tag:theconversation.com,2011:/us/topics/myefo-4135/articlesMYEFO – The Conversation2023-12-13T03:58:07Ztag:theconversation.com,2011:article/2196112023-12-13T03:58:07Z2023-12-13T03:58:07ZThere’s a glimmer of hope in the mid-year budget update, but inflation is still a big challenge<p>The federal government knows people are doing it tough. Inflation and interest rate pressures have put the cost-of-living at the forefront of voters’ minds. </p>
<p>As the <a href="https://theconversation.com/the-7-charts-that-show-australians-struggling-as-saving-falls-to-near-zero-218924">national accounts data shows</a>, disposable income has fallen. Households have been forced to run down their savings. The household savings ratio has hit its lowest level in 16 years. </p>
<p>The <a href="https://budget.gov.au/content/myefo/index.htm">mid-year budget</a> update released on Wednesday confirms this. The Mid-Year Economic and Fiscal Outlook (MYEFO) estimates the economy is expected to expand by a low 1.75% in 2023–24. It also notes inflation – although moderating – is still too high. The outlook attributes that mainly to global oil prices.</p>
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<p>There is a small glimmer of hope. The update predicts the economy will grow more strongly in 2024-25 due to rising real incomes and charts a decline in real income growth turning around in future years. </p>
<p>Hopefully that will happen. It is the only way Australian households will be able to cope with the cost of living.</p>
<h2>A key challenge for the government</h2>
<p>The challenge facing the government is that it can’t splash cash on easing cost-of-living pain without adding to inflation. Higher inflation would cause the Reserve Bank to raise its interest rate targets even further, making things worse. </p>
<p>There are ways to address the problem. Initiatives in the May budget, including measures to reduce energy and childcare costs, aimed to help households without putting pressure on inflation. The outlook notes these are still being rolled out.</p>
<p>But there are only a limited number of initiatives like this available to governments. Some are tempted to spend budget money instead. Treasurer Jim Chalmers has avoided that temptation. There’s no extra cost-of-living assistance package in this update. Instead, there is determination to rein in debt and deficit.</p>
<h2>The fine line between surplus and deficit</h2>
<p>The MYEFO 2023-24 budget balance is A$1.1 billion. That’s line ball between surplus and deficit. The balance is the difference between two much larger numbers: $685 billion in receipts and $686 billion in payments. </p>
<p>What’s more, these are estimates, not actuals. We won’t know how they turn out until the final budget outcome is released in October next year. In the meantime, we can expect another round of estimates updates in the May 2024 budget. </p>
<p>No self-respecting economist would claim it matters whether Australia has a surplus or deficit. What makes a difference to our national financial sustainability is how a government responds to the economic pressures it faces.</p>
<h2>There are challenges but overall, the outlook is ok</h2>
<p>On that measure, this is a responsible document. The revenue estimates have improved since the May budget, mainly due to global commodity prices. The government has spent little of this windfall. </p>
<p>Chalmers’ MYEFO media release says the government has returned 92% of upward revisions to revenue since the May budget. He says this means the government “will avoid $145 billion over 12 years to 2033-34 in interest costs on the debt we inherited”. </p>
<p>As a result, the forward estimates for the Australian government’s debt and deficit are lower at this point than at budget. Gross debt as a share of GDP is expected to peak at 35.4% of GDP in 2027-28, before declining.</p>
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<p>There is an estimated $9.8 billion in savings, including already announced reductions in infrastructure spending. That was a good measure, because in addition to improving the budget bottom line it will have a direct impact on lowering building costs.</p>
<p>Offsetting those savings are a raft of new spending measures arising from decisions taken since the budget. They include defence support for Ukraine, aged care reform, additional money for ongoing COVID responses, new pharmaceutical benefit scheme listings, national water grid, housing and several hundred more. Many have already been announced. </p>
<p>The report gathers them together and adds them up. They add $1.1 billion to spending in 2023-23, $2.7 billion in 2024-25.</p>
<h2>There are big announcements ahead …</h2>
<p>Sadly, in a blow for budget transparency, there is still a line for decisions taken but not yet announced. We don’t know what decisions these are, but they are significant – the estimates start at $270 million in 2023-24 and rise to $1.8 billion in 2026-27. </p>
<p>It is <a href="https://theconversation.com/16-billion-of-the-myefo-budget-update-is-decisions-taken-but-not-yet-announced-why-budget-for-the-unannounced-173654">impossible to tell</a> what this spending is for. If the government were to reverse those decisions between now and the next budget update, we will never know. </p>
<p>On the plus side, this mid-year report has been released at roughly the mid-point of the financial year. Some previous reports have come out at different times – ranging from mid-October to late January (the latest it can be released under the Charter of Budget Honesty Act).</p>
<p>Chalmers has in the past expressed his desire to move back to a more regular and predictable budget processes. A MYEFO in December is normal and regular. </p>
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Read more:
<a href="https://theconversation.com/budget-update-forecasts-deficit-of-1-1-billion-this-financial-year-219799">Budget update forecasts deficit of $1.1 billion this financial year</a>
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<p class="fine-print"><em><span>Stephen Bartos 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>The economy is expected to grow and there are other positive signs ahead but the mid-year economic update has revealed the government will need to keep inflation in check.Stephen Bartos, Professor of Economics, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2197992023-12-12T23:37:15Z2023-12-12T23:37:15ZBudget update forecasts deficit of $1.1 billion this financial year<p>The federal budget is headed for a small $1.1 billion deficit this financial year, according to the update released by Treasurer Jim Chalmers and Finance Minister Katy Gallagher on Wednesday morning. </p>
<p>This is an improvement of $12.8 billion compared to the deficit forecast in the May budget. </p>
<p>It suggests the final figure for the financial year might end up a surplus. If so, that would be the second year the Albanese government delivered a surplus. </p>
<p>Anxious to continue the fight against inflation, the government has not used the update to provide any cost-of-living relief or make new announcements. It has concentrated on improving the budget bottom line. </p>
<p>It has returned 92% of the upward revisions in revenue since the budget to the bottom line. </p>
<p>The Mid-Year Economic and Fiscal Outlook (MYEFO) shows deficits across all four years of the forward estimates. But over these years, the forecast underlying cash balance improves by a cumulative $39.5 billion compared to what was projected in the May budget. </p>
<p>Total receipts are projected to be $67.3 billion higher than the budget forecast. A strong labour market and high commodity prices have contributed to the improved revenue.</p>
<p>A further $9.8 billion has been identified in savings and reprioritisations since the budget. This has brought the total to nearly $50 billion since the election. A large part of the current savings comes from cuts and delays in the infrastructure program.</p>
<p>Net new spending since the budget is $650 million in 2023-24. </p>
<p>Chalmers and Gallagher said in a statement that in face of high but moderating inflation, high interest rates and global uncertainty the Australian economy was slowing. </p>
<p>“Growth is forecast to moderate in the near-term as these pressures weigh on domestic activity.” they said. </p>
<p>The economy is expected to grow by 1.75% in 2023-24 before regaining momentum in 2024-25, when improved real incomes are expected to support a recovery in household consumption. </p>
<p>While global oil prices have put upward pressure on inflation in the near-term, Treasury has not changed its forecast timetable for inflation’s return to the 2-3% target band. </p>
<p>The ministers said: “We know many Australians are doing it very tough, but welcome and encouraging progress is being made […] in the fight against inflation and in the economy more broadly”.</p>
<p>Unemployment, which was 3.7% in October, is forecast to rise to 4.25% by the end of this financial year. The unemployment forecast hasn’t changed since the budget.</p>
<p>Gross debt as a share of GDP is expected to peak at 35.4% of GDP in 2027-28, then decline to 32.1% by the end of the medium term.</p><img src="https://counter.theconversation.com/content/219799/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan 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>The Mid-Year Economic and Fiscal Outlook (MYEFO) shows the federal budget is headed for a small $1.1 billion deficit this financial year, according to the update.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1739942021-12-17T05:49:27Z2021-12-17T05:49:27ZPolitics with Michelle Grattan: Josh Frydenberg ‘thinking about the budget’ over Christmas<p>In her last podcast for the year, Michelle Grattan speaks with Treasurer Josh Frydenberg about the mid-year budget update, his optimism about the economy, and the election.</p>
<p>Although Scott Morrison has the option of a March poll, Frydenberg says he is working on the assumption he’ll deliver a budget on March 29, which would put the election in May. </p>
<p>Frydenberg says he’ll be “spending my Christmas period doing other than eating turkey and having a quiet beer on the balcony and looking at the beach in Lorne. I will be thinking about the budget, thinking about next year’s election and hoping to frame the contest about economic management.”</p>
<p>He admits that with the pandemic “there’s a lot of uncertainty out there.” But he stresses that the “one message I want to give to all your listeners today is there is no complacency. We’re not out of this thing yet.”</p>
