who could afford to pay fees upfront in the first place.</p>
<h2>What’s in it for women?</h2>
<p>Minister for the Status of Women, Kate Ellis, will present a <a href="http://www.equalityrightsalliance.org.au/event/women%E2%80%99s-budget-statement-briefing-2011-12">Women’s Budget Statement</a> on Thursday, May 12 at Parliament House. Overall, women seem likely to lose in the budget’s tax and welfare measures. </p>
<p>One reform, long overdue, will improve equity and may support the government’s workforce participation goal for women. </p>
<p>This is the phase-out of the tax offset for dependent spouses currently aged 40 or under from July 1, 2011. The offset of as much as $2,000 a year is an anachronism. </p>
<p>It is paid to a primary breadwinner by reducing his tax (yes, it’s usually a “him”), if the spouse earns less than $10,000 a year. </p>
<p>Dependent spouses with children are not affected because they are eligible for Family Tax Benefit B instead; nor are those who are carers, invalid or permanently unable to work.</p>
<p>The budget estimates a saving of $220 million a year (the offset costs a total of $500 million a year, according to the <a href="http://www.treasury.gov.au/contentitem.asp?NavId=022&ContentID=1950">2010 Tax Expenditures Statement</a>). </p>
<p>It would be unfair to remove the offset altogether for older dependent spouses – but why not convert it to a benefit paid directly to the dependent spouse herself? </p>
<p>Women caring for children also bear many of the welfare cuts in the budget. </p>
<p>They are negatively affected by the freezing of income thresholds and other restrictions on <a href="http://www.centrelink.gov.au/internet/internet.nsf/payments/ftb_a.htm">Family Tax Benefit A</a>, although lowering the child’s age from 24 to 21 seems appropriate. And it’s partly compensated by increasing the value of the benefit for teenagers. </p>
<p>This is expected to save more than $2billion in the next three years. </p>
<p>The Henry Tax Review acknowledged the disincentives in the tax-transfer system faced by mothers seeking to return to work. </p>
<p>Economist <a href="http://sydney.edu.au/law/about/staff/PatriciaApps/">Patricia Apps</a> of Sydney University shows that mothers working part-time or full-time on average or below average wages face high marginal tax rates and lose close to 30% of wages in withdrawal of family benefits and income tax. This is a heavier tax burden than for most high-income earners. </p>
<p>This budget does not reduce tax rates on mothers in the workforce, with two small exceptions. The decision to bring forward the low-income tax offset, estimated to cost $1.3billion this year, will help a bit. It covers six weeks of public transport commuting costs in Melbourne. </p>
<p>Low income sole parents, mostly women, will face a lower effective tax rate, as a result of a change in benefit structure. This reform is part of a welfare-to-work package that puts sole parents under increased obligations for meetings with bureaucrats and job searches. </p>
<p>Let’s hope that the <a href="http://www.familyassist.gov.au/">Family Assistance Office</a> will provide genuine support, not just more surveillance, to improve the prospects of young single mums. </p>
<p>Of course, women will benefit from the Gillard government’s crucial <a href="http://www.familyassist.gov.au/payments/family-assistance-payments/paid-parental-leave-scheme/">paid parental leave scheme</a>, which started in January and provides 18 weeks of support at $570 per week. But paid paternity leave for fathers has been deferred to 2013, saving the government $33 million over five years. </p>
<p>More seriously, women will suffer from recent government “savings” in targeting childcare benefit, effective from March. Childcare benefit now phases out at joint family income of $134,443 for a family with one child. This means that a couple earning two average full-time wages receives negligible childcare benefit. </p>
<p>This income test will disadvantage, and may discourage, many women from returning to work while paying for childcare. </p>
<h2>A new regime for charities</h2>
<p>Following consultations, the government has committed to provide $53.6million to establish a new Australian Charities and Not for Profits Commission. The decision to establish an independent federal regulator is a good one. But the government has gone further in announcing other tax measures for charities. </p>
<p>As <a href="http://www.abc.net.au/news/stories/2011/05/07/3210401.htm?section=justin">reported last week</a>, it proposes to tax profits of charities derived from unrelated commercial activities. A regime to do this exists in the US (where it generates complexity and significant tax planning) and there are some restrictions on commercial activity of charities in the UK. </p>
<p>It’s not clear what the scope of the reform will be. Assistant Treasurer Bill Shorten describes it as encouraging charities “to direct profits generated by unrelated commercial activities back to their charity’s altruistic purposes”, or tax is due on the profits. But this is already the law, as made clear by recent <a href="http://www.artslaw.com.au/articles/entry/high-court-gives-green-light-to-entrepreneurial-charities/">High Court authority</a>. </p>
<p>The bigger sting in this proposal is that charities will not be able to use GST and <a href="http://www.ato.gov.au/businesses/pathway.aspx?pc=001/003/027">Fringe Benefits Tax</a> concessions for their unrelated commercial activities. Sausage sizzles, and businesses related to the charitable purpose (including-not for-profit hospitals, “op shops” and social enterprises providing employment for disabled persons), are not affected.</p>
<p>The government has also announced it will enact a legislative definition of charity. Currently, the tax law relies on early English categories of charitable purpose which define it as the relief of poverty, the furtherance of religion, education and other purposes of “public benefit”. </p>
<p>A <a href="http://epress.anu.edu.au/agenda/011/04/11-4-A-1.pdf">previous attempt</a> to legislate a definition by the Howard government failed, primarily because of concerns that the government sought to restrict advocacy and law reform activity by charities in its proposed definition. </p>
<p>It’s not clear what this government’s view is on political advocacy by charities or, as it proposes to consult with States and Territories, when this measure will be enacted.</p>
<h2>And what about the budget process itself?</h2>
<p>It was part of the government’s political commitment to the Greens and Independents that it would examine the proposal for a Parliamentary Budget Office. Following <a href="http://www.openaustralia.org/senate/?id=2011-03-23.100.1">a recent Senate report</a>, the government has allocated $24 million to establish this office. </p>
<p>This follows the <a href="http://www.parliament.nsw.gov.au/prod/web/common.nsf/key/ParliamentaryBudgetOffice">innovation of the New South Wales Parliament</a>, which established a Parliamentary Budget Officer in 2010. </p>
<p>The primary role of a budget officer will be to cost policy proposals and provide advice on economic and fiscal matters to parliamentarians. Similar offices exist in Canada and the United States. The <a href="http://www.cbo.gov">US Congressional Budget Office</a> is influential, credible and well-resourced.</p>
<p>Our Parliamentary system is quite different, though closer in style to that of Canada. It may be that all we need to improve budgetary decisions is a more independent, better-resourced and braver federal bureaucracy. </p>
<p>But it’s worth trying a measure that could improve the capacity of parliamentarians to engage in the budget process. It remains to be seen what contribution the budget office will make to enhancing the quality and transparency of the budget.</p><img src="https://counter.theconversation.com/content/1203/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Miranda Stewart receives funding from ARC.</span></em></p>The Budget: What does it have to do with tax reform? This year’s budget claims to “progress the government’s tax reform agenda, improving fairness and integrity in the tax system”. Does it? The short answer…Miranda Stewart, Professor and Director of Tax Studies, Melbourne Law School, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/11402011-05-11T00:09:02Z2011-05-11T00:09:02ZJulia Gillard’s budget grand narrative: if you work hard you won’t be left behind<figure><img src="https://images.theconversation.com/files/1015/original/swan_gillard_pic.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Wayne Swan and Julia Gillard's budget focused on having Australia live "within its means."</span> <span class="attribution"><span class="source">AAP/Alan Porritt</span></span></figcaption></figure><p>When looking at the budget it’s useful to remember, in the cold light of day, that politics, at its most fundamental level, is about relationships of power. It is about conflict, both overt and covert, between individuals, groups and ideas. </p>
<p>As the document that sets out how the nation will spend and save its money, the budget lies at the heart of politics and representative government in Australia. </p>
<p>The budget is much more than economics. It is politics in action. Because resources are finite, there will inevitably be winners and losers from the budget. </p>
<p>It is a government’s responsibility to balance these competing interests and to use the budget to set its policy direction for the coming years. Have Julia Gillard and Wayne Swan been able to deliver on this task? </p>
<h2>Talking tough</h2>
<p>For weeks Wayne Swan has been talking “tough” on the budget. It needed to return to surplus, and this would inevitably require cuts. </p>
<p>The effects of the global financial crisis were still hanging over the economy, taxation revenue was down, and natural disasters had hit the country. Australians had to brace themselves for tough measures in what was a challenging time.</p>
<p>Preparing the population for the worst and reducing expectations is often an effective way to find acquiescence with policy decisions that might otherwise elicit negative reactions. </p>
<p>When the budget was finally released last night, the general reaction appeared to be “it’s not quite a tough as we thought”. The government found savings of about $1bn within its own coffers and restricted its spending increase to just 1% over the financial year, but the budget will not return to surplus until 2012-13. </p>
<p>While it may not have been as tough on spending cuts as some may have liked or anticipated, the budget was strong on narrative. </p>
<h2>Focus on jobs</h2>
<p>Employment was the main focus of the document, with the announcement of initiatives designed to get all Australians into paid work, to create additional training programs and increase skilled migration to address labour shortages in the economy. </p>
<p>Julia Gillard and Wayne Swan’s long term vision for the prosperity of the country was one in which all Australians participated in the workforce, where no hands were left idle, and everyone could share in the benefits of the boom. </p>
<p>The additional spending and investment in training and increasing workforce participation is a measure necessary to increase capacity in the economy. </p>
<h2>Off welfare and into work</h2>
<p>However, what has raised more concern are the associated tax incentives and cuts to welfare payments designed to get individuals back into work. </p>
<p>These cuts target the disabled and the long-term unemployed under the mantra “providing opportunity, demanding responsibility”, and include tax cuts for single parents, phasing out the dependent spouse tax offset, allowing welfare recipients to work more hours before payments are suspended, and updating the definition of incapacity. </p>
<p>To this end, welfare recipients – those typically on the lowest incomes and with little or no voice in the political system - appear to be the losers in the budget. </p>
<p>Middle-class welfare and defence spending have also taken hits. </p>
<h2>The winners</h2>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/1016/original/Oakeshott_pic.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/1016/original/Oakeshott_pic.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/1016/original/Oakeshott_pic.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/1016/original/Oakeshott_pic.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/1016/original/Oakeshott_pic.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/1016/original/Oakeshott_pic.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/1016/original/Oakeshott_pic.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Independent MP Rob Oakeshott was one of the budget winners. AAP/Alan Porritt.</span>
</figcaption>
</figure>
<p>In addition to the money spent on getting Australians into work, one of the big “winners” in this year’s budget was mental health. </p>
<p>The government pledged an additional investment of $1.5 billion of over 5 years. But the victory has not been swift: pressure groups, medical experts and politicians have lobbied the government for this investment for years.</p>
<p>Regional health has also received a boost, and money has been allocated to selected infrastructure projects such as improving the Pacific Highway in NSW. </p>
<p>Indeed, one of the winners from last night’s budget was Independent MP Rob Oakeshott, whose electorate of Lyne is set to directly benefit from the highway upgrade. Oakeshott claimed credit for the spending as a condition of his coalition negotiations with the Labor Party last year. </p>
<p>At the same time, the Greens have criticised the budget for neglecting public transport and investment in a green economy. </p>
<h2>An uncontroversial budget</h2>
<p>In all, the budget has caused relatively little controversy, due in part to the government’s careful narrative and rhetoric of long-term prosperity through increasing workforce participation. </p>
<p>Although it does not remove the fact that there will inevitably be winner and losers from any allocation of resources, pitching the budget in this way mitigates conflict between competing demands and groups in society as in this narrative everyone participates, contributes to, and ultimately shares wealth. </p>
<p>A key phrase from the speech aptly articulates this sentiment: “we believe in the Australian promise that if you work hard, you won’t be left behind”. However, it is not difficult to see how this vision could be problematic – what of those citizens who can’t work? Will the government leave them behind?</p>
<p>In some ways the government’s task in delivering the budget was made easier by the constraints placed upon it by prudent economic management. </p>
<p>At the beginning of his budget speech Wayne Swan clearly articulated the “rights” and the “wrongs” of responsible budgeting. He noted that a deficit was right in a recession, but when an economy is set to grow again, heading back into surplus was the right thing to do. </p>
<p>If politics and budgets are about contests over resources and ideas, the real winner last night was the overarching constraint that a “country needs to live within its means”.</p>
<p>A final way to manage conflict is to add a disclaimer to the document you are proposing. For Swan, this came by way of several references to the introduction of the government’s tax on carbon. Buried in the budget was also $8 million for a carbon tax advertising campaign. If this tax is implemented, the budget will need to be reconsidered. Nothing is ever really settled in politics.</p><img src="https://counter.theconversation.com/content/1140/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anika Gauja does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>When looking at the budget it’s useful to remember, in the cold light of day, that politics, at its most fundamental level, is about relationships of power. It is about conflict, both overt and covert…Anika Gauja, Lecturer, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/11112011-05-11T00:08:50Z2011-05-11T00:08:50ZMedical research funding has been saved: now we need to spend wisely<figure><img src="https://images.theconversation.com/files/884/original/aapone-20110414000312045382-medical_research_funding_rally_perth-original.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Successful: the threat of cuts led researchers to hold rallies in state capitals.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>The NHMRC budget <a href="http://www.nhmrc.gov.au/media/noticeboard/notice11/2011-12-budget-outcomes">escaped</a> the <a href="https://theconversation.com/nhmrc-funding-cuts-to-create-lost-generation-of-scientists-736">threatened $400 million cut</a> in last night’s Federal Government budget announcement. Instead, the 4% annual increase it has received in recent years will continue for another year.</p>
<p>The Government also announced a strategic review of federal funding for medical research. This provides the perfect juncture to reconsider the priorities of the research budget to ensure our health as well as our healthcare system remain viable.</p>
<h2>Current spending</h2>
<p>Australia spends over $100 billion on health care annually, which is about 9% of the Gross Domestic Product (GDP). The government is currently implementing major reforms across the healthcare system to make it more efficient.</p>
<p>It’s crucial that these reforms ensure better value for money, and establish a sustainable foundation for the future. </p>
<p>This means we need research into the health system and the effects of system-wide policies - what the World Health Organisation (WHO) calls the “brains of the health system.”</p>
<p>Medical research, it is often claimed, will not only deliver breakthroughs in treatment and cure, it will generate long-term savings for the health sector.</p>
<p>But, on the whole, new advances in medicine cost the country more, not less. According to a <a href="http://www.pc.gov.au/projects/study/medicaltechnology/docs/finalreport">recent Productivity Commission report</a>, “technological advances” have been responsible for over a third of recent increases in our health care spending. </p>