<p>Frydenberg says he is still “very confident about the economy going forward”, with plenty of spending power to help it along. </p>
<p>“We have this wave of money that’s been accumulated by households and businesses because the restrictions meant that they couldn’t spend it and they will in time.”</p><img src="https://counter.theconversation.com/content/173994/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan 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>Michelle Grattan speaks with Treasurer Josh Frydenberg about the mid-year budget update, his optimism about the economy and the election.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1739022021-12-16T07:53:05Z2021-12-16T07:53:05ZVital Signs. No return to austerity as Team Frydenberg prevails over the budget hawks<figure><img src="https://images.theconversation.com/files/437966/original/file-20211216-17-aobtzw.png?ixlib=rb-1.1.0&rect=833%2C284%2C2443%2C1269&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Lukas Coch/AAP</span></span></figcaption></figure><p>Thursday’s <a href="https://budget.gov.au/2021-22/content/myefo/index.htm">Mid-Year Economic and Fiscal Outlook</a> reminds us of some uncomfortable truths.</p>
<p>In the short term, MYEFO forecasts the economy bouncing back, with deficits shrinking, unemployment falling, and growth rebounding. </p>
<p>But that will largely play out in the next financial year, 2022-23. </p>
<p>Beyond that, the forecasts have us returning to the relatively low-growth economy we endured before COVID.</p>
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Read more:
<a href="https://theconversation.com/frydenbergs-myefo-budget-update-shows-big-election-war-chest-173905">Frydenberg's MYEFO Budget update shows big election war chest</a>
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<p>Economic growth is forecast to be 3.25% in this financial year, back briefly in the 3-4% range we used to regard as normal.</p>
<p>Next financial year it is forecast to remain high at 3.25% before falling back to 2.25% and then 2.5%, well within the historically low territory it occupied before COVID.</p>
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<p><strong>Annual financial year GDP growth, actual and forecast</strong></p>
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<span class="caption">Financial year on financial year growth, actual and forecast.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-system-national-accounts/2020-21#data-download">ABS and MYEFO</a></span>
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<p>Unemployment, which is forecast to fall to an impressively low 4.25% by mid-2023, is forecast stay there in the following forecast years, improving no further.</p>
<p>The broader takeaway is that not only did the government do the right thing by providing massive financial support during the pandemic – some A$337 billion of it – it is continuing to do the right thing by not prematurely withdrawing it.</p>
<p>The ongoing (if significantly smaller) budget deficits in coming years are a testament to the lesson learnt about the importance of spending to get economic growth up, and unemployment down.</p>
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<p>Perhaps the most uncertain forecast is for wages. Growth in the wage price index is forecast to increase from 2.25% this year to 2.75% in 2022-23 and then on to 3.0% and 3.25% in the follow years.</p>
<p>Sluggish wages growth has been a persistent problem in advanced economies since the 2008 financial crisis. In the US, wages didn’t really get moving again until unemployment dropped to near 3%. </p>
<p>Perhaps an analogous thing will happen in Australia, or perhaps it might require a terminating unemployment rate lower than the forecast 4.25%.</p>
<h2>We need an economic engine</h2>
<p>Of course, economic and employment growth don’t just happen. They are driven, in no small part, by business investment. </p>
<p>As the following chart shows, this is forecast to bounce back strongly after a big drop during the pandemic. In part this simply reflects that kind of catch-up, but it also follows from an increase in business confidence.</p>
<p>Non-mining business investment, expected to grow 1.5% this financial year at budget time, is now expected to climb 8.5%.</p>
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<p>What is now absolutely beyond doubt is that confidence is fragile, and depends on support from the government.</p>
<p>The old days of the 1980s, when it was seriously argued that government spending “crowds out” or frightens away rugged capitalists, are long behind us.</p>
<p>Treasurer Josh Frydenberg’s MYEFO statement makes clear there will be no return to austerity, no return (probably ever) to getting <a href="https://theconversation.com/tax-giveaways-in-frydenbergs-back-in-the-black-budget-114177">back in the black</a> for its own sake.</p>
<p>The massive financial force used during the pandemic worked. </p>
<h2>Government has to keep doing the heavy lifting</h2>
<p>In due course the budget will need to return to something closer to balance. But there is no case whatsoever for a sharp U-turn – not one that Frydenberg and Treasury Secretary Steven Kennedy would countenance.</p>
<p>Team Frydenberg-Kennedy has prevailed over the Coalition budget hawks. </p>
<p>There are plenty on both the Coalition front and backbenches who still think the Liberal Party is the party of thrift. If that was ever true or sensible, it isn’t now. </p>
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Read more:
<a href="https://theconversation.com/16-billion-of-the-myefo-budget-update-is-decisions-taken-but-not-yet-announced-why-budget-for-the-unannounced-173654">$16 billion of the MYEFO budget update is 'decisions taken but not yet announced'. Why budget for the unannounced?</a>
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<p>One might think that Herbert Hoover’s disastrous austerity in the United States in the early 1930s proved the folly of that approach. Or the UK’s version following the 2008 financial crisis. </p>
<p>But, in any case, the dominant forces in the Coalition seem to have learnt their economic lesson. As they say in the classics: “however you get there…”</p>
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<p class="fine-print"><em><span>Richard Holden is President of the Academy of the Social Sciences in Australia.</span></em></p>The dominant forces in the Coalition seem to have learnt their lesson: Australia’s economy still needs serious budget support.Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1736542021-12-16T04:39:37Z2021-12-16T04:39:37Z$16 billion of the MYEFO budget update is ‘decisions taken but not yet announced’. Why budget for the unannounced?<figure><img src="https://images.theconversation.com/files/437957/original/file-20211216-23-19ai74f.png?ixlib=rb-1.1.0&rect=502%2C520%2C2502%2C1263&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://budget.gov.au/2021-22/content/myefo/index.htm">MYEFO</a></span></figcaption></figure><p>One of the most fascinating elements of Thursday’s <a href="https://budget.gov.au/2021-22/content/myefo/download/myefo-2021-22.pdf">Mid-Year Economic and Fiscal Outlook</a> is the one we cannot see clearly. </p>
<p>Included in the MYEFO budget update are <a href="https://theconversation.com/fydenbergs-myefo-budget-update-shows-big-election-war-chest-173905">A$16 billion</a> (over four years) of spending “decisions taken but not yet announced and not for publication”. </p>
<p>These refer to measures to which the cabinet has agreed but about which we will only be told later (and also to things that are not for publication because they relate to commercial contracts and the such.)</p>
<p>Like the wrapped presents under the Christmas tree, we can see there is something there for us, but we can only guess as to what it is. </p>
<h2>Why do they do this?</h2>
<p>So why doesn’t the government not wait until the budget in March? The decisions and their costs could be announced together then. </p>
<p>Firstly, it is because the government might want to keep open the option of holding the election in March, announcing the spending during the campaign in January and February.</p>
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Read more:
<a href="https://theconversation.com/frydenbergs-myefo-budget-update-shows-big-election-war-chest-173905">Frydenberg's MYEFO Budget update shows big election war chest</a>
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<p>The problem this would create comes from the <a href="https://www.legislation.gov.au/Details/C2012C00230">Charter of Budget Honesty</a> enacted by the Howard government. </p>
<p>This requires the heads of treasury and the department of finance to sign off on updated budget forecasts in a <a href="https://www.finance.gov.au/publications/pre-election-economic-and-fiscal-outlook">Pre-election Economic and Fiscal Outlook</a> within 10 days of the issue of the writs for an election.</p>
<p>Importantly, and unusually, they are required to do this in their personal capacities, rather than as servants of their political masters.</p>
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<span class="caption">Finance Secretary Jane Halton signed off on critical comments in 2016.</span>
<span class="attribution"><span class="source">Mick Tsikas/AAP</span></span>
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<p>Speaking with their own voice in 2016, departmental heads John Fraser and Jane Halton <a href="https://www.theage.com.au/politics/federal/election-2016-budget-update-says-big-spending-cuts-or-tax-rises-needed-to-reach-surplus-20160520-gozsw2.html">embarrassed</a> their political masters by warning that “without considerable effort to reduce spending growth, it will not be possible to run underlying cash surpluses, say in the order of 1% of GDP, without tax receipts rising”.</p>
<p>Announcing a blowout in the forecast deficit caused by unbudgeted-for spending would be more embarrassing, and could become an election issue.</p>
<p>And there’s another somewhat cynical media management issue. </p>
<p>The impact on the deficit of the unannounced spending has been announced the week before Christmas, well ahead of the campaign. It’ll pass into history.</p>
<p>By contrast, the details of the new spending will be announced in the spotlight of the budget or the campaign, already “paid for”.</p>
<h2>How big compared to previous years?</h2>
<p>The Parliamentary Budget Office released a <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Budget_Office/Publications/Budget_explainers/The_Contingency_Reserve">report</a> on this matter last week. </p>
<p>Its figures suggest the $16 billion of unannounced spending revealed this year is a record. The previous record was the almost $12 billion in the December 2018 MYEFO, also – not at all coincidentally – just before an election.</p>
<p>It is understood that some of the $16 billion relates to contracts and provisions for payments. Among the likely candidates are vaccine and submarine contracts.</p>
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Read more:
<a href="https://theconversation.com/that-reverse-mortgage-scheme-the-government-is-about-to-re-announce-how-does-it-work-171671">That reverse mortgage scheme the government is about to re-announce, how does it work?</a>
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<p>One part of the package some will be keen to find out about is the measures promised in secret agreement with the Nationals to gain their <a href="https://theconversation.com/the-nationals-finally-agree-to-a-2050-net-zero-target-but-the-real-decisions-on-australias-emissions-are-happening-elsewhere-170451">acquiescence</a> to the net zero by 2050 greenhouse gas emissions target. </p>
<p>Another will be “sweeteners” for electorates the government is hoping to win or hang on to. These will include traditional <a href="https://www.abc.net.au/news/federal-election-2016/guide/bellwethers/?nw=0">bellwethers</a> such as <a href="https://www.abc.net.au/news/elections/eden-monaro-by-election-2020/?nw=0">Eden-Monaro</a>, <a href="https://www.abc.net.au/news/elections/federal/2019/guide/lind">Lindsay</a> and <a href="https://www.abc.net.au/news/elections/federal/2019/guide/robe">Robertson</a> and also the seats under challenge from “<a href="https://theconversation.com/whats-going-on-with-independent-candidates-and-the-federal-election-173587">voices of</a>” independents. </p>
<p>It isn’t certain the billions flagged are the extent of the generosity, but it is likely to be within the ballpark.</p><img src="https://counter.theconversation.com/content/173654/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Hawkins is a former Treasury official.</span></em></p>The government budgets for the unannounced because it doesn’t want its projections to “blow out” during the campaign.This gives us an idea of how much, but not what, is in store.John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society and NATSEM, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1739052021-12-16T02:10:22Z2021-12-16T02:10:22ZFrydenberg’s MYEFO Budget update shows big election war chest<p>The Morrison government has given itself a massive “war chest” for spending in the run-up to next year’s election, the budget update released on Thursday reveals.</p>
<p>The <a href="https://budget.gov.au/2021-22/content/myefo/index.htm">Mid-Year Economic and Fiscal Outlook</a> (MYEFO) shows $15.9 billion in expenditure “decisions taken but not yet announced and not for publication” over the forward estimates.</p>
<p>It is believed that roughly half of this refers to commercial-in-confidence and like decisions, such as vaccine purchases and support for airlines – leaving the rest for pre-election spending.</p>
<p>Last year’s MYEFO had only $1.5 billion for unannounced spending.</p>
<p>On the revenue side, the unannounced decisions amount to only $940 million over the forward estimates. </p>
<p>This is despite the government being expected to announce tax cuts for low and middle income earners before the election.</p>
<p>The MYEFO shows only a very small fall in the predicted deficit compared to the May budget. This is because of some spending blowouts, including for the National Disability Insurance Scheme, and the government’s decision to leave maximum room for election sweeteners.</p>
<p><iframe id="DPiRP" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/DPiRP/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>The deficit for this financial year is expected to be $99.2 billion (4.5% of GDP), which is $7.4 billion better than the budget forecast.</p>
<p>Across the four-year forward estimates, there is an improvement of only $2.3 billion compared to the budget.</p>
<h2>Improving economy, growing expenses</h2>
<p>The update paints an optimistic picture, declaring “the Australian economy is rebounding strongly from the impact of the Delta outbreaks”. </p>
<p>It comes as the Omicron variant is hitting the country, with estimates of a quick spread in coming weeks and months.</p>
<p>But Treasurer Josh Frydenberg told a news conference the expectation was that Omicron would not derail the recovery.</p>
<p>Economic growth, which was 1.5% in 2020-21, is forecast to be 3.75% in this financial year and 3.5% in 2022-23.</p>
<p>The unemployment rate is forecast to fall to 4.5% by mid-2022, and 4.25% by mid-2023.</p>
<iframe src="https://flo.uri.sh/visualisation/8145388/embed" title="Interactive or visual content" class="flourish-embed-iframe" frameborder="0" scrolling="no" style="width:100%;height:600px;" sandbox="allow-same-origin allow-forms allow-scripts allow-downloads allow-popups allow-popups-to-escape-sandbox allow-top-navigation-by-user-activation" width="100%" height="400"></iframe>
<div style="width:100%!;margin-top:4px!important;text-align:right!important;"><a class="flourish-credit" href="https://public.flourish.studio/visualisation/8145388/?utm_source=embed&utm_campaign=visualisation/8145388" target="_top"><img alt="Made with Flourish" src="https://public.flourish.studio/resources/made_with_flourish.svg"> </a></div>
<p>The unemployment figure for November, released on Thursday just ahead of MYEFO shows a dramatic fall from 5.2% in October to 4.6% in November.</p>
<p>Wage growth is expected to climb from 2.25% this financial year to 2.75% next financial year and to 3.25% by 2024-25.</p>
<p>Non-mining business investment, expected to grow 1.5% this financial year at budget time, is now expected to climb 8.5%.</p>
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<p>The update says that the resilience of the economy has contributed to an upgrade in tax receipts of $95 billion over the forward estimates.</p>
<p>Both gross and net debt are projected to be lower in the forward estimates and the medium term than forecast in the budget.</p>
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<p>Gross debt is expected to be 41.8% of GDP at June 30, 2022 and to stabilise at about 50% of GDP in the medium term.</p>
<p>Net debt is expected to be 30.6% of GDP in June next year and to peak at 37.4% in mid 2025, before improving over the medium term to reach 35.5% in June 2032.</p><img src="https://counter.theconversation.com/content/173905/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors 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>Budget update shows the government has a big election war chest, and an optimist economic outlookMichelle Grattan, Professorial Fellow, University of CanberraPeter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1716712021-12-15T05:46:41Z2021-12-15T05:46:41ZThat reverse mortgage scheme the government is about to re-announce, how does it work?<figure><img src="https://images.theconversation.com/files/437689/original/file-20211215-25-thupuu.png?ixlib=rb-1.1.0&rect=0%2C640%2C3425%2C1790&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Many Australians have never heard of the <a href="https://www.servicesaustralia.gov.au/pension-loans-scheme">Pension Loans Scheme</a>, and many more assume it’s just for pensioners, which is understandable given its name.</p>
<p>That’s why the government is poised to rename it the Home Equity Access Scheme and make the interest rate it charges more reasonable, in the mid-year budget update on Thursday.</p>
<p>The soon to be renamed scheme is best thought of as a <a href="https://www.investopedia.com/mortgage/reverse-mortgage/">reverse mortgage</a> where instead of paying down a home loan each month, the homeowner borrows more against the home each month, paying off what’s borrowed when the home is eventually sold.</p>
<p>Although reverse mortgages have been provided commercially for some time, the number of providers has shrunk as large banks have <a href="https://download.asic.gov.au/media/4851420/rep-586-published-28-august-2018.pdf">left the field</a> in the face of increased scrutiny and compliance costs.</p>
<p>The government version is misleadingly named the Pension Loans Scheme (PLS), even though it is available to all retirees with homes and not just pensioners. It was introduced by the Hawke government in <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/FlagPost/2015/February/The_Pension_Loans_Scheme">1985</a>.</p>
<p>The maximum amount that can be made available under the scheme and the age pension combined is <a href="https://www.servicesaustralia.gov.au/how-much-you-can-get-under-pension-loans-scheme?context=22546">150% of the full pension.</a> This means a retiree who is on the pension can get extra fortnightly payments from the scheme to bring their total payment up to 150% of the full pension.</p>
<p>If the retiree is not on the pension they can get the entire amount of 150% of the pension via the PLS.</p>
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Read more:
<a href="https://theconversation.com/is-it-worth-selling-my-house-if-im-going-into-aged-care-161674">Is it worth selling my house if I'm going into aged care?</a>
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<p>The payments stop when the loan balance reaches a <a href="https://www.servicesaustralia.gov.au/maximum-loan-amount-under-pension-loans-scheme?context=22546">ceiling</a> which climbs each year the retiree gets older and climbs with increases in the value of the home.</p>
<p>The ceiling for a 70-year old with a home worth $1,000,000 is $308,000. </p>
<p>The key difference between the PLS and commercial reverse mortgages is that the size of its lump sum payments is limited. Payments under the PLS have no impact on the pension, whereas commercial reverse mortgages can trigger the means test.</p>