<p>This is more than twice the contribution of the ageing population to the burgeoning health budget. But that’s not to say that additional spending due to technology is not worth while. </p>
<p>Where technology has delivered improvements in survival and quality of life, there are real benefits, and benefits that most Australians are prepared to pay for. But they will not solve the underlying problems of the health care system.</p>
<p>Let’s look at how health research funds are currently spent. Last year, almost half of the NHMRC research budget - $700m of taxpayer money - was spent on basic science, with a further one third on clinical medicine. </p>
<p>A small amount, 14%, went to public/population health, and only 5% to health services research, which covers both research into service delivery and health systems research. </p>
<p>Yet, it is from health services and health systems research that the evidence for sensible health reforms will be produced. </p>
<h2>The coming reforms</h2>
<p>One of the key features of healthcare reform is the move to <a href="https://theconversation.com/fixing-the-hospital-postcode-lottery-is-a-matter-of-life-and-death-734">pay public hospitals on an activity basis</a>, in accordance with the severity of the cases they treat. </p>
<p>That means that case severity must be measured validly and robustly, otherwise hospitals taking on more severe cases will be financially penalised. </p>
<p>Australia has developed and applied a measure of hospital activity, known as case mix, but this is a classification of case types, not a sensitive adjustment for how severity and complexity affect the cost of care. </p>
<p>What medical research into risk adjustment has been funded? How will the implementation of activity-based funding reward hospitals for what they actually do, rather than their skill in selecting less complex cases?</p>
<p>The new Independent Hospital Pricing Authority will have to determine exactly how to pay hospitals on an activity basis. </p>
<p>In general, hospitals have high fixed costs and low marginal costs, that is, the additional cost of admitting one more patient is low. </p>
<p>If activity-based funding means paying average cost per case, then there are extremely strong incentives to admit low-cost additional patients, rather than having them treated in other settings, which might provide more cost-effective care. </p>
<p>What research is underway to investigate such incentives in the Australian setting?</p>
<p>Another key feature of the Gillard-Rudd reforms is the establishment of the National Health Performance Authority to provide the community with valid information on the performance of their health service providers. </p>
<p>There is increasing commitment around the world to making health services more accountable, more transparent. Yet, according to a recent World Health Organisation (WHO) review, almost nothing is known about the how to present this information to providers, funders and the general public so that is useful and actually used. </p>
<p>What research on this topic is supported by medical research funding in Australia?</p>
<p>Perhaps the most immediate impact of the reforms being implemented is the development of <a href="http://www.yourhealth.gov.au/internet/yourhealth/publishing.nsf/Content/factsheet-gp-01">Medicare Locals</a>, and the setting up of new Local Hospital Networks. </p>
<p>The rationale for this is that devolving autonomy to local clinicians will improve decision making. The key issue here is how local a local network ought to be, in order to be small enough to be connected to the community but large enough to provide a comprehensive range of services and have the high-level management and operational skills required to operate in such a complex environment. </p>
<p>What research and evaluation is under way as these reforms are implemented?</p>
<h2>Do we need another review?</h2>
<p>Since the 1960s, reviews of Australian health and medical research have called for a greater investment in health services and systems research to meet the coming challenges of a sustainable healthcare system. </p>
<p>In 2000, the <a href="http://www.health.gov.au/internet/main/publishing.nsf/Content/hmrsr.htm">Wills Review</a> recommended the establishment and funding of a number of substantial research centres in this field. </p>
<p>Following yet another <a href="http://www.nhmrc.gov.au/publications/synopses/pmf2003syn.htm">review</a> in 2004, the NHMRC made a commitment to increase its support of health services research and announced two new funding strategies - the development of partnership projects, and the development of partnership centres of excellence. </p>
<p>Partnership projects commenced in 2008, with a further 27 funded in 2010 accounting for 0.5% of total funding. To date, these projects have been mostly about clinical service delivery rather than the financing and organisation of health systems. </p>
<p><a href="http://www.nhmrc.gov.au/grants/apply/cre/index.htm">Centres of Research Excellence</a>, the flagship of the commitment, were reviewed again in 2007, subject to a round of consultation in 2009, promised in 2010, and promised again in 2011. Perhaps they may be considered again this year.</p>
<p>This at a time when Australia faces major challenges in transforming our health service delivery into a sustainable 21st century health system. </p>
<p>Let’s hope that now that the threat of research funding cuts has passed, the review of research funding announced last night will not just recommend but lead to serious investment in funding health systems research. </p>
<p>Let’s hope we can direct some funds into building the evidence for the breakthroughs required to treat, not just individual patients, but our health care system.</p><img src="https://counter.theconversation.com/content/1111/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jane Hall receives funding from ARC and NHMRC.</span></em></p>The NHMRC budget escaped the threatened $400 million cut in last night’s Federal Government budget announcement. Instead, the 4% annual increase it has received in recent years will continue for another…Jane Hall, Professor of Health Economics and Director, Centre for Health Economics Research and Evaluation, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/10482011-05-11T00:05:30Z2011-05-11T00:05:30ZFederal Budget 2011: Missed opportunities for a carbon-smart Australia<figure><img src="https://images.theconversation.com/files/1017/original/aapone-20100218000219108774-solar_power_file-original.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The government has walked away from some of its solar commitments.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Sadly, the major environmental policy announced in the Federal Budget yesterday was not an environmental policy at all but the change to the <a href="https://theconversation.com/federal-budget-2011-honk-your-horn-the-fringe-benefits-tax-is-changing-1115">Fringe Benefits Tax</a>. </p>
<p>The government announced changes to the car fringe benefits rule from the statutory formula method, under which the calculated fringe benefit decreases with greater distances travelled, to a single rate of 20% regardless of distance travelled. </p>
<p>In the past, this absurd policy has encouraged people to drive longer distances, and thus emit more pollution, to reduce the tax paid. </p>
<p>The measure has caused massive spikes in driving in the days before cut-off dates, needless long trips and in some cases aimless driving up and down highways just to reach certain thresholds. It is hard to imagine a more carbon-dumb policy. </p>
<p>Unfortunately, the main objective here and elsewhere in the budget is to reduce spending to support the equally absurd obsession with returning the budget to surplus. </p>
<h2>Missed opportunities</h2>
<p>Budget deficits and rising debt are beneficial if the investments made increase the capacity of the country to create wealth. But the government’s budget has failed to grab the significant opportunity to turn Australia into a world leader in renewable energy. </p>
<p>In contrast, spending on renewable energy and a carbon smart Australia has been reduced in a number of areas. The major “savings” include:</p>
<ul>
<li><p>halting the “Green Start” program, which aimed to deliver sustainability assessments for homes and help low-income households improve their energy efficiency (saves the government $210 million over three years) </p></li>
<li><p>the previously announced end to the green car innovation fund (saves the government $434 million dollars over five years, to be spent on disaster relief) </p></li>
<li><p>reducing or ending solar flagships and carbon capture and storage programs (again to support disaster and flood relief)</p></li>
<li><p>reducing funding to the national solar schools program ($156 million over four years).</p></li>
</ul>
<p>The government will no doubt justify these reductions by pointing to the future implementation of a carbon tax, the most “efficient” method to achieve a green economy and encourage renewable energy. </p>
<p>But the carbon tax is not policy so at this stage these reductions can only be seen as a disinvestment in a carbon-smart Australia. </p>
<h2>Carbon price won’t work on its own</h2>
<p>Regardless, any carbon price requires complementary measures to support the growth of renewable substitutes. </p>
<p>The “efficiency” of carbon pricing is premised on assumptions of perfect competition in the energy market, zero transaction costs, and perfect information.</p>
<p>Quite obviously, this does not exist. </p>
<p>Direct spending measures can be the most efficient method when there is no market in place, and when the situation to be addressed is dire, which the climate problems surely are (in contrast to the government deficit and debt). </p>
<p>The great ecological economist, Herman Daly, once laid down his principles for sustainability. They included investing the economic rents from the exploitation of fossil fuels into renewable substitutes. </p>
<p>This budget does not follow his thinking. </p>
<p>The excellent work done by <a href="https://theconversation.com/a-carbon-price-wont-bring-zero-emissions-23">Beyond Zero Emissions</a> is also neglected. </p>
<p>BZE has laid down a program to spend a mere $38 billion a year for ten years (around 10% of the budget revenue) to completely convert Australia to a renewable energy economy. </p>
<h2>Not all bad news</h2>
<p>Of course, some positives came out in the budget including:</p>
<ul>
<li><p>$20 million over four years to support greenhouse and energy reporting</p></li>
<li><p>$13.7 million to support the solar cities program</p></li>
<li><p>$84 million over four years to continue the environmental stewardship program which provides long term payments to land owners to protect high conservation areas</p></li>
<li><p>a national wildlife corridors plan to guide future conservation investment ($10 million over three years coming from existing funding under the Renewable Energy Future Fund). </p></li>
</ul>
<p>But these positives are dwarfed by the negatives and fail to arrest the feeling that a massive opportunity has been missed. </p>
<p>The changes to the budget also hide the existing and long-standing support provided by the government to the fossil fuel energy and mining industry through direct and indirect subsidies, and the implicit subsidies they receive from not having to pay for their pollution. </p>
<p>The impact of the government’s budget is, as always, not carbon smart. </p>
<p>Many newly introduced policies which would have shifted the balance, even if only slightly, have been removed. </p>
<p>They will be justified in terms of a future policy which is not policy yet, and which requires the kinds of complementary investments in renewable energy this budget has failed to deliver.</p><img src="https://counter.theconversation.com/content/1048/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Neil Perry does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Sadly, the major environmental policy announced in the Federal Budget yesterday was not an environmental policy at all but the change to the Fringe Benefits Tax. The government announced changes to the…Neil Perry, Research Lecturer, Western Sydney UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/8462011-05-11T00:05:20Z2011-05-11T00:05:20ZHow this budget put welfare to work<figure><img src="https://images.theconversation.com/files/1019/original/AAP_welfare_2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The government's targeting of welfare marks a significant policy shift.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Apart from the reassuring signals to financial markets about the deficit reduction, the longer term significance of this year’s budget is about restructuring the relationship between welfare and work, both in official policy and in the public’s mind.</p>
<p>Prime Minister Julia Gillard’s “Dignity of Work” speeches in the lead up to the budget marked a new bi-partisan attack on welfare “dependency” and brought an international movement to restructure welfare to full bloom in Australia. </p>
<p>There is now a lot of rhetorical heat between government and opposition. But on welfare, barely a cigarette paper divides them. Their moralistic rhetoric and plans for surveillance and discipline of the poor are almost indistinguishable. </p>
<p>Both sides have made it clear that they believe that the moral failure of having a baby out of wedlock, or in your teens, can only be redeemed by paid work. You will earn or learn, the hard way.</p>
<p>In his speech last night, Wayne Swan noted the paradox of a booming economy with people struggling to make ends meet. I was almost expecting a line about poverty amidst plenty, but of course, no one dare speak the words “poverty” or “inequality”. </p>
<p>The answer to all questions about prosperity for the working class – dare I use the term “class” in polite circles – is … more paid work.</p>
<p>“We believe in the Australian promise that if you work hard, you won’t be left behind. We believe our economy can’t afford to waste a single pair of capable hands,” Swan said.</p>
<p>“The economy cries out for workers, yet too many are left behind, unwilling or unskilled — and untouched by the dignity of work.”</p>
<p>It seems that according to Swan, work does not include caring labour or volunteer labour – only paid labour. </p>
<p>Anybody who knows anything about the modern world of paid work would be acutely aware that pay and conditions already require most households to have two incomes to get by. </p>
<p>There is also less security at work, and many conditions have been cashed out to fund cost of living rises. </p>
<p>Quite simply, as more and more workers are employed on precarious labour contracts, they are bearing an increasing amount of labour-market risk. </p>
<p>But there was not a word in the budget about improving pay and conditions at work – even that possibility is effectively being pre-empted by attempts to increase labour supply and threats of interest rate rises.</p>
<p>Despite the successful union campaign against the Howard government’s WorkChoices policy, Labor’s approach has only really succeeded in taking industrial relations off the front pages. </p>
<p>The government’s policies have only been marginally different in practice in from WorkChoices. Many industrial relations experts have dubbed the Labor Government’s Fair Work Act “WorkChoices-lite”.</p>
<p>A quick look at national statistics shows that the wage share of national income is at record lows and the profit share at record highs. Consequently, we see a widening gap between rich and poor. Widening inequality and persistent poverty are major features of our recent history.</p>
<p>Instead of a discussion about a fairer society, or of he role of the welfare state in redressing imbalances that come from class, gender and racial inequality, the Gillard Government now has a systematic and consistent approach.</p>
<p>First up, it avoids entirely questions of social and collective processes that produce inequality and poverty. </p>
<p>By focusing on the individuals who “depend” on welfare, the government identifies attributes that cause reliance on welfare – attributes it sees as moral failure.</p>
<p>What this shows is that policies around welfare and retirement are increasingly about widening and deepening the boundaries of the labour market. They are not programs to protect the poor, but are about ways to enforce the discipline of work on all people without adequate means.</p>
<p>In stressing work as the vehicle for participating in prosperity, the government is reinforcing what is now becoming a generation-long restructuring of the terms on which we as citizens share in the wealth this society creates. </p>
<p>Citizenship is becoming flattened to the right and obligation to engage in paid work. If in so doing, Prime Minster Gillard sounds more and more like Margaret Thatcher (who said there’s no such thing as society), Tony Blair (who was “tough on crime and tough on the causes of crime”), or George Bush (who proclaimed the “ownership society”) that should not come as a surprise. </p>
<p>Gillard and Swan are quite literally the heirs of this policy momentum. They are articulating a vision of society that is now unfolding in many other countries as well. </p>
<p>It is a vision that would like to be understood as about the dignity of work. But the true project is to redraw the social contract and inscribe paid labour as the condition for social citizenship. </p>
<p>Within this vision, the moral failure of the poor who fail to meet this test justifies their stigmatisation, their subordination to onerous supervision, and harsh conditionality. </p>
<p>But in so doing they are separated from moral, working citizens. We are asked to fear and even despise these poor creatures, and see the large gulf that divides us. But the policies are actually tying us all ever more tightly into the labour market.</p>
<p>The significance of last year’s budget was the announcement to extend retirement age to 67, with clear signals that won’t be the last such extension. </p>