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<a href="https://images.theconversation.com/files/437703/original/file-20211215-13-kxrv2s.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/437703/original/file-20211215-13-kxrv2s.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/437703/original/file-20211215-13-kxrv2s.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=645&fit=crop&dpr=1 600w, https://images.theconversation.com/files/437703/original/file-20211215-13-kxrv2s.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=645&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/437703/original/file-20211215-13-kxrv2s.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=645&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/437703/original/file-20211215-13-kxrv2s.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=810&fit=crop&dpr=1 754w, https://images.theconversation.com/files/437703/original/file-20211215-13-kxrv2s.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=810&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/437703/original/file-20211215-13-kxrv2s.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=810&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><span class="source">Colin Zhang, Macquarie Business School</span></span>
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<p>As attractive as the PLS might appear, hardly any of the four million or so Australians aged 65 and over have taken it up, perhaps as few as <a href="https://newsroom.unsw.edu.au/news/business-law/budget-changes-make-pension-loans-scheme-more-attractive-senior-homeowners">5,000</a> – one in every 800.</p>
<p>So in this year’s May budget the government announced two changes to make it more attractive.</p>
<p>One was a “<a href="https://cdn.theconversation.com/static_files/files/1902/PLS_2021-22-budget-16_%281%29.pdf">no negative equity guarantee</a>”. Users would never be asked repay more than the value of their property, even if the property fell in value.</p>
<p>The other was the ability to take out up to <a href="https://cdn.theconversation.com/static_files/files/1902/PLS_2021-22-budget-16_%281%29.pdf">two lump sums per year</a> totalling up to 50% of the full pension in addition to fortnightly payments.</p>
<p>Total government payments would remain capped at 150% of the pension.</p>
<h2>New brand, same scheme</h2>
<p>That second change won’t begin until July 1, 2022 and is likely to be re-announced in Thursday’s mid-year budget update. </p>
<p>Also announced in the budget was a decision to raise awareness of the scheme “through improved public messaging and branding” something which is also likely to be re-announced on Thursday along with the new name.</p>
<p>The other change expected on Thursday is a lower interest rate charged on the sums borrowed. In January 2020, the rate was cut from 5.25% to 4.5% in accordance with cuts in other rates. From January next year it should reduce further to <a href="https://www.theaustralian.com.au/nation/politics/scott-morrison-opens-up-mortgage-loan-scheme-to-help-elderly-fund-their-own-retirements/news-story/9f8c56fbba899f6b76c72ce51ceb9331">3.95%</a>. </p>
<h2>Attractive, but not riskless</h2>
<p>There remain risks associated with taking advantage of the scheme.</p>
<p>One is that if you live long enough you are likely to eventually hit the ceiling and be unable to take out any more money, suffering a loss of income.</p>
<p>If you chose to sell your home and move to an aged care service, you need to use a big part of your sale proceedings to pay what’s owed.</p>
<p>Other risks are that neither the interest rate nor home prices are fixed.</p>
<p>Just as the government has cut the rate charged in line with cuts to lower general interest rates, it might well lift it when interest rates climb. And home prices can go down as well as up, meaning that, at worst, all of the value of your home (although no more) can be gobbled up in repayments.</p><img src="https://counter.theconversation.com/content/171671/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Colin Zhang and Ning Wang 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 appointments.</span></em></p><p class="fine-print"><em><span>This story is part of a Conversation series on financial and economic literacy funded by Ecstra Foundation.</span></em></p>If you are aged 70 with a million dollar home you could get up to $308,000 per year from a little-known scheme with risks.Colin Zhang, Lecturer, Department of Actuarial Studies and Business Analytics, Macquarie UniversityNing Wang, Associate Research Fellow, University of WollongongLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1522432020-12-17T08:35:41Z2020-12-17T08:35:41ZPolitics with Michelle Grattan: Treasurer Josh Frydenberg on promising budget figures<p>This week’s update shows an improvement on the numbers in the budget that was delivered only 10 weeks ago. The prospects for growth and employment have been revised upwards. While the forecast for the deficit remains massive, at nearly $200 billion, it has been revised down. </p>
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<strong>
Read more:
<a href="https://theconversation.com/so-far-so-good-myefo-budget-update-shows-recovery-gathering-pace-152227">So far so good: MYEFO budget update shows recovery gathering pace</a>
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<p>But even as we return to some sort of normality, it will be many years before the economy resembles its pre-COVID self. And the Parliamentary Budget Office predicts the federal budget won’t leave its deficit behind in this decade. </p>
<p>Treasurer Josh Frydenberg joins the podcast to discuss Thursday’s budget update and the economy’s future. </p>
<p>Frydenberg acknowledges the road back will be tough, for the economy and the budget. </p>
<p>Given the “huge economic shock” of COVID, the “unprecedented spending” will leave us in the red for a long time. “There will be a very challenging fiscal environment for years out of this crisis.”</p>
<p>The economic future looks vastly better than in the hairy initial days of the COVID crisis. </p>
<p>“Very early on it was uncertain, and many of us feared the worst.”</p>
<p>“Treasury told me early on in the pandemic that the unemployment rate could reach 10%, and, but for Jobkeeper, reach 15%. That’s a very different world to the one that you and I face today.”</p>
<p>“Programmes like JobKeeper, the cash flow boost, the JobSeeker Coronavirus Supplement, the $750 payments, now $250 payments to pensioners and to carers and others on income support have very much helped pull Australia through this challenging time. </p>
<p>"Australians go into Christmas with real cause for optimism and hope.”</p>
<p><a href="https://itunes.apple.com/au/podcast/politics-with-michelle-grattan/id703425900?mt=2"><img src="https://images.theconversation.com/files/233721/original/file-20180827-75984-1gfuvlr.png" alt="Listen on Apple Podcasts" width="268" height="68"></a> <a href="https://www.google.com/podcasts?feed=aHR0cHM6Ly90aGVjb252ZXJzYXRpb24uY29tL2F1L3BvZGNhc3RzL3BvbGl0aWNzLXdpdGgtbWljaGVsbGUtZ3JhdHRhbi5yc3M"><img src="https://images.theconversation.com/files/233720/original/file-20180827-75978-3mdxcf.png" alt="" width="268" height="68"></a></p>
<p><a href="https://www.stitcher.com/podcast/the-conversation-4/politics-with-michelle-grattan"><img src="https://images.theconversation.com/files/233716/original/file-20180827-75981-pdp50i.png" alt="Stitcher" width="300" height="88"></a> <a href="https://tunein.com/podcasts/News--Politics-Podcasts/Politics-with-Michelle-Grattan-p227852/"><img src="https://images.theconversation.com/files/233723/original/file-20180827-75984-f0y2gb.png" alt="Listen on TuneIn" width="318" height="125"></a></p>
<p><a href="https://radiopublic.com/politics-with-michelle-grattan-WRElBZ"><img class="alignnone size-medium wp-image-152" src="https://images.theconversation.com/files/233717/original/file-20180827-75990-86y5tg.png?ixlib=rb-1.1.0&q=45&auto=format&w=268&fit=clip" alt="Listen on RadioPublic" width="268" height="87"></a> <a href="https://open.spotify.com/show/5NkaSQoUERalaLBQAqUOcC"><img src="https://images.theconversation.com/files/237984/original/file-20180925-149976-1ks72uy.png?ixlib=rb-1.1.0&q=45&auto=format&w=268&fit=clip" width="268" height="82"></a> </p>
<h2>Additional audio</h2>
<p><a href="http://freemusicarchive.org/music/Lee_Rosevere/The_Big_Loop_-_FML_original_podcast_score/Lee_Rosevere_-_The_Big_Loop_-_FML_original_podcast_score_-_10_A_List_of_Ways_to_Die">A List of Ways to Die</a>, Lee Rosevere, from Free Music Archive.</p><img src="https://counter.theconversation.com/content/152243/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan 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>Michelle Grattan discusses MYEFO with Treasurer Josh Frydenberg.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1522272020-12-17T08:32:38Z2020-12-17T08:32:38ZSo far so good: MYEFO budget update shows recovery gathering pace<p>Outside of Victoria the number of hours worked has almost returned to where it was – nowhere near where it would have been, but almost where it was.</p>
<p>Employment figures released as Treasurer Josh Frydenberg was unveiling the <a href="https://budget.gov.au/2020-21/content/myefo/index.htm">mid-year budget</a> update show <a href="https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/latest-release">1,298 billion hours</a> were worked outside of Victoria in November, just a whisker short of the 1,303 billion worked in March, before things went south.</p>
<p>On a graph it looks like a “V”, the much-talked about <a href="https://thenewdaily.com.au/finance/consumer/2020/05/20/coronavirus-recovery-shape/">V-shaped</a> recovery.</p>
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<p><strong>Monthly hours worked in all jobs, excluding Victoria</strong></p>
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<a href="https://images.theconversation.com/files/375613/original/file-20201217-21-jdglc6.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/375613/original/file-20201217-21-jdglc6.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/375613/original/file-20201217-21-jdglc6.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=307&fit=crop&dpr=1 600w, https://images.theconversation.com/files/375613/original/file-20201217-21-jdglc6.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=307&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/375613/original/file-20201217-21-jdglc6.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=307&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/375613/original/file-20201217-21-jdglc6.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=386&fit=crop&dpr=1 754w, https://images.theconversation.com/files/375613/original/file-20201217-21-jdglc6.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=386&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/375613/original/file-20201217-21-jdglc6.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=386&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Seasonally adjusted.</span>
<span class="attribution"><span class="source">ABS Labour Force, Australia</span></span>
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<p>Eagle-eyed readers will note that hours worked were turning down before the coronavirus hit. They peaked in September last year.</p>
<p>Victoria itself has bounced back sharply from the lowpoint of its lockdown in August. </p>
<p>Then it put in 417 billion hours of paid work. In November, with its lockdown over, it put in 453 billion, not too far sort of its peak of 476 billion before things turned bad.</p>
<p>Frydenberg says 85% of the 1.3 million Australians who either lost their jobs or saw their working hours reduced to zero are back at work.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/it-isnt-right-to-say-we-are-out-of-recession-as-these-six-graphs-demonstrate-151210">It isn't right to say we are out of recession, as these six graphs demonstrate</a>
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<p>The numbers reflected in the so-called <a href="https://budget.gov.au/2020-21/content/myefo/index.htm">MYEFO</a> budget update.</p>
<p>With more people back in jobs more quickly, and people leaving JobKeeper more quickly than expected in the October budget, the projected deficits will be somewhat smaller, peaking at just under A$200 billion this financial year instead of just over A$200 billion as expected in October. </p>
<p><iframe id="PwW8K" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/PwW8K/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>The budget will still remain in deficit for as long as anyone can forecast, at least <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Budget_Office">ten years</a>, and even after that the government’s net debt will still exceed one third of gross domestic product, although falling interest rates will mean net interest payments start to fall before net debt does.</p>
<p>Some government loans cost it 5% to 5.75% per year in interest. As they expire in the next the years they will be replaced by loans costing 1% or less, and in some cases less than zero, where bidders for bonds offer <a href="https://theconversation.com/negative-rates-explained-how-money-for-less-than-nothing-is-helping-out-the-budget-152082">negative</a> interest rates.</p>
<p><iframe id="MZvxm" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/MZvxm/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>Soaring iron ore prices have pushed up estimates of this year’s company tax take from the $84.5 billion expected in October to $87.9 billion.</p>
<p>At the time of the budget on October 6, the “<a href="https://www.investopedia.com/ask/answers/072815/what-difference-between-cost-and-freight-cfr-and-free-board-fob.asp">cost and freight</a>” spot iron ore price (which includes the cost of getting to it to the buyer) was near US$120 a tonne. In the ten weeks since it has climbed to more than US$150 a tonne.</p>
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<p><strong>Spot iron ore price, US$ per tonne, cost and freight</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/375628/original/file-20201217-13-1rrloz2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/375628/original/file-20201217-13-1rrloz2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/375628/original/file-20201217-13-1rrloz2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=310&fit=crop&dpr=1 600w, https://images.theconversation.com/files/375628/original/file-20201217-13-1rrloz2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=310&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/375628/original/file-20201217-13-1rrloz2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=310&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/375628/original/file-20201217-13-1rrloz2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=390&fit=crop&dpr=1 754w, https://images.theconversation.com/files/375628/original/file-20201217-13-1rrloz2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=390&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/375628/original/file-20201217-13-1rrloz2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=390&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="https://www.marketindex.com.au/iron-ore">marketindex.com.au</a></span>
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</figure>
<hr>
<p>The budget papers express the price differently, as a “<a href="https://www.investopedia.com/ask/answers/072815/what-difference-between-cost-and-freight-cfr-and-free-board-fob.asp">free-on-board</a>” price, which excludes shipping and is about US$10 less than the cost and freight price.</p>
<p>In what it says is a “prudent judgement”, the update expects the free-on-board price to glide down to US$55 a tonne by September 2021, meaning it expects it to more than halve.</p>
<p>Much depends on how quickly Brazil <a href="https://www.afr.com/companies/mining/brazil-warns-we-ll-be-back-with-iron-ore-expansion-threat-20200731-p55h9j">ramps up production</a> after a series of catastrophic dam collapses and coronavirus interuptions. </p>
<p>The sooner it does, the sooner the price will halve and the volumes of Australian iron ore sold will wind back, cutting company tax revenue. China would rather buy from Brazil than Australia.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/robodebt-was-a-fiasco-with-a-cost-we-have-yet-to-fully-appreciate-150169">Robodebt was a fiasco with a cost we have yet to fully appreciate</a>
</strong>
</em>
</p>
<hr>
<p>Boosting the budget is an improved forecast for employment. The unemployment rate is now expected to get down to 5.25% by June 2024, somewhat below the 5.5% expected at budget time.</p>
<p>Working the other way is a self-inflicted injury. Tucked away in <a href="https://budget.gov.au/2020-21/content/myefo/index.htm">Appendix A</a> of the update is confirmation of the cost of settling the case brought against the government on behalf of victims of <a href="https://www.smh.com.au/opinion/how-centrelink-unleashed-a-weapon-of-math-destruction-20170106-gtmsnz.html">Robodebt</a> who were sent often-incorrect automatically-generated notices alleging that they had to pay back benefits.</p>
<p>It’ll cost $112 million, on top of the $705 million that’s been refunded.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/375621/original/file-20201217-23-e5z3td.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/375621/original/file-20201217-23-e5z3td.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/375621/original/file-20201217-23-e5z3td.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=270&fit=crop&dpr=1 600w, https://images.theconversation.com/files/375621/original/file-20201217-23-e5z3td.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=270&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/375621/original/file-20201217-23-e5z3td.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=270&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/375621/original/file-20201217-23-e5z3td.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=340&fit=crop&dpr=1 754w, https://images.theconversation.com/files/375621/original/file-20201217-23-e5z3td.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=340&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/375621/original/file-20201217-23-e5z3td.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=340&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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</figure><img src="https://counter.theconversation.com/content/152227/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin 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>The economic recovery is looking more and more V-shaped, the budget recovery will be much slower.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1521652020-12-16T07:11:42Z2020-12-16T07:11:42ZYes, older Australians need more home-care funding. But these dribs and drabs only make a dent in the waiting list<figure><img src="https://images.theconversation.com/files/375318/original/file-20201216-19-7fuyd.jpg?ixlib=rb-1.1.0&rect=60%2C0%2C6720%2C4476&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Aged care in Australia is underfunded. As a consequence, many older Australians don’t have the support they need. </p>
<p>Today’s <a href="https://www.pm.gov.au/media/record-investment-home-care-packages-continues">federal government announcement</a> of A$850 million for an additional 10,000 home care packages goes some way to addressing the long waiting list of people who need support at home. But it’s not enough.</p>
<p>The announcement, worth A$1 billion in total, is part of the Mid-Year Economic and Fiscal Outlook (MYEFO). It also encompasses funding for various COVID-related response measures in aged care, such as further <a href="https://www.pm.gov.au/media/record-investment-home-care-packages-continues">mental health and allied health support</a> for people in residential aged care.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/morrison-likely-to-elevate-aged-care-to-cabinet-as-government-boosts-its-funding-by-1-billion-152090">Morrison likely to elevate aged care to cabinet, as government boosts its funding by $1 billion</a>
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</p>
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<h2>‘A cruel and discriminatory system’</h2>
<p>When Australians need care and support in older age, <a href="https://theconversation.com/australians-want-more-funding-for-higher-quality-aged-care-and-most-are-willing-to-pay-extra-tax-to-achieve-it-143174">the vast majority</a> want to receive it at home. Yet <a href="https://grattan.edu.au/report/reforming-aged-care-a-practical-plan-for-a-rights-based-system/">most of Australia’s aged-care funding</a> goes to people in residential care. </p>
<p>Unlike Medicare, where anyone can see a doctor without interminable waits, aged care is a rationed system, with available home-care plans limited by <a href="https://theconversation.com/3-ways-to-transform-our-soviet-style-aged-care-mess-into-a-system-that-puts-older-australians-first-151025">government planning and budget controls</a>. </p>
<p>Australia’s capped system leaves many older Australians without the support they need, when they need it. As at June this year, <a href="https://www.gen-agedcaredata.gov.au/www_aihwgen/media/Home_care_report/Home-Care-Data-Report-4th-qtr-2019-20-AIHW-version.pdf">102,000 people</a> were waiting for a home-care package at their level of need. </p>
<figure class="align-center ">