<p>The significance of this budget is its attempt to redraw the map of the labour market into the sick, to teenage mothers and the long-term unemployed. So Wayne Swan’s phrase, “not a pair of capable hands to waste”, can now be remained as a war against those without paid work.</p>
<p>Defeating this pernicious restructuring of social citizenship will not come from exposing the clear links between Gillard and Abbott, or her international mentors. </p>
<p>It will come in part from showing how the state that disciplines labour rewards the rich. There may be dignity in labour, but the sanctity of property and profits is established as beyond question or even comment. </p>
<p>Challenging this momentum will also come from articulating how welfare and retirement policy is now having effects just as significant but far more divisive than the Howard government’s Work Choices legislation. It’s a challenge to overturn the institutions of power rather than just ‘empowering’ individuals. </p>
<p>Welcome to the new contours of work and welfare.</p><img src="https://counter.theconversation.com/content/846/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Rafferty does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Apart from the reassuring signals to financial markets about the deficit reduction, the longer term significance of this year’s budget is about restructuring the relationship between welfare and work…Michael Rafferty, ARC Future Fellow 2012-2016, School of Business, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/10652011-05-10T23:52:02Z2011-05-10T23:52:02ZBudget maintains a healthy weight<figure><img src="https://images.theconversation.com/files/1014/original/AAP_hospital.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Extra funds for mental health and regional hospitals balanced other budget cuts.</span> </figcaption></figure><p>We were chilled by the prospect of a radical weight-loss austerity budget, but it did not occur in <a href="http://www.budget.gov.au/2011-12/content/glossy/health/html/health_overview_02.htm">health</a>. </p>
<p>While liposuction was applied to several programs – hearing services and general practice-based psychiatric support sessions, for example – serious surgical enhancements (several billion dollars) for mental health and <a href="http://www.budget.gov.au/2011-12/content/glossy/health/html/health_overview_15.htm">rural hospitals and community health facilities</a> more than balanced these losses. </p>
<p>The emphasis in the budget on rural and regional development will carry implications for health as more health care facilities will be needed to support this growth. </p>
<p>The recent round of funding for capital development of rural and regional health settings through the <a href="http://www.health.gov.au/hhf">Health and Hospitals Fund</a> will assist in providing infrastructure. </p>
<p>But staffing remains a major problem and this is not easily solved with money alone.</p>
<p><a href="https://theconversation.com/gentlemens-rules-are-out-scientists-its-time-to-unleash-the-beast-729">Threatened cuts</a> of hundred of hundreds of millions of dollars from medical research were leaked weeks ahead of the budget, possibly as distracters, leading to a flurry of outrage from research workers. </p>
<p>Straw man or real, the cuts did not happen and research laboratories around the nation are celebrating.</p>
<p>The <a href="http://www.budget.gov.au/2011-12/content/glossy/health/html/health_overview_04.htm">mental health enhancement of $2.2 billion</a> spread over five years is remarkable in several respects. </p>
<p>First, it is a lot of money for a traditionally underfunded area that has been the cause of massive criticism of governments, state and federal, over decades. </p>
<p>Second, it takes seriously the context of people with mental illness who often struggle with social deprivation, poor housing and limited employment opportunities by funding social support as well as medical services. </p>
<p>Third, the new <a href="http://www.budget.gov.au/2011-12/content/glossy/health/html/health_overview_11.htm">National Mental Health Commission</a> is to be located in the office of the prime minister, recognising the importance of cross-portfolio action to improve the lot of those with mental illness. We are learning. </p>
<p>A similar cross-portfolio arrangement is proposed for the Indigenous “Close the Gap” program running at about $100 million a year for five years.</p>
<p>Teeth get a dusting in this budget with money for an advisory council and <a href="http://www.budget.gov.au/2011-12/content/glossy/health/html/health_overview_14.htm">dental internships</a>. But don’t expect many eruptions soon. </p>
<p>Consideration of <a href="http://www.yourhealth.gov.au/internet/yourhealth/publishing.nsf/Content/Improving+Oral+Health+and+Access+to+Dental+Care">dental care schemes</a> was part of the health reform agenda three years ago but when the billion dollar costs were calculated, political enthusiasm waned and we are back to the point where the federal government payments for dental care are nearly all laundered through private health insurance subsidy.</p>
<p>At least it seems that the payment for dental services to people with chronic illnesses has not been cut. Nor have pharmaceutical subsidies, although changes to subsidies for older drugs may be buried in fine print.</p>
<p>Like surveying what’s left in a department store after a Boxing Day sale, there remains an untidy pile of little surprises in the budget, both pleasant and nasty, that will slowly come to light. </p>
<p>But this is a budget that has done health quite well, especially mental health, given the commitment to austerity. Weight is steady.</p><img src="https://counter.theconversation.com/content/1065/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Leeder does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>We were chilled by the prospect of a radical weight-loss austerity budget, but it did not occur in health. While liposuction was applied to several programs – hearing services and general practice-based…Stephen Leeder, Professor, Menzies Centre for Health Policy, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/11332011-05-10T23:39:12Z2011-05-10T23:39:12ZThe federal budget’s too-hard basket<figure><img src="https://images.theconversation.com/files/1011/original/swantablesbudget.jpg?ixlib=rb-1.1.0&rect=483%2C203%2C3578%2C2427&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The government must broaden the resources tax in line with the Henry Review. </span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Last night’s federal budget is a good time to analyse the government’s take on the economy and its economic policy agenda.</p>
<p>In this budget, the Treasurer is cautiously upbeat about Australia’s medium term economic prospects. And so he should be. We are certainly headed for another economic boom, one which might last many years.</p>
<p>We are in the right place, near to Asia, at the right time, when across Asia and particularly in China and India, economic growth is bounding along. </p>
<p>This is a wonderful opportunity to cement in long term prosperity for Australia and its people. But it will take action and courage, only a small and inadequate bit of which we see in this year’s budget.</p>
<p>What is required? Our immediate source of wealth is in the minerals and energy sectors. Thus the wealth generated from these sectors should, in part, be available for the nation as a whole. </p>
<p>Sure, hard work and risks taken should be adequately rewarded to ensure that these sectors prosper and grow. But the rewards should be adequate, not excessive. </p>
<p>I live in Perth and when I walk along the Swan River, I see crowded pens full of very expensive boats, many with million dollar plus price tags.</p>
<p>It is not for me to question how people spend their money, but I do have the nagging feeling that this is not the best way for the nation to reap the benefits of booming minerals and energy projects.</p>
<p>First, before we deal with policy to reap these benefits, a very important point needs to be made about property rights in the minerals and energy sectors, because the sharing of the benefits of mining and energy developments depends critically on a clear understanding of who owns the resources mined and developed by these sectors.</p>
<p>Unambiguously, the minerals and energy resources in the ground are owned by the Australian people. </p>
<p>Thus the Australian people have the right to charge for these resources through the taxation system. </p>
<p>Government, on behalf of the Australian people, allocate exploration and production rights to the private sector in return for a resource tax or royalty payment.</p>
<p>But here lies a huge conundrum – who is it that acts on behalf of the Australian people? Is it the Federal government or the relevant State government? </p>
<p>This is a constitutional issue, but by dint of tradition ownership, and thus the right of taxation, is vested in the States. </p>
<p>Although there is a notable exception – parts of gas and oil, (offshore developments, but not including the North West shelf) are vested in the Commonwealth and since 1987 the Commonwealth has imposed and overseen the application of a resource rent tax in this sector.</p>
<p>Courage will require the Commonwealth to negotiate with the States the right to impose a sensible taxation scheme for minerals and energy.</p>
<p>What is required is for the nation to share in the huge profits being reaped by the minerals and energy sectors. </p>
<p>The government has already received good advice as to how this can be done. </p>
<p>The Secretary of the Treasury, Dr Ken Henry has overseen the preparation of a magnificent review of Australia’s taxation system.</p>
<p>In this report, the case is made for a resource rent tax that is both fair and efficient. </p>
<p>In what was a ham-fisted attempt to introduce such a tax, the government backed down in the face of enormous pressure from the vested interests involved, particularly the energy and mining sectors. </p>
<p>This displayed a complete lack of courage by the Gillard government. </p>
<p>The Minerals Resource Rent Tax (MMRT), otherwise known as the super profits tax, is the most efficient way of taxing mining and energy. </p>
<p>It was mostly invented by Australian economists and is a fiendishly clever way of ensuring that exploration and development is not taxed (and therefore impeded) while at the same time ensuring that supernormal profits are taxed in the national interest.</p>
<p>What are supernormal profits? They are the profits that are earned on resources above and beyond what is needed to ensure that production and development is unimpeded.</p>
<p>In the language of economists, this means that the tax is neutral in its effects on production and development.</p>
<p>The capacity of the government to reap such a tax only requires the courage to do so. </p>
<p>In the budget the Treasurer has outlined a very super-lite version of the tax, restricting its scope and watering down its content to allow very light taxation of a few minerals.</p>
<p>For example, gold which is currently trading at over $1500 dollars an ounce is omitted from the tax. This is a national scandal.</p>
<p>In next year’s budget, I hope that the government shows the necessary to courage to strengthen and broaden this tax in line with Dr Henry’s recommendations.</p><img src="https://counter.theconversation.com/content/1133/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Kenyon does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Last night’s federal budget is a good time to analyse the government’s take on the economy and its economic policy agenda. In this budget, the Treasurer is cautiously upbeat about Australia’s medium term…Peter Kenyon, Professor of Economic Policy, Graduate School of Business, Curtin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/11422011-05-10T23:36:32Z2011-05-10T23:36:32ZDid universities get their fair share?<figure><img src="https://images.theconversation.com/files/1012/original/buget_university.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Stronger higher education spending will help Australia become a 'clever country'.</span> </figcaption></figure><p>The Gillard Government has reiterated its commitment to education in this year’s budget, and universities in particular.</p>
<p>Universities with regional campuses were the biggest winners, receiving $110 million. </p>
<p>The budget offered some useful investments in strategic projects, such as the square kilometre array (SKA) telescope and a boost to the CSIRO. There were also some useful tax incentives for small to medium enterprises (SMEs).</p>
<p>The general response from many vice chancellors was positive, perhaps more out of relief that it did not contain any serious cuts in research funding as had been feared. </p>
<p>However, there remain questions as to how effective these measures are in moving Australia forward.</p>
<p>The budget comes down at a time when Australia’s economy is facing significant challenges.</p>
<p>Australia survived the global financial crisis fairly well. However, there should be no complacency. Australia must prepare for an inevitable slowdown in demand for our resources. </p>
<p>Investment in major gas or mining projects is expected to peak around 2014-2015. The longer term growth outlook remains uncertain.</p>
<p>Australia must shift from being a “lucky country” to a “clever country”. We need to be more reliant on our brains and skills than what is in the ground. </p>
<p>To achieve this will require significant and ongoing investment in Australia’s <a href="http://www.innovation.gov.au/Pages/default.aspx">National Innovation System</a> (NIS). </p>
<p>This must recognise that more value comes from intellectual property (IP) rights to patents and trademarks than land or bulk commodities.</p>
<p>In 2010, Minister for Innovation, Industry, Science and Research, Senator Kim Carr, released a report on Australia’s NIS. This noted that gross expenditure on research and development (R&D) had grown strongly in recent decades. </p>
<p>The number of firms engaged in innovation had also grown. Yet problems remained with collaboration and strategic networking amongst small firms, as well as shortages of labour skills. </p>
<p>Seven national priorities were proclaimed along with targets for the next decade. </p>
<p>These included increasing the number of world class research groups within our universities, boosting the number of doctoral graduates, as well as expanding he level of collaboration between universities businesses and government R&D centres. </p>
<p>Significant boosts to innovation and collaboration levels within business, particularly small businesses were also targeted.</p>
<p>Scientific research and applied R&D lie at the heart of the NIS. The level of investment into these areas is therefore a key measure. Australia invests just over 2% of GDP on R&D. </p>
<p>It has some 8.5 full-time scientific researchers employed per thousand employees. Another key measure of our innovation is Business Expenditure on R&D (BERD), which in Australia is around 1.2%. </p>
<p>At first these percentages may seem low. However, they compare well with most other OECD nations. Our output of scientific articles per million people, and the proportion of tertiary educated workers are also good by world standards.</p>
<p>Total investment into R&D at a national level is in excess of $15.8 billion. The government sector provides 44% of this. The Federal Government is the main provider.</p>
<p>Private sector spending accounts for 48%. The remainder comes from international sources and providers such as private donations.</p>
<p>This R&D funding is distributed to a variety of recipients. However, 54% is used by the business sector.</p>
<p>The universities receive about 27%. This makes the higher education sector a major player in the NIS. </p>
<p>Universities generate valuable IP from their research. They also form a key part of Australia’s third largest export industry worth over $15 billion per year.</p>
<p>Two major reviews of the Australian NIS were undertaken in 2007 and 2008. The first review was by the Productivity Commission, the second by industry consultant and CSIRO board member Terry Cutler.</p>
<p>These reviews concluded that the system did not require radical overhauling in relation to either its overall funding or how the funding was allocated. </p>
<p>The Productivity Commission concluded: “The existing system, by and large, provides good returns for Australians and has, adapted to meet new challenges”. </p>
<p>However, they did identify problems. First, with how innovation and IP transfer is diffused within the economy. Second, they found problems over attracting and retaining high quality researchers. </p>
<p>Other concerns were a need for better targeting of funds. This included the effectiveness and efficiency of the Cooperative Research Centres (CRC) program, and the R&D Tax Concession scheme.</p>
<p>The ERA system of ranking universities raises many concerns. There are doubts over its accuracy, transparency and usefulness. </p>
<p>The ERA has effectively announced that 70% of Australian universities are performing below world’s best practice in research. </p>
<p>Kim Carr has also indicated that the ERA will be used to guide future university funding. </p>
<p>There are questions that should be asked of the ERA. Will it be used to back a small number of winners? Or will it be a mechanism for building up the under-performing areas? </p>
<p>Australia’s university sector operates in a highly competitive global market. Academics face pressure to publish in top-ranked journals, teach larger class loads and commercialise their research. </p>
<p>More must also be done to provide better job security and career planning for researchers, particularly post-doctoral graduates and early career researchers. </p>
<p>Too often the “soft money” from research grants cannot guarantee work beyond a few years. This can result in an outflow of talent.</p>
<p>A strong NIS needs well-funded universities and a strong entrepreneurial business sector. Better linkages between universities and small firms must be found. </p>