<img alt="An elderly man sitting in a wheelchair." src="https://images.theconversation.com/files/375325/original/file-20201216-21-14aogm3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/375325/original/file-20201216-21-14aogm3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/375325/original/file-20201216-21-14aogm3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/375325/original/file-20201216-21-14aogm3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/375325/original/file-20201216-21-14aogm3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/375325/original/file-20201216-21-14aogm3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/375325/original/file-20201216-21-14aogm3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Most Australians want to grow old at home — but they don’t necessarily get this option.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<p>Currently, about <a href="https://www.gen-agedcaredata.gov.au/www_aihwgen/media/Home_care_report/Home-Care-Data-Report-4th-qtr-2019-20-AIHW-version.pdf">115,000 people receive care at their approved level</a>, which means the number of people waiting is only marginally less than the number with a package that meets their needs. This is unacceptable. </p>
<p>The Royal Commission into Aged Care Quality and Safety, in its 2019 <a href="https://agedcare.royalcommission.gov.au/sites/default/files/2020-02/interim-report-volume-1.pdf">interim report</a>, urged the government to immediately address this significant shortage of home-care packages, calling it a “cruel and discriminatory system”. </p>
<h2>We need extraordinary measures, not dribs and drabs</h2>
<p>The government’s recent announcements, in the October federal budget for an <a href="https://www.health.gov.au/sites/default/files/documents/2020/10/budget-2020-21-aged-care-more-home-care-packages.pdf">additional 23,000 packages</a>, and now in the MYEFO for an additional 10,000 packages, recognises the increasing demand for home care. It will go some way in supporting many older Australians who are languishing on waiting lists <a href="https://www.myagedcare.gov.au/help-at-home/home-care-packages">for more than a year</a>. </p>
<p>But these additional packages are still inadequate. They will not abolish the home-care waiting list, and nor does the government foreshadow a timeline to do so. </p>
<p>The royal commission handed down its <a href="https://agedcare.royalcommission.gov.au/news-and-media/royal-commission-aged-care-quality-and-safety-interim-report-released">interim report</a> more than a year ago. Yet the waiting list has fallen by only 17,000 places between <a href="https://gen-agedcaredata.gov.au/www_aihwgen/media/Home_care_report/HCPP-Data-Report-4th-qtr-2018-19.pdf">June 2019</a> and <a href="https://www.gen-agedcaredata.gov.au/www_aihwgen/media/Home_care_report/Home-Care-Data-Report-4th-qtr-2019-20-AIHW-version.pdf">June 2020</a>. </p>
<p>You would expect the extraordinary demand to call for extraordinary measures, yet the additional 10,000 packages announced in this MYEFO is nothing out of the ordinary. Indeed, Prime Minister <a href="https://www.pm.gov.au/media/record-investment-home-care-packages-continues">Scott Morrison</a> stated the government has provided “10,000 additional home care packages at MYEFO every year for the past three years”. </p>
<p>These 10,000 packages bring the total number of new packages since the royal commission’s report to just over 50,000 — not enough to make an acceptable dent in the waiting list. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/australians-want-more-funding-for-higher-quality-aged-care-and-most-are-willing-to-pay-extra-tax-to-achieve-it-143174">Australians want more funding for higher-quality aged care — and most are willing to pay extra tax to achieve it</a>
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</em>
</p>
<hr>
<h2>Catering to need</h2>
<p>Home-care packages operate on a spectrum from level 1 to level 4. Level 1 is designed for people with the lowest needs, and level 4 is for those with the highest needs.</p>
<p>The 23,000 additional packages announced in the October budget included a disproportionate number of cheaper, lower-level packages. About <a href="https://www.abc.net.au/news/2020-10-08/aged-care-budget-funding-for-home-care-packages-falls-short/12736428">22% of new packages</a> were at level 1, even though people assessed as needing a level 1 package made up <a href="https://www.gen-agedcaredata.gov.au/www_aihwgen/media/Home_care_report/Home-Care-Data-Report-4th-qtr-2019-20-AIHW-version.pdf">only 3%</a> of people waiting for a package at their level. </p>
<p>The misallocation problem looks set to continue; it’s been reported that <a href="https://theconversation.com/morrison-likely-to-elevate-aged-care-to-cabinet-as-government-boosts-its-funding-by-1-billion-152090">one-quarter of the 10,000 new packages</a> are also at level 1.</p>
<figure class="align-center ">
<img alt="A smiling home-care worker is greeted by an older person at the front door." src="https://images.theconversation.com/files/375326/original/file-20201216-21-2kduic.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/375326/original/file-20201216-21-2kduic.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/375326/original/file-20201216-21-2kduic.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/375326/original/file-20201216-21-2kduic.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/375326/original/file-20201216-21-2kduic.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/375326/original/file-20201216-21-2kduic.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/375326/original/file-20201216-21-2kduic.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Home-care packages operate on a spectrum of need — but the way they are funded doesn’t always match.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<h2>There’s no time to wait</h2>
<p>It’s not enough for the government merely to dribble out more packages to look like it’s doing something.</p>
<p>What’s more, simply announcing more packages, without also introducing improvements to how the money is used, just puts more money into a flawed system.</p>
<p>The government must do more to solve the problems in the home-care system, such as bloated administrative fees — which <a href="https://www.health.gov.au/sites/default/files/documents/2020/07/eighth-report-on-the-funding-and-financing-of-the-aged-care-industry-july-2020-eighth-report-on-the-funding-and-financing-of-the-aged-care-industry-may-2020_0.pdf">average almost one-third of package costs</a> — and <a href="https://onlinelibrary.wiley.com/doi/full/10.1002/ajs4.66?casa_token=hBvlnwQfRPkAAAAA%3AcPqBRKqbl4Sxwaaq-kwaZN87wnNnzHBFbv8YWcBfzT9jYZba80FqoWVRgltpSzSSe6JKEEWVM9-UJOc">a lack of information</a> to help people choose the most appropriate home-care provider. </p>
<p>Importantly, the government should immediately phase in the obvious changes needed to improve the system — especially to expand home care to reduce the waiting list for higher-level care, as flagged in the royal commission’s <a href="https://agedcare.royalcommission.gov.au/news-and-media/royal-commission-aged-care-quality-and-safety-interim-report-released">interim report</a>. </p>
<p>Last year’s interim report, the <a href="https://agedcare.royalcommission.gov.au/hearings-and-workshops">many hearings since</a>, and <a href="https://agedcare.royalcommission.gov.au/sites/default/files/2020-10/RCD.9999.0541.0001_1.pdf">Counsel Assisting submissions</a>, provide ample evidence that the aged-care system needs to be fundamentally transformed. This will take years, and the government cannot afford to wait for the royal commission’s final report due to be released in February 2021. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/3-ways-to-transform-our-soviet-style-aged-care-mess-into-a-system-that-puts-older-australians-first-151025">3 ways to transform our 'Soviet-style' aged-care mess into a system that puts older Australians first</a>
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</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/152165/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Duckett is a member of the board of directors of the Brotherhood of St Laurence which, among other services, is a provider of aged care. Grattan Institute began with contributions to its endowment of $15 million from each of the Federal and Victorian Governments, $4 million from BHP Billiton, and $1 million from NAB. In order to safeguard its independence, Grattan Institute’s board controls this endowment. The funds are invested and contribute to funding Grattan Institute's activities. Grattan Institute also receives funding from corporates, foundations, and individuals to support its general activities, as disclosed on its website.</span></em></p><p class="fine-print"><em><span>Anika Stobart 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>The federal government has announced A$850 million for 10,000 additional home-care packages, as part of $1 billion for aged care. Here’s why that’s not nearly enough.Stephen Duckett, Director, Health Program, Grattan InstituteAnika Stobart, Associate, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1520902020-12-15T11:51:52Z2020-12-15T11:51:52ZMorrison likely to elevate aged care to cabinet, as government boosts its funding by $1 billion<p>The government will inject a further $1 billion into aged care, most of it for home care packages, in Thursday’s budget update. </p>
<p>Prime Minister Scott Morrison is also likely to elevate the troubled policy area to cabinet, in his imminent ministerial reshuffle.</p>
<p>Some 10,000 home care packages will be provided, costing $850 million, in the latest funding – 2500 packages will be released across each of the four levels of care. </p>
<p>The funds – announced Wednesday and included in Thursday’s Mid-Year Economic and Fiscal Outlook – come ahead of the final report of the royal commission into aged care due in February. An interim report more than a year ago was scathing about conditions in the sector.</p>
<p>Aged Care Minister Richard Colbeck is in the outer ministry and struggled during the pandemic. COVID’s largest death toll was in the residential aged care sector – approaching 700 deaths out of the total Australian deaths of just over 900. </p>
<p>Colbeck, a Tasmanian senator, was with Morrison in Tasmania on Tuesday and it is understood the Prime Minister went to Colbeck’s Devonport office after a function. </p>
<p>The reshuffle is expected to be modest, with most interest in who gets the trade portfolio, presently held by Simon Birmingham who took over finance when Mathias Cormann left parliament. </p>
<p>Trade is high profile with the attacks by China on a range of Australian exports. Education Minister Dan Tehan has been widely speculated for the post.</p>
<p>Tehan has experience in the area. He served in the Foreign Affairs and Trade Department; in 2002 he was seconded to the office of trade minister Mark Vaile as trade adviser. Later he worked for the Australian Chamber of Commerce and Industry as director of trade policy and international affairs.</p>
<p>If Tehan moved to trade, that would leave the education portfolio open - with the new incumbent facing the problems of a higher education sector that has taken a beating from the pandemic, which has blocked overseas students’ entry to Australia.</p>
<p>David Coleman, who has been on leave from the ministry for personal reasons for a year, is expected to step down from it in the reshuffle. </p>
<p>There is some room for backbench promotions to the frontbench.</p>
<p>The government said the new aged care money would bring to nearly 50,000 the number of home care packages funded since the commission’s interim report, at a cost of $3.3 billion.</p>
<p>In September more than 100,000 people were waiting for packages. The government says 99% of people on the home care waiting list are already receiving some level of support package. </p>
<p>The latest funding also includes $63.3 million for increased access to allied health services and improved mental health support for people in residential aged care.</p>
<p>An extra $57.8 million will be provided for aged care under the National Partnership on COVID-19 Response. This will strengthen protection, including training and and support in infection prevention and control.</p>
<p>There will be $8.2 million to extend the Victorian Aged Care Response Centre until June 30. </p>
<p>The budget update will show the projected deficit not to be as large as forecast in the budget only two months ago. </p>
<p>The update is expected to adopt conservative assumptions about the iron ore price which has skyrocketed recently.</p><img src="https://counter.theconversation.com/content/152090/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan 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>The government will inject a further $1 billion into aged care, most of it for home care packages, in Thursday’s budget update.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1428412020-07-22T19:54:16Z2020-07-22T19:54:16ZFrydenberg’s three-stage economic recovery is abominably hard to get right<figure><img src="https://images.theconversation.com/files/348838/original/file-20200722-15-169gmdl.jpg?ixlib=rb-1.1.0&rect=33%2C100%2C1340%2C772&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Gone are the days when economic policy was adjusted once each year by the government in the budget and fine-tuned once each month at meetings of the Reserve Bank board.</p>
<p>The coroanvirus means we haven’t had a budget in <a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/2020-21-budget-announcement">more than a year</a>. What the Reserve Bank has done to interest rates means its monthly board meetings matter less.</p>
<p>Governor Philip Lowe reaffirmed this week that monetary policy was <a href="https://www.rba.gov.au/speeches/2020/sp-gov-2020-07-21.html">on hold</a> for the foreseeable future. The bank’s cash rate is as low as it can go (actually well <a href="https://www.rba.gov.au/speeches/2020/images/sp-dg-2020-06-30-graph03.gif">below</a> its 0.25% target) and the bank will only intervene in the bond market if it has to in order to keep bond rates low (which it doesn’t — the demand for even the rush of new bond issues is <a href="https://www.abc.net.au/news/2020-04-17/record-australian-government-bond-auction-coronavirus-covid-19/12158390">much bigger</a> than the supply).</p>
<p>It has lobbed the ball to Frydenberg’s side of the court.</p>
<p>The only situation in which it might be brought back into play is if the government ran into funding problems, of which there is no sign whatsoever.</p>
<h2>Holding the racket</h2>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/348825/original/file-20200722-23-i0f0wa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/348825/original/file-20200722-23-i0f0wa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/348825/original/file-20200722-23-i0f0wa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=970&fit=crop&dpr=1 600w, https://images.theconversation.com/files/348825/original/file-20200722-23-i0f0wa.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=970&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/348825/original/file-20200722-23-i0f0wa.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=970&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/348825/original/file-20200722-23-i0f0wa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1220&fit=crop&dpr=1 754w, https://images.theconversation.com/files/348825/original/file-20200722-23-i0f0wa.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1220&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/348825/original/file-20200722-23-i0f0wa.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1220&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Credit: Josh Frydenberg.</span>
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<p>The treasurer’s problem is sequencing, and we will are likely to get hints on how he’ll play it in the <a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/update-economic-and-fiscal-outlook">economic statement</a> to be released today.</p>
<p>The first challenge was to limit the damage to the economy from the initial shock near the start of the year — to stop a vicious cycle of weaker spending, plummeting investment and soaring unemployment. </p>
<p>These self-reinforcing crises required a circuit breaker.</p>
<p>The emergency stimulus provided through Jobkeeper and Jobseeker has been a great success at putting a floor under incomes and demand. </p>
<p>The government ensured a basic income for people whose jobs were axed or at risk, kept hundreds of thousands attached to their jobs and bolstered household incomes despite a massive loss of activity. It gets a tick.</p>
<p>But these emergency measures will not get the economy going again once the crisis has eased. </p>
<p>Some argue they will stand in the way of a recovery if they keep people ensconced on benefits or attached to firms without futures.</p>
<h2>A tricky transition</h2>
<p>Phase two will require genuine fiscal stimulus: not a security blanket of the kind we have had, but a direct injection of money that will spark a new wave of investment and employment.</p>
<p>The trick is to sequence it properly.</p>
<p>The announced tapering of <a href="https://theconversation.com/bowing-out-gracefully-how-theyll-wind-down-and-better-target-jobkeeper-143011">JobKeeper</a> and <a href="https://theconversation.com/how-to-get-both-jobkeeper-and-jobseeker-143109">JobSeeker</a> will cut incomes and cut jobs as firms pay people less and realign staff levels in line with lower subsidies.</p>
<p>The government believes it has got it right, but it is forecasting an 80% drop in JobKeeper payments between September and the end of the year. It might not be a <a href="https://theconversation.com/whatll-happen-when-the-moneys-snatched-back-our-looming-coronavirus-support-cliff-138527">cliff</a> but it is still a very steep slope that will need to be matched by a sharp recovery in economic activity.</p>
<p>It needs to be ready to revise the timetable as needed. Its current projections look like a best case scenario.</p>
<h2>An unknowable stage two</h2>
<p>The second stage will involve a good deal of spending on infrastructure. But, especially without certainty about immigration, it is hard to tell what will be needed.</p>
<p>The pandemic will have changed the way we work and play. It is not yet clear whether people take advantage of remote working and move out of congested cities. it is not yet clear what it will mean for digital health, digital education and digital shopping.</p>
<h2>An even-harder stage three</h2>
<p>The final stage will involve structural reforms; alterations to tax settings, regulations and industrial relations. Which is where it gets really hard. It will require not only sequencing but getting agreement across the political divide.</p>
<p>No civil society can base its economic and social structures on the mere desire for efficiency. Fairness and social justice matter just as much, and they can best be guaranteed if the measures are pulled together as a package with trade-offs that protect the values that matter to Australians.</p>
<p>That’ll be Frydenberg’s biggest challenge. The future doesn’t need to be rushed out this week, or in the October Budget, but in the months to come it’ll have to take shape.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/these-budget-numbers-are-shocking-and-there-are-worse-ones-in-store-143250">These budget numbers are shocking, and there are worse ones in store</a>
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</p>
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<img src="https://counter.theconversation.com/content/142841/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Warren Hogan 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>He is trying to transition out of stage one while drawing up stage three.Warren Hogan, Industry Professor, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1291402019-12-19T07:56:01Z2019-12-19T07:56:01ZGrattan on Friday: Scott Morrison’s Christmas letter to the colleagues<figure><img src="https://images.theconversation.com/files/307838/original/file-20191219-11909-19i9ye3.png?ixlib=rb-1.1.0&rect=491%2C5%2C3502%2C1988&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Wes Mountain/The Conversation</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span></figcaption></figure><p>Dear Michael, Josh, David, et al</p>
<p>Sorry to have left you all without my guiding hand this week. But Jen and I really needed the break. And the girls too - it’s hard when you’re the kids of the nation’s Daggy Dad.</p>
<p>We were all exhausted. And then came that smoke over Kirribilli – last straw.</p>
<p>I’d hoped to keep my absence nice and private, especially from those quiet Australians fighting fires. (By the way, David, I saw you planned to join your local rural fire service. Great idea. Get yourself pictured fully kitted.)</p>
<p>Regrettably, despite best efforts, my press office wasn’t able to keep a lid on the story. How useless are they!! Just joking. Our media favourites played ball, but as for some others … and social media went mad. I was called such mean things.</p>