<p>SMEs make up 99.9% of all Australia’s businesses and employ 65% of the workforce. Such firms can make a significant contribution to innovation, but need access to world class transport and communications infrastructure, financing for R&D and a skilled workforce.</p>
<p>The higher education spending outlined in this year’s budget signal some positive steps from the government, but it should be part of a broader commitment to ensure that Australian universities can foster a smarter Australia.</p><img src="https://counter.theconversation.com/content/1142/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tim Mazzarol receives funding from the Australian Research Council.</span></em></p>The Gillard Government has reiterated its commitment to education in this year’s budget, and universities in particular. Universities with regional campuses were the biggest winners, receiving $110 million…Tim Mazzarol, Winthrop Professor, Entrepreneurship, Innovation, Marketing and Strategy , The University of Western AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/12012011-05-10T10:39:31Z2011-05-10T10:39:31ZFederal budget: the experts comment<figure><img src="https://images.theconversation.com/files/1009/original/budget3.jpg?ixlib=rb-1.1.0&rect=236%2C236%2C4174%2C2571&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Treasurer Wayne Swan will now have to sell his federal budget. </span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Treasurer Wayne Swan has released his budget, with $22 billion in cuts and a <a href="http://www.budget.gov.au/2011-12/content/overview/html/overview_01.htm">return to surplus</a> by 2012 - 2013, initiatives to increase workforce participation, plans to boost infrastructure investment and spending on mental health.</p>
<p>Initial response from our experts:</p>
<h2>Saul Eslake, Grattan Institute:</h2>
<p>From a microeconomic perspective I thought it was quite good. There were some quality saving measures, representing permanent structural improvements to the bottom line and were also good policy. </p>
<p>These included tighter targeting of family benefit tax payments, the car fringe benefits measures, the phasing out of the dependent tax offset for spouses over 40 and the withdrawal of low income tax offset for children’s property incomes. </p>
<p>On the spending side, some of the measures for skills, infrastructure, incentives for greater participation in the workforce for the long term unemployed, were all good decisions. </p>
<p>There were a few dodgy ones: such as claiming slippage on the delivery of defence equipment contracts as a saving measure and pulling $2 billion out of contingency reserve and calling that a saving I think is a little dubious. But overall from a microeconomic point of view, I thought the budget looked pretty good.</p>
<p>From a macroeconomic perspective, there’s no way could you seriously call this a tough budget. </p>
<p>It has cut spending over four years by $17.3 billion, and used those savings to increase spending in other areas by $17.2 billon. </p>
<p>It has increased taxes or more strictly reduced tax expenditures by $4.9 billion and applied $1.7 billion towards reducing taxes or increasing tax expenditures, leaving a net $3.7 billion which has been used to increase the budget surpluses for 2013 and 2014 by an average of just $1.6B a year which represents 0.1% of GDP. </p>
<p>In that sense while it has rearranged the furniture in sensible ways it hasn’t reduced the amount of weight on the ship. </p>
<p>It has done nothing to reduce the prospect flagged by the Reserve Bank on Friday that rates will start to go up in the next few months.</p>
<h2>Professor John Quiggin, School of Economics, University of Queensland</h2>
<p>The government has stuck to the target of returning to surplus by 2012-2013. </p>
<p>That mostly reflects an assumption that the impact of the factors that have caused this year’s deficit will have faded by then. The cuts announced have not been as severe as expected and in that sense the government managed expectations well.</p>
<p>It’s mostly the kind of thing you do in a typical first term. There’s nothing really striking in the cuts. </p>
<p>They have tightened up on the <a href="http://www.budget.gov.au/2011-12/content/overview/html/overview_36.htm">fringe benefits tax</a> on cars while giving up a temporary give-away on the subsidies for small business car purchases. </p>
<p>In the long run that will lead to improvements.</p>
<p>They have tightened up on family tax payments, tightening the means test. </p>
<p>Over time, the so-called middle class welfare will be tightened and families on those incomes will find it increasingly difficult to access those benefits.</p>
<p>With regards to the welfare-to-work theme, the government has very much carried on the policies of the Howard government, which weren’t notably successful.</p>
<p>They have scrapped a number of initiatives on climate on the assumption that they will get the carbon tax through parliament. If they don’t, they wont have any policies at all on that issue.</p>
<h2>Julian Disney: Professor of Law, Director of the Social Justice Project, UNSW</h2>
<p>In the area of workforce participation and social security it is a fairly well crafted budget. It does have some significant improvements in the benefits that people will obtain from being able to find work.</p>
<p>The big problem is will they be able to find work? There can be tendency to assume that there’s been work around and that the incentives or the harassment were not sufficient to get people into work.</p>
<p>That isn’t the main problem, the main problem is the lack of appropriate work opportunities. That depends on the broader economy but if you assume there’s a reasonable amount of work opportunities around then the budget does improve the benefits for people and removes some of the obstacles that currently face them in trying to get into work.</p>
<p>The budget’s great weaknesses are at the top and at the bottom. At the top it is nothing like tough enough on upper class welfare through the tax system, concessions and breaks, nothing like tough enough on trusts and superannuation although there is some good low hanging fruit on tax rorts being narrowed.</p>
<h2>Ian Hickie Professor of Psychiatry, School of Medical Sciences Brain & Mind Research Institute, University of Sydney</h2>
<p>The <a href="http://www.budget.gov.au/2011-12/content/overview/html/overview_22.htm">mental health</a> part is very good and the reason it is good is not so much the size of the expenditure but the choices that they’ve made in health and in social services.</p>
<p>In health, the emphasis on early intervention, particularly primary care and early psychosis programs, and setting up a national commission to report on what will be happening in the future. There’s some other smaller ticket items in e-health in particular and in research which is also very important.</p>
<p>They’ve also made some really important investments across the social services sector in employment and housing, which is incredibly important in improving the lives of people with mental illness.</p>
<p>They’ve put money into having services delivered locally across a range of health and social services. </p>
<p>The amount of money is not enormous and is rolled out over five years instead of four, but obviously it is a tough budget environment. </p>
<p>But the choices they have made are fundamentally good choices and where we have gone wrong in the past is putting good money into poor programs.</p>
<h2>Professor Jill Blackmore, Director of the Centre for Educational Futures and Innovation, Deakin University</h2>
<p>As expected, they see the budget getting into surplus is the major task. I think that’s slightly unfortunate given our budget deficit is such a low percentage of our GDP relative to other countries.</p>
<p>What is good in terms of education is the <a href="http://www.budget.gov.au/2011-12/content/glossy/skills/html/skills_overview_13.htm">focus on training</a>. There hasn’t been decent investment in training for a decade and the focus here is significant and important.</p>
<p>The focus on getting everyone into work has been an excellent point and trying to encourage women and teen parents into work is positive as well, if the conditions that make that possible are there.</p>
<p>But without them doing something better about childcare, I think that is a pipe dream. It’s farcical to expect mothers to go back to work unless they do something about childcare and making it affordable.</p>
<p>The focus on regional development is good but they need to do something about infrastructure if they are serious about that.</p>
<p>As for <a href="http://www.budget.gov.au/2011-12/content/overview/html/overview_33.htm">paying the top teachers</a>, who decides what counts? It’s totally arbitrary. We need to invest in schools where there is disadvantage.</p>
<p>With regards to the <a href="http://www.budget.gov.au/2011-12/content/overview/html/overview_33.htm">chaplaincy</a>, I think chaplains are doing wonderful things but one has to ask the question what is the state doing funding religious education for one religion in particular.</p>
<h2>Adjunct Professor David Black, John Curtin Institute of Public Policy, Curtin University</h2>
<p>From what I understand, a lot of the new money for the <a href="http://www.budget.gov.au/2011-12/content/overview/html/overview_key_initiatives.htm">mental health care</a> is not available in the first year, which some groups will be concerned about. </p>
<p>But from the government’s point of view, to front load it now would make it difficult to balance to budget.</p>
<p>The welfare to work focus is matching what the Opposition would say. They are doing something that the Opposition can’t really attack them for. </p>
<p>There will be social groups who are very concerned about the impact. I would have thought if you want mothers to get back to work, there needs to be positive assistance to childcare.</p>
<p>The government has delivered the budget that it felt it needed to deliver.</p>
<p>The cost of living issue in West Australia is a big issue and there’s a political question as to how that’s handled by the states and by the federal government.</p>
<p>The budget is avoiding issues like the carbon tax and mining tax, which are still up in the air.</p>
<h2>Dr Ruth Phillips, Faculty of Education and Social Work, University of Sydney</h2>
<p>I think from a welfare perspective, they have proceeded with a punitive approach to certain groups of people like long term unemployed, sole parents and people on disability support pensions. </p>
<p>Particularly the <a href="http://www.budget.gov.au/2011-12/content/overview/html/overview_11.htm">disability support pensions</a>, that’s a new targeted area for saving. The devil is in the detail on how those people are affected if they are forced to take up work if they are deemed work-ready.</p>
<p>It’s not a terribly useful group to target. It’s a quite small saving and for people in the welfare sector they are the most disadvantaged and vulnerable. I am disappointed they are being targeted.</p>
<p>What we have found is that people most vulnerable to the punitive nature of the income support system now are people with multiple and complex problems. Often people with mental health problems are the ones who fail to meet the requirements for welfare.</p>
<p>It’s those people who find themselves in trouble and then lose their benefits and then can become homeless.</p>
<p>People with no support networks who are being pushed to work are the ones who are most at risk.</p>
<p>What’s different with what they are doing compared to Howard is at least this government has an emphasis on training and employment. </p>
<p>It’s good they are putting money into real jobs and subsidising real employer-based and industry-based opportunities rather than abstract training.</p>
<p>With the Family Tax Benefit A, even though they are extending it to teens from low income families they haven’t adjusted the indexing. </p>
<p>Based on the current sole parent pension and allowances for two parent families, they will still be just below the poverty line because the cost of living is rising without the benefit being indexed. </p>
<p>It concerns me they are not looking at that.</p>
<h2>Chris Doran, Professor Health Research and Economics, University of Queensland</h2>
<p>My initial reaction is that it is a bit of a non-event for health. The only winner for health is the mental health reform and this has been ongoing for some time.</p>
<p>There has been an injection of new money but not enough to reduce the burden of harm associated with mental health.</p>
<p>The other aspects are, in terms of investment, an injection of money into public hospitals which is well overdue and governments have dropped the ball on this over decades. They are playing catch up.</p>
<p>[The investment in regional health] is definitely required in the system but it is again well overdue. There has been an appalling lack of investment in rural services historically and this is a small step in a right direction.</p>
<p>It’s definitely not a magnificent budget for health.</p>
<h2>Professor Lesley Farrell, Faculty of Arts and Social Sciences, University of Technology, Sydney</h2>
<p>I think most of the education initiatives are in the workforce training area. That seems to be a significant policy direction and is likely to have more long term effects. </p>
<p>The government has been so strong in the past on the education revolution in relation to schooling, what with MySchool and NAPLAN tests. </p>
<p>With this budget, it seems that most of the money is going to vocational education and training rather than higher education or schooling.</p>
<p>In school education, there’s very little, unless it’s hiding in the budget papers somewhere.</p>
<p>There’s $20 million more for the chaplaincy program than for the disabled school students. </p>
<p>If I were looking to support young people in schools in relation to counselling and social interactions, I wouldn’t be going for chaplains. That doesn’t seem to be a carefully thought out way of doing it.</p>
<p>Paying some teachers that are high performing, when you don’t really know if they are high performing or how that is calculated, is divisive.</p>
<p>It’s an extremely rough measure of what is an expert teacher. What you really want is teachers who are so well trained and enthusiastic about teaching that they work together to produce the best outcomes for their kids.</p>
<p>You can’t rely on this idea of the heroic teacher. You need a collective approach. </p>
<p>To suggest there are teachers who could be much better if you only offered them $5000 is very patronising. You need a more systemic approach.</p>
<h2>Professor Bob Williamson, Secretary for Science Policy at the Australian Academy of Science</h2>
<p>The Academy is pleased that proposed funding cuts for medical and other research have not occurred, but far more could be done to secure a prosperous and technologically advanced future for Australia. </p>
<p>Scientific research is our nation’s guarantee that we can remain productive and economically secure. By protecting its existing investment in research, the Government has shown that it has vision for Australia’s future prosperity. </p>
<p>However, Australia has weathered the global financial crisis exceedingly well, and in this climate we had hoped the Government would support its key researchers with an increased commitment to domestic research and international collaboration.</p>
<p>Although most research funding has been maintained in the Federal Budget, key science agencies have lost ground, including Geoscience Australia, Collaborative Research Networks and Cooperative Research Centres.</p>
<p>The Academy has called on the Government to increase research funding to at least three per cent of GDP by 2020, in line with OECD best practice.</p>
<p>The Academy welcomed the Government’s previously announced investment in building scientific collaborations with China and India.</p>
<p>It is good that we are building these relationships but it is extremely disappointing that valuable programs with other long-term international partners in Japan and Europe are in jeopardy with the imminent demise of the Government’s International Science Linkages program.</p>
<p>The Academy welcomes the Budget commitment to adult education and remains hopeful that the Government will recognise the importance of building scientific literacy and numeracy by supporting school science and maths education.</p>
<p>Although not specifically mentioned in the Budget, we hope the Government continues to support the Academy’s two highly effective independently-assessed primary and high school science education programs. </p>
<p>The Academy is committed to these important programs and is willing to continue to seek alternative sources of funding for both Primary Connections and Science by Doing. <em>(Source: Australian Science Media Centre.)</em></p><img src="https://counter.theconversation.com/content/1201/count.gif" alt="The Conversation" width="1" height="1" />
Treasurer Wayne Swan has released his budget, with $22 billion in cuts and a return to surplus by 2012 - 2013, initiatives to increase workforce participation, plans to boost infrastructure investment…Helen Westerman, Business + Economy EditorLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/10922011-05-10T04:30:53Z2011-05-10T04:30:53ZReading Swan’s budget symbolism<figure><img src="https://images.theconversation.com/files/982/original/swanhands.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Federal Budget hoopla is largely a symbolic gesture.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Federal Budget night has become widely held as the most crucial event in Australia’s political calendar. </p>
<p>After all, any statement of how more than $300 billion is going to be raised and a similar amount spent in a year is an occasion to take notice. </p>
<p>New programs for raising revenue and for spending are announced, often amounting to billions of dollars over only a few years.</p>
<p>It may seem strange then to suggest that Wayne Swan’s speech tonight – as well as the policies and estimates it contains, and the rest of the hoopla – will be largely symbolic.</p>
<p>This is not just because any annual budget is like taking a picture of a car in motion, with most of the parameters and direction already determined by the momentum of what has come before it. Most of the money raised and spent in any budget is already locked in.</p>
<p>Nor is it because budgeting is itself an act of fiction – not fictional like a movie or novel, but fictional because it is a product of an abstract calculative vision. The absurd idea of focussing so much attention on a small (and utterly artificial) residual – deficit or surplus – is a direct reflection of that fiction.</p>
<p>What makes the budget a really important symbolic event is that it tells us a lot about how we are asked to think and talk politically, economically and even culturally. </p>
<p>Previous budgets have promised to bring home the bacon, meet the challenges of the future, build the nation, and make us one nation. (Notice the way these terms can also take on other political dimensions.) </p>
<p>They have changed the burden of taxation (to increase individual incentives), they have changed who benefits from spending (the Baby Bonus, private school subsidies).</p>
<p>But budgets also provide governments with a chance to ask the public to think like them. </p>
<p>Last year, underneath the heat of carbon and mining taxation, the government announced that it would phase in later retirement, effectively adding about an hour to our working week. </p>
<p>This, it was said, was about the opportunity for people to participate in paid work for longer and the need to protect the budget from too many grey nomads.</p>
<p>This year it appears that we have to pre-empt the possibility that tight labour markets may actually convert to better wages and conditions, or better health care and education. So policy is directed at increasing pressure on labour supply, and reducing budget outlays. And opportunity will also knock for the unemployed and sick. </p>
<p>We want them to have greater social inclusion, and they will be so included. So systems of supervision <a href="http://www.jstor.org/stable/1555082">pioneered</a> in the criminal justice system – such as parole officer-style case workers – will increasingly be deployed to monitor the idle poor. </p>
<p>We have already been softened up for this by statements from the Prime Minister and religious charities that now deliver much of what passes for employment services. </p>
<p>Prime Minister Gillard has used the <a href="http://www.heraldsun.com.au/news/more-news/gillards-speech-the-dignity-of-work/story-fn7x8me2-1226038739507">rhetoric</a> of the dignity of work, and the dangers of idleness. </p>
<p>This is not just a rhetorical appeal to what UK Prime Minister David Cameron has called the “sharp-elbowed middle class”. It is an appeal to the John Howard’s “battlers” – the potentially Hansonite small business-owners and subcontractors that Gillard wants on-side.</p>
<p>There is also a bi-partisan politics that is being articulated here. </p>
<p>Opposition leader Tony Abbott has been saying similar things about work for some time. He may feel rightly proud or a bit indignant that the government has stolen his politics.</p>
<p>The symbolism, though not the exact language, of this is not hard to find – in literature or political economy. </p>
<p>It is the sort of symbolism that animated fiction writers like Charles Dickens, who captured both the fundamental meanness and the hypocrisy of this sort of view.</p>
<p>It is the symbolism of the deserving and undeserving poor. </p>
<p>And here’s the rub: this symbolism has real effects, which no one who has read a shred of 19th-century fiction ought to pretend they don’t know about.</p><img src="https://counter.theconversation.com/content/1092/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Rafferty does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Federal Budget night has become widely held as the most crucial event in Australia’s political calendar. After all, any statement of how more than $300 billion is going to be raised and a similar amount…Michael Rafferty, ARC Future Fellow 2012-2016, School of Business, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/10152011-05-09T21:18:01Z2011-05-09T21:18:01ZWhy Wayne Swan is the envy of the world right now<figure><img src="https://images.theconversation.com/files/979/original/wayneswanimf.jpg?ixlib=rb-1.1.0&rect=136%2C40%2C2740%2C1895&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">What problems? Wayne Swan meets British Chancellor George Osborne and Belgium's Finance Minister Didier Reynders at April's IMF meeting.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Federal Treasurer Wayne Swan says he is set to deliver a <a href="http://news.smh.com.au/breaking-news-national/budget-savings-to-be-substantial-swan-20110509-1eem0.html">tough budget</a>. Julia Gillard remains committed to bringing government back to surplus by 2013. </p>
<p>Budget day is an appropriate moment to ask how the Australian economy compares to others in the English-speaking world – a large area which I will reduce to three: the UK, Ireland and the United States. </p>
<p>In almost every respect, Australia is doing well, in both absolute and relative terms. Barack Obama would rather have Julia Gillard’s economic woes than his own. He would also embrace her freedom of action, an observation to which I shall return. First, why would he prefer Gillard’s hand?</p>
<h2>Wealth consumed</h2>
<p>Consider these figures. The deficit – that is, the shortfall between what the US government spends and what it raises in revenue – currently stands at 9.4% of GDP, according to the 2011 figures from the <a href="https://spreadsheets3.google.com/spreadsheet/ccc?hl=en&key=t6lSi6TD6zY0rsC93GKvpFA&hl=en">OECD</a>. </p>
<p>By 2050, on current spending plans, 21.1% of America’s “wealth” will be consumed by the deficit. In previous years, <a href="http://www.cbpp.org/files/12-16-08bud-pr.pdf">estimates</a> of long term debt has suggested the money that has to be borrowed to make up the deficit will rise from 72.2% of GDP today to an estimated 279% (!) in 2050. </p>
<p>The logic of compound interest – as anyone with a credit card will or should know – means that the US will be paying nearly 14% of its GDP – its wealth – on servicing the debt (it is currently paying 2.4%).</p>
<p>In contrast, the Australian deficit stands at just 2.6% of GDP. The budget is predicted to be in surplus this year or next – Australia will spend less than it raises in revenue. </p>
<h2>Political fantasy</h2>
<p>An American surplus is increasingly the stuff of political fantasy. Ditto, Ireland and the UK. Australia is a positive economic paradise in comparison. The Celtic Tiger is now a protectorate of the European Central Bank. </p>
<p>I lived in Ireland when it was roaring and the Euro in vogue in the early 2000s. The contrast could not now be more different. It has a public debt of nearly 50% and a deficit (as a proportion of GDP) twelve times greater than that of Australia. </p>
<p>Ireland is again exporting its highly educated workforce – to Australia’s benefit. Wedded to a single European currency, Dublin is no longer able to set its own economic policy.</p>
<p>The United Kingdom, having escaped the Euro straitjacket, is still saddled with a public debt that dwarfs that which Wayne Swan has to handle (69.9 vs. 1.8). To all intents and purposes, from 1997 to 2010, the British Labour government created a client state.</p>
<p>In England’s north, Labour’s heartland, nearly a quarter of the workforce is employed in the public sector. This equates to a staggering 60% of economic output, according to the British consultancy firm, the Centre for Economics and Business Research. </p>
<p>This is a Soviet level of state dependency – a model that hardly secured lasting prosperity. </p>
<h2>Robust health</h2>
<p>In contrast, only 9% of Victorians work in the public sector (and 15% nationally). Okay, we know the mining boom is a key factor in Australia’s economic health but even without that accidental good fortune, the Australian economy is robust by comparison.</p>
<p>America’s problems are particularly acute because of its social spending. As Iwan Morgan argues in his sobering book, <a href="http://www.kansaspress.ku.edu/morage.html">The Age of Deficits </a>(2009), the US is facing a ‘fiscal tsunami’ of rising entitlement costs.</p>
<p>Defence spending consumes only 4.7% of GDP (a figure which will fall further after withdrawal from Afghanistan and Iraq). It is not the US military that is bankrupting US coffers but Social Security, Medicare and Medicaid.</p>
<p>These three largest entitlements consume 15.7% of GDP now but double that by 2050, according to the <a href="http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/hist15z5.xls">White House</a>.</p>
<p>On the basis of current spending commitments they will consume nearly all federal revenue by 2031. Thereafter spending would have to be funded by an unpalatable combination of borrowing (from sceptical Chinese lenders), cutting (discretionary programs, like welfare) and taxing. All are unappealing, the latter especially so. The American republic, we should recall, began as a tax revolt.</p>
<h2>Gillard’s choice</h2>
<p>The Gillard government, in contrast, is seeking to raise taxes (on carbon) not to save the Australia economy, but on the basis of choice. </p>
<p>Sure, she will encounter resistance. But her room for manoeuvre – even on a tax predicated on her reading of climate change science – is vast compared to Obama’s – predicated on the fiscal survival of the United States itself. The carbon tax is a reflection of just how healthy the Australian economy is.</p>
<p>Here the differences in the Australia and American economies become less about numbers and more about politics and culture. The US Constitution is constructed so that power is hard to secure and exercise. </p>
<p>Its framers feared poverty and inequality less than they did the concentration of federal power. Government was the greatest threat to liberty, they argued. Checking it was imperative. The size of the US government has, of course, grown since 1787. </p>
<p>But that extension of national power has not weakened an organic distrust of governmental interference which is sown into the fabric of American politics. It may be rational to attempt to balance the budget – Obama claims rationalism as his ideology – but this claim cannot trump the greater fear of the powers the government, not just his administration, will demand to effect it.</p>
<p>The Australian government does not have to endure this impediment. Here, there is a legitimacy to governmental action, indeed, an expectation of it. </p>
<p>The carbon tax, in an Australian context, is a technocratic debate over what works. The environment, healthcare, education – these are issues that every Australian political party contends can be managed better by their being in power. Voters pick the parties they think will deliver on such issues.</p>
<p>In the United States, such rational technocracy, even if in pursuit of fiscal survival, conflicts with a more deeply rooted mistrust of political power. </p>
<p>This is not to deny that Americans vote to be given things – not least their Social Security and Medicare cheques. But budgetary politics in the United States, as not in Australia, are about more than delivery. </p>
<p>They are framed in terms of first principles, of the appropriate relationship between citizen and state, of how far the people should be ruled by an elite. </p>
<p>In Australia, the carbon tax will produce much hot air. In the US, a tea tax created the nation itself.</p><img src="https://counter.theconversation.com/content/1015/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Timothy J. Lynch does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Federal Treasurer Wayne Swan says he is set to deliver a tough budget. Julia Gillard remains committed to bringing government back to surplus by 2013. Budget day is an appropriate moment to ask how the…Timothy J. Lynch, Associate Professor in Political Science, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/11532011-05-09T21:16:58Z2011-05-09T21:16:58ZCharity tax changes to help lawyers and accountants, but no-one else<figure><img src="https://images.theconversation.com/files/976/original/Edwin_Tang-ET_Flickr_Gloria_Jeans.jpg?ixlib=rb-1.1.0&rect=2%2C84%2C640%2C341&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Changes to the charity tax rules could impact on Gloria Jean's among other organisations.</span> <span class="attribution"><span class="source">Flickr/Edwin Tang ET</span></span></figcaption></figure><p>Tonight’s budget is expected to tighten a tax loophole for charities which run businesses unrelated to their charitable work. The government thinks it will increase revenue for Australia’s coffers. It won’t. It will simply line the pockets of lawyers and tax consultants.</p>
<p>The Hillsong church, which has links to the Gloria Jean’s coffee shop franchise, and the Seventh Day Adventist Church with its cereal company, Sanitarium, have been highlighted as possible organisations which would be caught by the new laws.</p>
<p>Ministers are acting after being lobbied by various sources, but in particular the Australian Tax Office. The idea is that the change will increase tax revenue, remove any uncompetitive advantage that charities with business links have, and changes will bring Australia in line with international practice. </p>
<p>But international experience suggests that taxing not-for-profit business income does not result in any increase in the tax take. Australia can’t expect to be any different. </p>
<h2>The US experience</h2>
<p>In the US in 1950 Congress enacted the <a href="http://www.irs.gov/irm/part7/irm_07-027-004.html">Unrelated Business Income Tax</a> (UBIT) which imposes a tax on the unrelated business activities carried on by not-for-profits. It denied exemption to “feeder organisations” operated for the primary purpose of carrying on a trade or business to pass profits to a not-for-profit. </p>
<p>Congress’ intention was to prevent exempt organisations from competing unfairly with for-profit firms and to protect the federal tax base. </p>
<p>So if any not-for-profit group makes money from an activity unrelated to the purpose for which it was granted the tax exemption, it is <a href="http://www.irs.gov/charities/charitable/article/0,,id=175418,00.html">required to pay taxes on that income</a>. </p>
<p>But near zero taxable income was reported by US not-for-profit organisations in the last ten financial years. </p>
<p>How can this be? There’s a widespread practice among not-for-profits to shift the expenses of mission-related activities to their commercial subsidiary’s books, not to mention a flurry of clever accounting practices, and much dancing on a pinhead about what constitutes a related purpose to the charity.</p>
<p>In particular, US universities have argued that for income to be taxable it must be earned in the process of a trade or business that is regularly carried on, a case that they argue does not apply to managing income from debt-financed investments. </p>
<p>The UBIT has, in effect, become a voluntary tax.</p>
<h2>The UK experience</h2>
<p>In Britain, there’s been an explosion in the number of charity shops in the last 20 years. They are profitable and a legal way to transfer money back to the parent charity.</p>
<p>Not-for-profits are using the <a href="http://www.hmrc.gov.uk/charities/gift_aid/index.htm">Gift Aid scheme</a> to significantly reduce their taxable income. It allows them to convert all the profits of their separate taxable subsidiaries to the not-for-profit parent. </p>
<p>So, as in Australia the tax system emphasises the destination of income rather than the source.</p>
<h2>What it means for Australia</h2>
<p>Not-for-profits have come to embrace the idea of participating in the market to maximise revenue. They have been involved in commercial businesses for a long time. </p>
<p>But if international experience is anything to go by, the proposed changes are unlikely to raise much revenue for the government. </p>
<p>Yet is likely to increase confusion among not-for-profits as they operate under a vague fear that commercial operations imperil their tax-exempt status. </p>
<p>The additional reporting to the ATO and not-for-profits’ need for advice from tax and legal consultants is likely to increase administrative and compliance costs.</p>
<p>This might well be a boon for the legal and tax consultancy industry but not the charity sector, or Australia’s bank balance.</p><img src="https://counter.theconversation.com/content/1153/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bronwen Dalton receives funding from the ARC.</span></em></p>Tonight’s budget is expected to tighten a tax loophole for charities which run businesses unrelated to their charitable work. The government thinks it will increase revenue for Australia’s coffers. It…Bronwen Dalton, Senior Lecturer, School of Management, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/11572011-05-09T21:15:22Z2011-05-09T21:15:22ZFour ways to get people back into work<figure><img src="https://images.theconversation.com/files/983/original/school.jpg?ixlib=rb-1.1.0&rect=125%2C96%2C3917%2C2582&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Invest early for the best employment outcomes.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Tonight’s budget will bring major policy announcements directed at improving labour market outcomes for unemployed persons and welfare recipients. </p>
<p>In her speech at the Sydney Institute on April 13, Julia Gillard gave as the rationale for policy reform that “our economy needs more workers”. </p>
<p>Low unemployment in Australia implies that there is both the opportunity and necessity to draw these extra workers from the ranks of the working age welfare recipients. </p>
<p>How should we go about getting more of those who are currently out of work into jobs? Experience with the Australian economy in recent years, and international evidence on programs for assisting the unemployed, provide a variety of lessons. </p>
<p>These lessons are the basis for general principles that should inform policy design; they can also be translated into specific proposals for what to do.</p>
<h2>1. Keep the macroeconomy strong</h2>
<p>The fundamental determinant of employment outcomes in the Australian economy – both for the average worker and for the person who spends time on welfare - will be the rate of growth in GDP. </p>
<p>So the best way to get the disadvantaged into work and keep them there is to maintain strong economic growth, and to avoid recessions. </p>
<p>The evolution of long-term unemployment in Australia makes this point. At the end of the last major recession in August 1993 there were 330,000 persons who had been unemployed for more than a year (making up 36.5% of the total unemployed). </p>
<p>Fast forward to August 2010 after the “long boom” of the 1990s and 2000s and there are now only 120,000 long-term unemployed (who account for just 20% of total unemployment).</p>
<p>As another example, the 1970s and 1980s saw large declines in labour force participation by older males; so that by the early 1990s low rates of participation were seen as a permanent feature of the Australian economy.</p>
<p>Yet with the “long boom” participation of older males aged 60 to 64 has rebounded from 46.6 per cent in August 1993 to be 61.6% by August 2010. </p>
<p>(Other factors also explain this rise – such as increasing education levels of older males, and older males synchronising their retirement with their spouses who are increasingly remaining in the labour force to older ages.)</p>
<h2>2. Be willing to spend big </h2>
<p>Julia Gillard may be right that some of those currently out of work and receiving welfare “can support themselves”. </p>
<p>But there are many more out of work because of long-term entrenched social problems and skill deficiencies. To remedy these problems often requires policy to address multiple dimensions – such as behavioural issues; an absence of stable housing; and lack of job skills. </p>
<p>And the intervention needs to be on a sufficient scale to deal with the severity of the problems. </p>
<p>An extra year of education in Australia raises average earnings of workers by 5% to 10%, but an increase in skills by this amount would only be a small part of the difference that would need to be made up by someone from a disadvantaged background. </p>
<p>So a large-scale policy solution – equal to the effect of several years of full-time education - is arguably needed to provide serious assistance to this group. </p>
<h2>3. Prevent later problems by investing early</h2>
<p>Overwhelming evidence exists that many of the barriers to employment faced by those who are out of work have their origins in the early years of childhood. </p>
<p>The likelihood of having a job depends to a great degree on a person’s levels of cognitive and non-cognitive skills. </p>
<p>The levels of these skills differ substantially between individuals by their socio-economic background. A very large part of this gap in skills is explained by differences that emerge before children reach the age of 5 or 6 years. </p>
<p>Differences in family background in children’s early years cause big differences in their early brain - and hence skill - development. Coming from a family where a parent has substance abuse problems or there is a history of violence for example results in significantly lower skills. </p>
<p>Early differences then become the basis for subsequent differences. Skill development in the later years of life follows a “building-block” model. </p>
<p>A child who falls behind in learning basic literacy skills in his or her early years will for example then find it more difficult to develop knowledge that requires reading texts. </p>
<p>Investing in programs to improve the skills of children from disadvantaged families is therefore the most profitable way for society to provide the access to opportunity of which Julia Gillard spoke. </p>
<p>The earlier society intervenes to remedy the gap in skill levels the cheaper it will be to close the gap. </p>
<p>And the earlier society intervenes, the greater is the future period over which the benefits of higher skills can be recouped (such as higher likelihood of employment, better health, and lower chance of contact with the criminal justice system).</p>
<p>Evaluations of programs in the United States to improve skills of children from disadvantaged backgrounds show that they can produce high benefit relative to cost. </p>
<p>Examples include the Abecedarian, Perry Preschool and Chicago CPC programs, all of which combine extra early education with home visits or parent education. </p>
<p>What must be remembered though is the word investment. Childhood interventions involve an up-front cost, and a return that occurs only in the years after this cost has been paid. </p>
<p>So there will be no headlines for the next election. But the long-term payoff is likely to be commensurately greater for a government willing to make this sacrifice.</p>
<h2>4. Fund globally, choose locally </h2>
<p>The track record of labour market programs intended to improve employment outcomes for those who are out of work is not a happy one. Government job creation schemes to provide work experience for the unemployed generally have little (and sometimes negative) effects. </p>
<p>The evidence on the effect of training programs is also mixed. </p>
<p>Some schemes, however, do seem to do better. Small-scale programs, targeted at the needs of local unemployed and employers, and where ideally an unemployed person obtains a formal certificate or qualification, are more regularly found to have positive effects.</p>
<p>This suggests a new approach to policy for choosing programs to improve labour market outcomes for those from disadvantaged backgrounds. </p>
<p>A body, independent from government, could be given funds that it would allocate to support these programs. </p>
<p>Funds would be tendered for by organisations (community or private sector) with proposals for improving employment outcomes for disadvantaged groups. </p>
<p>There would be a great deal of flexibility in the type of projects that would be funded – from early years interventions through to labour market programs to assist those currently unemployed. </p>
<p>Decisions on which proposals to support would be made using a benefit-cost method. Projects with the highest benefits to society relative to costs would be funded.</p>
<p>Allocating funds in this way would provide an organic process for identifying and developing programs to assist those from disadvantaged backgrounds. </p>
<p>Organisations with an understanding of how to improve outcomes in their local area and the capacity to implement their ideas could thereby obtain access to funds. </p>
<p>Making access to funds subject only to the quite broad objective of improving labour outcomes for those from disadvantaged backgrounds also increases the likelihood that programs can be tailored to meet the needs of that group. </p>
<p>And having a body independent from government (similar to the Australian Research Council) would remove the political dimension from decision-making on which proposals to fund.</p><img src="https://counter.theconversation.com/content/1157/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The author has undertaken research on effects of labour market programs for the Commonwealth Department of Family and Community Services. Viewsexpressed in this article are solely those of the author.</span></em></p>Tonight’s budget will bring major policy announcements directed at improving labour market outcomes for unemployed persons and welfare recipients. In her speech at the Sydney Institute on April 13, Julia…Jeff Borland, Professor of Economics , The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/11152011-05-09T04:09:40Z2011-05-09T04:09:40ZFederal Budget 2011: Honk your horn, the fringe benefits tax is changing<figure><img src="https://images.theconversation.com/files/957/original/DanielDionne.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Being paid to drive is becoming a thing of the past.</span> <span class="attribution"><span class="source">Daniel Dionne/flickr</span></span></figcaption></figure><p>After 25 years, one of the craziest taxation rules in Australia is about to be fixed. </p>
<p>The federal government is expected to announce a revamp of <a href="http://www.moneybuddy.com.au/car-loans/guide-fringe-benefits-tax.html">fringe benefits tax rules</a> for company cars in Tuesday’s Budget, which will remove a senseless and damaging incentive to drive.</p>
<p>This will benefit both the economy and the environment, but more is needed to support truly green salary packages.</p>
<h2>The mechanics of the FBT</h2>
<p>If your organisation provides you with a car as part of your salary package, you have to pay fringe benefits tax (FBT). </p>
<p>The amount you pay depends on the value of the car and how much of your driving is for private use, instead of business use. </p>
<p>The more you use the car for personal trips, the greater the benefit to you, and the more you get taxed.</p>
<p>At the moment, there are two ways to work out how much of your driving is private use: </p>
<p>1) You can keep a detailed logbook to track actual operating costs for the car and write down which trips are for work and which are not. </p>
<p>This gives an accurate estimate of private use but keeping the logbook is hard work.</p>
<p>2) To avoid tedious record keeping, the Fringe Benefits Tax Assessment Act offers a second, simpler way of working out your private use. </p>
<p>The taxable value of the car is assumed to be a percentage of its total value. The percentage depends on how many kilometres you drive during the financial year.</p>
<h2>So what’s the problem?</h2>
<p>The act assumes that the more you drive, the more you must be using your car for business.</p>
<p>If you drive less than 10,000 km in a year, you are taxed on 26% of the car’s value. </p>
<p>If you drive more than 10,000 km it drops to 20% of the car’s value, and then drops again to 11% at 25,000 km and 7% at 40,000 km.</p>
<h2>Driving a perverse agenda</h2>
<p>While this probably seemed like a reasonable assumption when the act was introduced in 1986, it has created a perverse incentive to drive more.</p>
<p>As the end of each financial year approaches, you can reduce your tax bill by driving your company car more. </p>
<p>If you clock up enough kilometres, you will slip into the next tax bracket and reduce what you have to pay. </p>
<p>In an era when reducing greenhouse gas emissions from driving is crucial, any incentive to drive more is bad policy.</p>
<p>Treasury estimates that the formula used in the act undervalues private use of company cars to such an extent that the federal government lost $1.1 billion in tax revenue during 2009-10. </p>
<p>The proposal expected in the budget is to base the FBT on 20% of the value of the car. </p>
<h2>The first pit-stop on the road to change </h2>
<p>Having a single rate will remove any financial incentive to drive more and will recover some of the $1.1 billion that is currently being lost. </p>
<p>It should also reduce greenhouse gas emissions because people won’t try to clock up extra kilometres at the end of the financial year. </p>
<p>While this is a move in the right direction, an even better measure would be to provide FBT exemptions for public transport tickets and bicycles. </p>
<p>Then companies would be able to offer these instead of company cars, paving the way for truly green salary packages.</p>
<p>The next step will be to encourage people to get out of their cars altogether.</p>
<p><em>What do you reckon? Are you glad to see these changes to the FBT? Leave your comments below.</em></p>
<p><strong>More on this topic:</strong></p>
<p><a href="https://theconversation.com/paid-to-drive-the-governments-split-personality-on-transport-emissions-692">Paid to drive: the government’s split personality on transport emissions</a></p>
<p><a href="https://theconversation.com/under-investment-in-public-transport-has-acf-got-it-right-1007">Under-investment in public transport: has ACF got it right?</a></p><img src="https://counter.theconversation.com/content/1115/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Chris Riedy received funding in 2007 from Greenpeace Australia-Pacific for a review of energy and transport subsidies in Australia, including the fringe benefits tax on company cars. His earlier work on energy and transport subsidies received funding support from the Australian Research Council and Australian Conservation Foundation.</span></em></p>After 25 years, one of the craziest taxation rules in Australia is about to be fixed. The federal government is expected to announce a revamp of fringe benefits tax rules for company cars in Tuesday’s…Chris Riedy, Associate Professor, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/11432011-05-08T21:03:52Z2011-05-08T21:03:52ZFederal Budget 2011: Do we need a budget surplus?<figure><img src="https://images.theconversation.com/files/953/original/juliagillard.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">PM Julia Gillard says there's only way the surplus should go.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>“The right thing to do with an economy that is moving towards full capacity and full strength is to deliver a budget surplus.” - <a href="http://www.smh.com.au/business/gillard-sticks-to-budget-surplus-plans-20110412-1dc0t.html#ixzz1L9lbCy2R">Prime Minister Julia Gillard</a></p>
<p>In collaboration with
<a href="http://www.abc.net.au/unleashed/1839552.html">The Drum</a>, The Conversation is taking a good hard look at one of the apparent sacred cows of our current economic times: the budget surplus.</p>
<p>Is our Prime Minister correct? Do we really have to have a surplus? Why? Or is this just one of those things politicians say because they sound vaguely responsible?</p>
<p>Here’s what four leading academics made of the PM’s surplus claim:</p>
<p><strong>Associate Professor Colin Rogers, School of Economics, University of Adelaide:</strong></p>
<p>“The structural budget balance is an estimate of the budget balance excluding the cyclical factors. While media attention is paid to the cyclical budget, it is the structural budget balance that signal changes in fiscal policy. Few in the financial and political media fully understand this concept, and few academic economists are able to explain it coherently to a general audience. All federal budgets have a built-in structure that increases the tax revenue intake during booms while simultaneously reducing government expenditure and transfers – and vice versa during a recession.” <a href="http://theconversation.com/its-the-structural-deficit-stupid-1084">Read full article</a></p>
<p><strong>Professor John Wanna, director of research in public administration, Australian National University</strong></p>
<p>“The surplus has become a sort of leitmotif of good government but it doesn’t need to be. We saw in 2008-09 governments were quite happy to run a deficit, and in those years they didn’t face a barrage of criticism because of the worries of business and the community generally around the global financial crisis.” <a href="https://theconversation.com/worshipping-the-debt-free-mantra-of-surplus-1093">Read full article.</a></p>
<p><strong>Tim Battin, Senior Lecturer, Faculty of Arts and Sciences, School of Humanities, University of New England</strong></p>
<p>“For the past three decades, a period termed the neoliberal era, Australia has suffered increasingly from what some economists and various commentators have called "deficit fetishism”, a disease manifesting itself in a stated belief that a deficit is (almost) always to be avoided, while a surplus is (almost) always to be preferred. Despite the valiant efforts of some authoritative people to kill off this idea, it lives on. While there is room for legitimate disagreement among economic and social policy commentators about the degree and nature of budgetary shifts needed at any one time to take account of changing circumstances, deficit fetishism is simply mindless.“ <a href="https://theconversation.com/why-wayne-and-julia-are-hooked-on-deficit-fetishism-1053">Read full article.</a></p>
<p><strong>Rhonda Sharp, Adjunct Professor, Education, Arts and Social Sciences, University of South Australia</strong></p>
<p>There will be serious implications for different groups of people in society if we pursue this road towards surplus. Part of this depends on whether we are going to promote the surplus budget through spending cuts or tax increases because you get two very different impacts depending on which route you go down. There are consequences around what type of spending cuts the government makes… In the case of the deficit reduction, which is the focus of this budget, we are in danger of reversing trends towards gender equality.” <a href="https://theconversation.com/how-the-surplus-drains-the-gender-balance-1100">Read full article.</a></p><img src="https://counter.theconversation.com/content/1143/count.gif" alt="The Conversation" width="1" height="1" />
“The right thing to do with an economy that is moving towards full capacity and full strength is to deliver a budget surplus.” - Prime Minister Julia Gillard In collaboration with The Drum, The Conversation…Helen Westerman, Business + Economy EditorLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/11002011-05-05T07:03:31Z2011-05-05T07:03:31ZHow the surplus drains the gender balance<figure><img src="https://images.theconversation.com/files/928/original/AAP_Centrelink.jpg?ixlib=rb-1.1.0&rect=95%2C296%2C3033%2C2179&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Women are most likely to depend Centrelink payments.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>FEDERAL BUDGET 2011: In recent decades, the budget surplus has become a goal in itself and an obsession for governments.</p>
<p>In the process, we have lost some perspective on what kind of social and economic outcomes that we want to have as a society. </p>
<p>This has serious implications for the development of gender equality in Australia.</p>
<p>Contrary to what is often assumed, we still have a long way to go towards achieving equality between men and women.</p>
<p>Australia has signed various international agreements, such as Convention on the Elimination of Discrimination against Women, as well as our own national policies that aim to promote gender equality. </p>
<p>But when it comes to budget time, issues around gender-equality seem to fall out of focus.</p>
<p>There will be serious implications for different groups of people in society if we pursue this road towards surplus.</p>
<p>Julia Gillard and Wayne Swan have signalled that next week’s budget will lower the deficit by cutting spending rather than increasing taxes.</p>
<p>There are consequences around what type of spending cuts the government makes. </p>
<p>If the cuts are drastic and ill-considered, then we are in danger of reversing trends towards gender equality.</p>
<p>This is partly because we’re not doing sufficient analysis of what the differing flow-on affects of spending cuts will be on men and women.</p>
<p>Australia was a pioneer in introducing an official gender-impact of the budget under the Hawke government in 1983. It became famous internationally.</p>
<p>Up until last year, we have always maintained some for of gender impact-assessment of the budget. But last year, for the first time and without justification, it was eliminated.</p>
<p>The United Nations recently reported that more than 90 countries around the world now have introduce measures to assess the gender impacts of their budgets. But the grandmother of them all - Australia - has ceased to do this.</p>
<p>Even developing countries, including Indonesia and and East-Timor, are developing gender-impact assessments of their budgets. </p>
<p>This was an Australian policy development, and it is now gone.</p>
<h2>Uneven impact</h2>
<p>If men and women held the same social and economic positions, then there wouldn’t be a debate about gender issues around the budget.</p>
<p>But we do occupy different postions, and if you introduce spending cuts then there will be differing impacts.</p>
<p>Expenditure cuts generally target the public sector, and the public sector is a very important employer of women. </p>
<p>It’s also an employer with particularly good working conditions for women, with good arrangements for parental leave and care leave.</p>
<p>Cutting public sector jobs is likely to disproportionately affect women, and consequently, worsen their social and economic status.</p>
<h2>Painful cuts</h2>
<p>Another issue is the fact that a larger proportion of women’s income is made up of government benefits and tax rebates. Women are more likely to depend on Centrelink payments.</p>
<p>So if you start to play with spending cuts and tax rebates, you are likely to have an unequal impact on women.</p>
<p>Women also tend to use public services more than men. They use them firstly to meet their own needs, such as health, because women are the ones who get pregnant and they tend to live longer. </p>
<p>But they are also more dependent on services because they have lower earnings and lower wealth.</p>
<p>Women also have more care responsibilities than men in society, so they’re accessing public services for care services for their children or other people they look after, such as the sick, disabled or elderly.</p>
<p>Clearly, women are men are likely to experience different impacts from budget cuts because of their differing levels of dependency on public services.</p>
<p>The sleeper issue here is transfer of cost to women for paying for basic services and taking up the greater burden of doing unpaid work.</p>
<p>Unpaid work has a significant economic value, but when we’re talking about the economy we don’t take it into account. We assume that it will always be there.</p>
<p>Increasingly, it’s more and more difficult for women to pick up those responsibilities. So if we beginning to see big cutbacks in government services, while women are also losing their jobs, then women share a bigger burden.</p>
<p>The cutbacks in mental health spending over many years, for example, has placed a larger burden on women to care for family members who are mentally ill.</p>
<p>In this budget, the government is planning to focus on increasing the number of people able to work by moving people with more disabilities and young single mothers into the workforce.</p>
<p>The motivation here is to keep labour costs down by high maintaining the amount of labor available to business. But if the enforcement of these policies is punitive, you end up putting these people in a bind.</p>
<p>The budget might consider removing policies and measures that benefit high-income people with the aim of addressing equality, but those groups tend to be more organised and have stronger political influence.</p>
<p>A ‘fair go’ in Australia has included a commitment to gender equality. In the absence of any analysis of the differential impact of spending cuts on men and women this commitment will be difficult to sustain. </p>
<p>Deficit reduction is as much a political strategy as an economic one. It will produce winners and losers and uncertain benefits for the economy as a whole. </p>
<p>If the current focus is maintained for the next two year then the odds are stacked against most women being amongst the winners.</p><img src="https://counter.theconversation.com/content/1100/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rhonda Sharp does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>FEDERAL BUDGET 2011: In recent decades, the budget surplus has become a goal in itself and an obsession for governments. In the process, we have lost some perspective on what kind of social and economic…Rhonda Sharp, Adjunct professor, Division of Education, Arts and Social Sciences, University of South AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/10532011-05-05T06:59:47Z2011-05-05T06:59:47ZWhy Wayne and Julia are hooked on ‘deficit fetishism’<figure><img src="https://images.theconversation.com/files/926/original/surplus.jpg?ixlib=rb-1.1.0&rect=261%2C145%2C3849%2C2563&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">"And then children, we returned the budget to surplus…"</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>If pre-budget statements by Julia Gillard and Wayne Swan are an accurate guide, this year’s Federal Budget is shaping up as marking a change in the direction of Commonwealth taxing and spending priorities for the foreseeable future. </p>
<p>It appears the government is preparing the public for a tighter rein on expenditure in order to move the budget from deficit, which many agree was necessary in the circumstances of the global economic crisis, to surplus. </p>
<p>The argument most usually relied upon is this: now that the effects of the crisis are behind us, we should move the budget back to surplus as quickly as possible. </p>
<p>Julia Gillard’s statement: “we have an economy that is strong … and the right thing to do with an economy that is moving towards full capacity and full strength is to deliver a budget surplus” needs to be looked at in context. </p>
<h2>A disease called deficit avoidance</h2>
<p>For the past three decades, a period termed the neoliberal era, Australia has suffered increasingly from what some economists and various commentators have called “deficit fetishism”, a disease manifesting itself in a stated belief that a deficit is (almost) always to be avoided, while a surplus is (almost) always to be preferred.</p>
<p>Despite the valiant efforts of some authoritative people to kill off this idea, it lives on. </p>
<p>While there is room for legitimate disagreement among economic and social policy commentators about the degree and nature of budgetary shifts needed at any one time to take account of changing circumstances, deficit fetishism is simply mindless.</p>
<p>But what about Gillard’s statement? It appears to avoid the extreme version of the fetishism described. A closer look at her statement is needed. One fundamental problem with her view is that if the economy is moving towards full capacity or full strength, it is doing so very slowly. </p>
<p>This will be most obvious to the unemployed, the underemployed, and, most acutely, to the long-term unemployed. </p>
<h2>“Derided by the ignorant”</h2>
<p>It is a shocking indictment of the neoliberal generation of politicians that we have come to see a rate of unemployment of 5% as somehow acceptable. </p>
<p>Yet there is so much more that can be done in our society. </p>
<p>From infrastructure provision to the improving of services, government is in a position to move the economy to actual full employment (and full capacity). </p>
<p>Deficits are nothing more than forward spending, and they can play a very useful role when the economy is in danger of a slump or in times of significant unemployment. </p>
<p>They only cease to be useful when an economy is at full employment and meeting its capacity constraints.</p>
<p>During the economic crisis of recent years, the figure of John Maynard Keynes, derided by the ignorant during the neoliberal period, was belatedly returned to the category of respectability. </p>
<p>After wheeling Keynes in to assist in the crisis, Wayne Swan seems keen to get rid of him as soon as he can. </p>
<h2>Consistently Keynesian</h2>
<p>Swan would no doubt protest by saying that he is only being consistently Keynesian: if we are Keynesian in the downturn (by being prepared to run deficits), Swan says, we must be Keynesian in the upturn (by speedily returning to surplus). But more context is again needed to get to an authentic Keynesian position.</p>
<p>Even if returning to budget balance or surplus was the appropriate policy objective, and we have already noted that there are circumstances in which this will be the case, cutting expenditure is not the only way to get there. </p>
<p>Indeed, an authentic Keynesian position is to increase taxes when an economy is in the position that Gillard and Swan claim ours is in. </p>
<p>Yet to increase taxes – arguably the right policy in the present circumstances – contradicts one of the central tenets of neoliberalism. </p>
<h2>Timid, and cornered</h2>
<p>Too timid to confront neoliberal ideas, the government has cornered itself — unless, perhaps, it is willing to reduce particular kinds of expenditures that overwhelmingly favour the well-off and wealthy. </p>
<p>Called ‘tax expenditures’, a massive one in every five government dollars is spent in the form of a favourable tax treatment of one kind or another. </p>
<p>This vast amount of money, now exceeding $100 billion, or even a section of it, could be used partly to improve the budget bottom line — if that is what excites you — at the same time as doing genuinely important things: providing the funds to improve our hospitals, schools, universities, dental health, research and development, addressing regional unemployment.</p><img src="https://counter.theconversation.com/content/1053/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tim Battin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>If pre-budget statements by Julia Gillard and Wayne Swan are an accurate guide, this year’s Federal Budget is shaping up as marking a change in the direction of Commonwealth taxing and spending priorities…Tim Battin, Senior Lecturer, Faculty of Arts and Sciences, School of Humanities, University of New EnglandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/10842011-05-05T06:57:34Z2011-05-05T06:57:34ZIt’s the structural deficit, stupid<figure><img src="https://images.theconversation.com/files/882/original/wayneswan2.jpg?ixlib=rb-1.1.0&rect=127%2C81%2C2019%2C1070&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">"It's cyclical, no wait…"</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>In order to understand why the government has committed itself to a budget surplus, we must distinguish what is known as the structural budget balance from the cyclical budget balance. </p>
<p>We also need to review the behaviour of the terms of trade since the mid-1990s because it played an important role in guiding policy makers’ expectations of Australia’s growth prospects after the global financial crisis.</p>
<p>The cyclical balance reflects the influence of the business cycle on government revenue and expenditure for an unchanged structural balance in the current period. This is the balance that Treasurer Wayne Swan will mostly refer to on budget night next week.</p>
<p>The structural budget balance is an estimate of the budget balance excluding the cyclical factors. </p>
<p>While media attention is paid to the cyclical budget, it is the structural budget balance that signal changes in fiscal policy.</p>
<p>Few in the financial and political media fully understand this concept, and few academic economists are able to explain it coherently to a general audience. </p>
<p>All federal budgets have a built-in structure that increases the tax revenue intake during booms while simultaneously reducing government expenditure and transfers – and vice versa during a recession. </p>
<p>The federal budget balance therefore moves automatically with the business cycle towards a surplus during a boom and towards a deficit during a recession. </p>
<p>Estimates of the structural budget balance attempt to wash-out these cyclical factors to identify any discretionary changes that the government has made to existing spending and taxation settings. </p>
<p>The Treasury recently provided an excellent technical <a href="http://www.treasury.gov.au/documents/1881/PDF/04_Structural_Budget_Balance.pdf">briefing</a> on how this is done. </p>
<p>The importance of this concept is that it reveals how governments change the budget settings to achieve longer-term macroeconomic policy objectives. </p>
<p>For example, faced with the global financial crisis G20 governments all agreed to engage in a coordinated fiscal stimulus. </p>
<p>In other words, they all agreed to change the setting of the structural budget balances towards deficits and away from surpluses. </p>
<p>In Australia’s case, the Rudd government moved early and aggressively as part of this initiative with a cash splash and followed up with the “pink batts” and school building programmes.</p>
<p>The impact of these on the structural budget balance was to move it from a small structural surplus to a structural deficit in the region of 5% of gross domestic product in 2009-10. </p>
<p>Therefore, Swan should now aim to return the budget back to structural surplus as the negative effects of the global financial crisis on the Australian economy wear off.</p>
<p>But to fully understand the reason for this, we need to look at Australia’s terms of trade and its behaviour over the last decade. </p>
<p>The terms of trade is defined as an index of our export prices over our import prices. Everyone should now be aware that Australia’s export prices have been booming over this period. </p>
<p>What is perhaps not so clear is how the behaviour of the terms of trade interacts with the structural budget balance to complicate the governments’ macroeconomic policy task. </p>
<p>Not only have Australia’s export commodity prices and terms of trade been at historically high levels, they have also been on a spectacular rollercoaster ride as a result of the global financial crisis. </p>
<p>The RBA index of commodity prices rose from 40 in 2000 to a peak of 120 in 2008 before falling to 80 in 2009 only to rebound rapidly to an even higher peak above 130 in 2011. </p>
<p>When Australia’s commodity prices and terms of trade fell so sharply in 2009 this had a potentially significant negative effect on Australia’s income and the Rudd government sought to counter this negative effect with the fiscal stimulus package that produced the structural budget deficit. </p>
<p>At the time, most forecasters of commodity prices were also projecting that the terms of trade index would remain at about the 100 level (the 2008-09 average) out to 2012, so the fiscal settings seemed appropriate. </p>
<p>The commodity price index instead bounced back to 120 by 2010 and rose above 130 in 2011, dragging the terms of trade with it.</p>
<p>From the perspective of the structural budget balance a structural deficit of 5 per cent of GDP was then no longer compatible with the terms of trade index in excess of 100. </p>
<p>The terms of trade at current levels means a significant income gain to Australia, even if the distribution is uneven, that acts a strong stimulus to aggregate demand. </p>
<p>Mr Swan is moving the federal budget to structural surplus because the need for the structural deficit and fiscal stimulus no longer exists. </p>
<p>To leave the fiscal settings at their current levels would run the risk of ‘overheating’ the economy and rising inflation in Australia. </p>
<p>This raises two additional issues. First, it now appears that the Rudd government’s fiscal stimulus in 2008-09 was too large because it was based on a too conservative, if understandable, view of commodity prices. </p>
<p>Second, it raises the fundamental and more awkward question of why there was any need for a structural deficit in 2009. </p>
<p>A doubling in Australia’s terms of trade between the mid 1990s and 2008 should have seen a significant structural surplus in place prior to the global financial crisis.</p>
<p>The Rudd fiscal stimulus may then have reduced the structural surplus but not generated a structural deficit of the size that now exists.</p><img src="https://counter.theconversation.com/content/1084/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Colin Rogers does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In order to understand why the government has committed itself to a budget surplus, we must distinguish what is known as the structural budget balance from the cyclical budget balance. We also need to…Colin Rogers, Associate Professor, School of Economics, University of AdelaideLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/10932011-05-05T06:57:29Z2011-05-05T06:57:29ZWorshipping the debt-free mantra of surplus<figure><img src="https://images.theconversation.com/files/879/original/wayneswan.jpg?ixlib=rb-1.1.0&rect=154%2C328%2C2580%2C2580&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">On a wing and a prayer for the budget?</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/879/original/wayneswan.jpg?ixlib=rb-1.1.0&rect=154%2C328%2C2580%2C2580&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/879/original/wayneswan.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=902&fit=crop&dpr=1 600w, https://images.theconversation.com/files/879/original/wayneswan.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=902&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/879/original/wayneswan.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=902&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/879/original/wayneswan.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1133&fit=crop&dpr=1 754w, https://images.theconversation.com/files/879/original/wayneswan.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1133&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/879/original/wayneswan.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1133&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">On a wing and a prayer for the budget?</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure>
<p>To understand the political uses of budget surpluses, we need to go back to the early 1980s when Australia and New Zealand governments self-imposed a fiscal straitjacket.</p>
<p>They decided that running a surplus constituted the principal evidence of sound financial management - that a government’s reputation as a good economic manager rested on delivering surpluses year after year. </p>
<p>At the same time in Australia we also asserted that debt was bad and that governments should aim to be net debt free. We went further than most countries along this spectrum in the early 1980s and late 1990s-2000s.</p>
<p>Having an annual surplus has become considered as a key indicator of good economic management that has been a norm in Australian politics for 30 years. </p>
<p>Budgeting for surplus is not as common at state level, with states often overspending (slightly) to meet their commitments. </p>
<p>But they also have a much more limited revenue base and are subject to Commonwealth largesse.</p>
<h2>It’s complicated</h2>
<p>But what is the real relationship between a surplus and good financial management? This is a very complicated question.</p>
<p>It’s not just a budgetary matter of how much you’re spending versus how much revenue is coming in. That is clearly one dimension. And to assist with budget management governments have in recent years attempted to hold expenditure down (plateau spending) with the exception of the stimulus packages associated with the global financial crisis.</p>
<p>In reality, the large deficits we have seen in recent times (over $50 billion or 15% of expenses per annum) were largely caused by sudden declines and volatility in revenues - declining well below previous levels (say in 2007) and well below budget estimates of revenue (for instance in 2008-09 when revenues were $22 billion down).</p>
<p>Revenues have recovered to some degree but are still some $45 billion down on former estimates.</p>
<h2>Fiscal balance </h2>
<p>The fiscal balance is not the only factor causing a surplus or deficit. We need to consider other important dimensions not necessarily associated with the annual budget numbers. </p>
<p>These include: What is the growth rate of the economy? What is the inflation rate? What is the level of investment and business confidence? What is occurring with consumer spending? What is the level of employment and unemployment? What is the level of social assistance and payment benefits going out into the economy? How much is pre-committed to ‘middle-class welfare’ through family payments and income maintenance, much of which is ‘tax-income churning’?</p>
<p>These are all other highly significant factors that will affect that simple fiscal balance. </p>
<p>So it’s not just a question of good financial management of the budget (expenditure and taxation) - that’s only one component, and often only know late in the budget process.</p>
<p>There are all these other macro economic and social components that will affect the outcome and for which the government is ultimately responsible for as well.</p>
<h2>Reducing the argument</h2>
<p>We often reduce economic management to arguments over the existence of a surplus or otherwise. </p>
<p>Having a surplus is now taken quite simplistically as a signal that a government has the other components of economic management in order. </p>
<p>It is taken as indicating there is a strong link between the strength of economy and the strength of the government’s fiscal position or strategies.</p>
<p>Frequently this then all boils down to one figure - do we have a fiscal surplus or a fiscal deficit?</p>
<p>So in today’s political context it is now almost inconceivable that a government isn’t planning to aim for a surplus. There is almost no political alternative.</p>
<p>Shadow Treasurer Joe Hockey this week claimed the Coalition, if it were in power, would be able to achieve surplus by the end of next year’s budget.</p>
<p>But to do that he would have to cut out another $25 billion from the expense side - so some big stakeholders such as the states, the public service or those on benefit programs would have to suffer substantial cuts. And if one group was exempted (say pensioners) then higher cuts would fall on the other sectors. </p>
<p>A government would have to take a really sharp razor to the public service or some of the government’s ongoing programs.</p>
<h2>Surplus as good government</h2>
<p>The surplus has become a sort of leit-motif of good government but it doesn’t need to be. We saw in 2008-09 governments were quite happy to run a deficit, and in those years they didn’t face a barrage of criticism because of the worries of business and the community generally around the global financial crisis.</p>
<p>We have gone from a position where we were carrying forward a massive deficit of $30 billion in 2008-09 (close to 10% of spending), to $53 billion in 2009-10 (or 15% of spending), and what looks like $50 billion now in 2010-11, up from an original $40 billion. </p>
<p>If you add these three substantial deficits together, it ends up being around 50% of the annual budget. </p>
<p>Treasurer Wayne Swan may have to admit on budget night this year’s deficit has increased, and that the deficit for the year ahead was going to be around $12b in 2011-12, but now is going to be $20b or even $30b this year. </p>
<p>This is admitting the hard incontrovertible evidence.</p>
<p>But in the present political environment he cannot really say he is not aiming to have the budget back into surplus by 2012-13. If he couldn’t promise a surplus in 2013, then Joe Hockey and Tony Abbott would lambast him.</p>
<p>That is the position we’ve got ourselves into with the fiscal strictures of this discourse about ‘surplus equals good’ - ‘deficit equals bad’. It’s almost like an Orwellian chant from Animal Farm.</p>
<h2>Kudos</h2>
<p>Labor in government often has trouble convincing the electorate it is a good economic manager. </p>
<p>Since Whitlam Labor governments have had to strive to prove that they are good and tough economic managers.</p>
<p>The reformist Hawke and Keating governments managed to do this from 1984-85 through to 1989. </p>
<p>They delivered a number of budget surpluses while at the same time they were also restructuring the economy. They felt they had to prove they were capable managers, they did prove it, and they got considerable kudos for doing it.</p>
<p>People tend to accept without much question that the Coalition will be more economically responsible. But if you look at the spending patterns of the Howard government from around 2002 onwards, there was a lot of revenue sloshed around by Costello and Howard for five or six years. </p>
<p>Revenues were growing exponentially and the government chose to increase spending accordingly, much of it used for expedient vote-buying purposes.</p>
<p>People are now saying (and some said at the time) that if some of the windfall money had been used productively rather than expanding middle-class welfare, expanding non-targeted benefits such as childcare for non-working carers, baby bonuses, then we wouldn’t be in such a bad fiscal position now.</p>
<h2>Surplus paranoia?</h2>
<p>There is also the Sovereign Wealth Fund argument that we should have been saving the surplus revenues and then be investing and earning money, rather than relying almost entirely on taxation for meeting government programs.</p>
<p>So is Wayne Swan just being paranoid about the need for a surplus?</p>
<p>I believe the Australian electorate wants government to balance the books in the immediate future. He’s right to aim for that. </p>
<p>The Coaltion would have a field day politically unless Labor committed itself to a subsequent surplus, and then delivered.</p>
<p>In holding onto the promise to bring about a surplus budget, Labor is being realistic and hard-nosed about electoral expectations and about the political situation of hyper-adversarialism they are now in.</p>
<p>But one consequence will be that there will not be much new money to commit to the things they want to do on their policy agenda.</p>
<h2>Myth-making</h2>
<p>The Commonwealth facing a very difficult position because many claimants are seeking and expecting increased funding. </p>
<p>The states, welfare beneficiaries, aged pensioners, public service departments and program providers all think they are deserving cases for some mythical largesse - which makes this a difficult budget to construct.</p>
<p>How much new funds will really be spent on mental health or reducing health waiting lists? It might be nowhere near enough. How much can be saved by pushing welfare to work? How much can be squeezed from middle to upper income earners before there is a tax revolt and electoral consequences. </p>
<p>States are currently suffering because the GST has declined, and they will be seeking some recompense from the federal government. </p>
<p>But GST funding has little to do with the deficit-surplus argument. The GST come in and goes out to the states.</p>
<p>Less GST is not due to federal tightening, but due to people tightening their own consumer spending.</p>
<p>Presently the federal government is talking about ‘fiscal consolidation’ - meaning forcing the budget to balance at all costs. </p>
<p>They are trying to squeeze as much revenue as they can by ‘skimming’ any low hanging revenues or hunting for soft targets - such as closing some tax loop holes, more means-testing, perpahs capping the private health insurance rebate, lifting HECS repayment levels etc. </p>
<p>These are all ways of ‘nickeling and diming’ the potential revenues to try to drive increased revenue out of the system without making any substantial tax changes or shifting tax rates for business or individuals. It’s laregly all smoke and mirrors in the tax system. </p>
<p>Meanwhile the government are trying to reduce expenses by around 2% of GDP, so expect some ‘savings measures’ (cuts) to be thrown in for good measure in this budget. </p>
<p>Only by upping the tax take by 2% GDP and holding down spending by 2% of GDP will the government be able to produce the magic pudding of the surplus by 2013.</p><img src="https://counter.theconversation.com/content/1093/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Wanna receives funding from University, Commonwealth foundation, and previously from ARC</span></em></p>To understand the political uses of budget surpluses, we need to go back to the early 1980s when Australia and New Zealand governments self-imposed a fiscal straitjacket. They decided that running a surplus…John Wanna, Sir John Bunting Chair of Public Administration , Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/9142011-04-20T20:58:20Z2011-04-20T20:58:20ZIs a sovereign wealth fund a good idea?<figure><img src="https://images.theconversation.com/files/612/original/economy3.jpg?ixlib=rb-1.1.0&rect=32%2C70%2C2261%2C1363&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Stretch it out: calls for a Sovereign Wealth Fund are intensifying.</span> </figcaption></figure><p>Calls to establish an Australian Sovereign Wealth Fund have intensified with the world’s biggest bond managers, Pacific Investment Management Co (Pimco) calling on the Federal Government to <a href="http://www.theaustralian.com.au/business/pacific-investment-management-backs-fund-to-tap-mining-boom/story-e6frg8zx-1226041826079">manage for future generations</a> what it says is “once-in-a-century” mining boom. </p>
<p>The move follows similar calls by <a href="http://www.malcolmturnbull.com.au/uncategorized/4487/">Malcolm Turnbull</a> and <a href="http://www.smh.com.au/business/pressure-for-sovereign-wealth-fund-20110217-1ay8m.html">business leaders</a>. Meanwhile, Federal Treasurer Wayne Swan has warned the current boom will not yield the same revenue <a href="http://www.news.com.au/money/no-rivers-of-gold-to-buoy-budget/story-fn84fgcm-1226041869944">‘rivers of gold’</a> as the previous one.</p>
<p>We asked three economists: is a Sovereign Wealth Fund a good idea?</p>
<h2>Mark Crosby, Melbourne Business School:</h2>
<p>There are a number of reasons why a Sovereign Wealth Fund (SWF) is a good idea.</p>
<p>Firstly, in a country where current wealth is high for whatever reason (the mining boom in the case of Australia), it makes sense to save some of that wealth.</p>
<p>Secondly, it is desirable to constrain public finances and to save for future obligations that will arise because of an ageing population. </p>
<p>But my concern is whether it is better to “invest” the proceeds of a SWF in financial instruments or whether it is better to invest more directly in the people and infrastructure of the economy. </p>
<p>SWFs come at a cost – taxes are higher than they could be, or government spending is lower, or both. They are a long term investment, and alternative long term investments are in education, infrastructure and other productivity enhancing reforms. </p>
<p>As with saving for an ageing population these are 20-plus year investments.</p>
<p>I do have a concern that in politics today our leaders cannot see this far ahead and so policy is too much directed towards middle class/median voter welfare as opposed to longer term investments. </p>
<p>But in a policy sense I do not see it as clear cut that a SWF is better than other potential investments in the future of our economy.</p>
<p>A final point is that I think that the kinds of investments that SWFs are likely to be able to make in the future are likely to be somewhat constrained. We have recently seen the rejection of the ASX Singapore exchange merger, partly due to the connections between the Singapore exchange and Singapore’s SWF (Temasek). </p>
<p>An Australian sovereign wealth fund might be similarly constrained – an alternative to an SWF is to increase compulsory superannuation, in which case individual investors or super funds are far less likely to be constrained in their equity investments.</p>
<h2>Jonathan Pincus, University of Adelaide:</h2>
<p>Mining converts one asset into another — minerals in the ground become cash in the bank. A wise budget manager does not go on a spending spree, merely because of a surplus of cash. </p>
<p>If you trust the government more than you trust the people, then you should support a SWF and have government spend the cash over a suitable period of years. Otherwise, support ‘cash splashes’ and the like.</p>
<p>Instead of saving them, the Labor government plans to spend all the mining tax revenues. </p>
<p>The revenues from taxes on mining profits are likely to fluctuate hugely, year by year; and more so than other major tax sources. </p>
<p>If the mining tax revenue is expended as and when it arrives, then public spending of dubious value would be financed in good years, and some good public programs contracted in bad years. </p>
<p>So it would be wise for government to put something aside in good years, in case the bad years come sooner than expected. </p>
<p>This short-run version of a sovereign wealth fund would also reduce what may turn out to be an unnecessary burden of structural adjustment in other trade-exposed sectors of the economy.</p>
<h2>Margaret McKenzie, Deakin University:</h2>
<p>Creating a new sovereign wealth fund is a good idea, but the objectives would need to be considered very carefully when developing the structure. </p>
<p>The resources boom has contributed to the strength of the Australian dollar. If that continues, it may be a source of Dutch disease, limiting the expansion of tradeable sectors in the economy (a perennial problem in Australia). A well managed and diversified sovereign wealth fund could address that.</p>
<p>It would beneficial for the domestic economy if some revenue generated from the mining boom is withheld from immediate expenditure, shifting it to the future and contributing to sustainability and promoting appropriate technological directions.</p>
<p>Because sovereign wealth funds have relatively conservative portfolios, they did not appear to suffer as badly as many other funds in the GFC. </p>
<p>A well managed sovereign wealth fund could also serve stabilisation purposes and help insulate the economy from internationally transmitted shocks such as the GFC. </p>
<p>The Future Fund was set up to manage budget surpluses, and as a pension fund, but now we are faced with the task of managing reserves due to resources-export revenue. </p>
<p>The two need to be considered together and coordinated. This would ensure that the implementation of a sovereign wealth fund would be done judiciously in terms of long-term government policy. </p>
<p>We just need to ensure that we have a clear idea of what path we want the economy to follow and what patterns of industry growth we need.</p><img src="https://counter.theconversation.com/content/914/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Margaret McKenzie does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations. </span></em></p><p class="fine-print"><em><span>Jonathan Pincus and Mark Crosby do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Calls to establish an Australian Sovereign Wealth Fund have intensified with the world’s biggest bond managers, Pacific Investment Management Co (Pimco) calling on the Federal Government to manage for…Mark Crosby, Associate Professor of Economics, Melbourne Business SchoolJonathan Pincus, Visiting Professor, School of Economics , University of AdelaideMargaret McKenzie, Lecturer, School of Accounting, Economics and Finance, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.