<p>TV found the old footage of my criticising then Victorian police chief Christine Nixon’s “bad judgment call” when she dined out during the Victorian fires. Lines for times, I say. As for Lara Worthington’s (née Bingle) “WHERE THE BLOODY HELL ARE YOU???” tweet: Listen Lara, just leave being the smart aleck to me.</p>
<p>Albo didn’t join the pile on. Said it would be “cheap politics”. Clever Albo.</p>
<p>I do admit (in the privacy of this correspondence, which you leak at your peril) it wasn’t such a good look to be out of the country this week.</p>
<p>Still, you put it well on TV, Josh: “He’s having a well deserved break … He’ll be back at work shortly and then he’ll be off to India leading a delegation to advance Australia’s interests.” Made it clear I’ll be slaving in January.</p>
<p>Michael, I loved that as acting PM you celebrated running the country from Wagga. Not a man to get above his station, although a few eyebrows did go up when you said Wagga “is finally the nation’s capital”. Anyway, Wagga has had only a smidgeon of smoke. You could hardly see your hand in front of your face in the actual capital, so my staff told me.</p>
<p>Remember when Doug Anthony used to run the show from a caravan somewhere? Mind you, back then people were told Malcolm Fraser was on hols and even, I think, usually where he was. Often on a motor bike down at Nareen. John Howard loved holidaying at Hawks Nest - so Australian - until too many Aussie battlers started bugging him.</p>
<p>Josh, you did a great job with MYEFO. Those numbers look rather ominous, but you’re always a man of cheer. And Mathias is a rock. Thank goodness he’s denied the silly rumour about pulling the pin.</p>
<p>If he wasn’t there, who’d wrangle Pauline and Jacqui? Have a wine with Labor’s Penny Wong? And the odd beer with Centre Alliance’s Rex Patrick? Mathias certainly needs a holiday.</p>
<p>I’m praying the economic figures turn upwards soon. Otherwise the backbench could be in a funk. Like the Reserve Bank recently, with Phil Lowe talking his head off, often with messages I don’t want to hear. Too much independence. If they were the public service, they’d be to heel by now.</p>
<p>Anyway Joshie, we’ll be okay. If things get bad, if people don’t spend over Christmas, we’ll fit up Albo, blame Labor, and save the day with a stimulatory May budget. But if the economy is indeed at the “gentle turning point” the bank suggests in its rare sanguine moments, you and I will share the glory (just a little bigger slice for me).</p>
<p>Meanwhile do you, as deputy Liberal leader, have any ideas about Angus? I can’t shift him from energy, at least not for a while. But really, he’s a walking fire cracker. (By the way, Josh, some day you must tell me your own tales of Oxford.)</p>
<p>Were you ever a boy scout Josh? What about that cubs’ buddying system? Could we buddy Angus with someone? You perhaps? No? You’ve had enough of all that emissions stuff from Malcolm’s day?</p>
<p>Oh well, let’s all mull over the challenge. We’ll call it the “Taylor project”. Someone might think of something.</p>
<p>It can’t be harder than the religious discrimination project, the good-idea-at-the-time that’s testing Christian. I see Stuart Robert (how good a mate is Stewie!) told The Australian he reads the Bible “cover to cover every year”. Might be easier than reading our revised bill.</p>
<p>Christian, you won’t have an easy new year but, to adapt an old phrase, it will make a minister of you. After you finish with the prelates, you need to get Jackie’s vote on that union bill. My advice: fly to Tassie, source a good red, find the best pizza joint in town. Mathias will prep you.</p>
<p>David, I felt for you this week, trying to deal with state ministers shrieking like banshees at the possibility of changing water policy. Talk about herding wild boars! They’re impossible, all absurdly pursuing the narrow self-interests of their own states. Sometimes federalism just sucks. Pity Malcolm lost interest in that inquiry into it that Tony started.</p>
<p>But David, I must say it was a touch risky to promise those farmers yelling for more irrigation water that you’d hold this review into their grievance (even if it’s headed by an ex-cop and I agreed at the time).</p>
<p>Yes David, I know they were in very big trucks, which can be quite intimidating when they’re outside parliament house. But what if we can’t deliver to them? What if the states put their little feet down? The trucks could return.</p>
<p>Best to get some advice from your new head of department Andrew Metcalfe. You’ll be glad I brought him back to bubbleland. Good man, Metcalfe, with plenty of experience of tricky situations. Ran the immigration department when all those boats were arriving under Labor. Tony sacked him when we won in 2013 – he’d made a few unfortunate reflections on our policy - but all that’s ancient history.</p>
<p>It’ll be a great Christmas for Andrew, enjoying the glow of vindication. Not so good for the departmental secretaries I’ve just dismissed from the bubble. Still, that’s how the cookie crumbles, as they say. If Bill Shorten hadn’t been so hopeless, the quiet Australians could have ousted me.</p>
<p>Then I might have quit parliament and been looking for a post-politics career in the new year.</p>
<p>Back in tourism? Nah. Imagine selling Australia as a destination just now. Even I decided to holiday offshore.</p>
<p>Yours, with authority,
Scott</p>
<p>P.S. I have selfies to share in cabinet. They’re classified top secret. For national security, AKA political, reasons.</p><img src="https://counter.theconversation.com/content/129140/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan 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>I’d hoped to keep my absence nice and private, especially from those quiet Australians fighting fires. Regrettably, despite best efforts, my press office wasn’t able to keep a lid on the story.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1289312019-12-16T05:50:44Z2019-12-16T05:50:44ZPolitics with Michelle Grattan: Mathias Cormann and Jim Chalmers on the mid-year budget update<figure><img src="https://images.theconversation.com/files/307078/original/file-20191216-123998-7br79a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The forecast for Australia's economic growth in 2019-20 has been cut by 0.25%, and the projected surplus for this financial year slashed by A$2.1 billion.</span> <span class="attribution"><span class="source">The Conversation</span></span></figcaption></figure><p>The mid-year budget update has seen the government downgrading its forecast for Australia’s economic growth in 2019-20 by 0.25%, and slashing the projected surplus by A$2.1 billion, to $5 billion. The forecast for wage growth has also been reduced, and unemployment is projected to be slightly higher than was envisaged at budget time.</p>
<p>The figures indicate a worsening economy, but the government has sought to put a positive spin on the situation, saying the Australian economy is showing resilience. </p>
<p>Joining this podcast is finance minister Mathias Cormann and shadow treasurer Jim Chalmers to talk about the figures and the outlook.</p>
<h2>New to podcasts?</h2>
<p>Podcasts are often best enjoyed using a podcast app. All iPhones come with the Apple Podcasts app already installed, or you may want to listen and subscribe on another app such as Pocket Casts (click <a href="http://pca.st/BVa3#t=3m34s">here</a> to listen to Politics with Michelle Grattan on Pocket Casts).</p>
<p>You can also hear it on Stitcher, Spotify or any of the apps below. Just pick a service from one of those listed below and click on the icon to find Politics with Michelle Grattan.</p>
<p><a href="https://itunes.apple.com/au/podcast/politics-with-michelle-grattan/id703425900?mt=2"><img src="https://images.theconversation.com/files/233721/original/file-20180827-75984-1gfuvlr.png" alt="Listen on Apple Podcasts" width="268" height="68"></a> <a href="https://www.google.com/podcasts?feed=aHR0cHM6Ly90aGVjb252ZXJzYXRpb24uY29tL2F1L3BvZGNhc3RzL3BvbGl0aWNzLXdpdGgtbWljaGVsbGUtZ3JhdHRhbi5yc3M"><img src="https://images.theconversation.com/files/233720/original/file-20180827-75978-3mdxcf.png" alt="" width="268" height="68"></a></p>
<p><a href="https://www.stitcher.com/podcast/the-conversation-4/politics-with-michelle-grattan"><img src="https://images.theconversation.com/files/233716/original/file-20180827-75981-pdp50i.png" alt="Stitcher" width="300" height="88"></a> <a href="https://tunein.com/podcasts/News--Politics-Podcasts/Politics-with-Michelle-Grattan-p227852/"><img src="https://images.theconversation.com/files/233723/original/file-20180827-75984-f0y2gb.png" alt="Listen on TuneIn" width="318" height="125"></a></p>
<p><a href="https://radiopublic.com/politics-with-michelle-grattan-WRElBZ"><img class="alignnone size-medium wp-image-152" src="https://images.theconversation.com/files/233717/original/file-20180827-75990-86y5tg.png?ixlib=rb-1.1.0&q=45&auto=format&w=268&fit=clip" alt="Listen on RadioPublic" width="268" height="87"></a> <a href="https://open.spotify.com/show/5NkaSQoUERalaLBQAqUOcC"><img src="https://images.theconversation.com/files/237984/original/file-20180925-149976-1ks72uy.png?ixlib=rb-1.1.0&q=45&auto=format&w=268&fit=clip" width="268" height="82"></a> </p>
<h2>Additional audio</h2>
<p><a href="http://freemusicarchive.org/music/Lee_Rosevere/The_Big_Loop_-_FML_original_podcast_score/Lee_Rosevere_-_The_Big_Loop_-_FML_original_podcast_score_-_10_A_List_of_Ways_to_Die">A List of Ways to Die</a>, Lee Rosevere, from Free Music Archive.</p>
<p><strong>Image:</strong></p>
<p>The Conversation</p><img src="https://counter.theconversation.com/content/128931/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan 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>The figures indicate a worsening economy, but the government has sought to put a positive spin on the situation, saying the Australian economy is showing resilience.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1288432019-12-16T05:14:32Z2019-12-16T05:14:32Z5 things MYEFO tells us about the economy and the nation’s finances<p>As we come to the end of 2019, you’d be forgiven for being confused about the health of the economy. </p>
<p>Treasurer Josh Frydenberg regularly points out that jobs growth is strong, the budget is heading back to surplus, and Australia’s GDP growth is high by international standards. </p>
<p>The opposition points to sluggish wages growth, weak consumer spending and weak business investment. </p>
<p>Monday’s Mid-Year Economic and Fiscal Outlook (MYEFO) provides an opportunity for a pre-Christmas stock-take of treasury’s thinking. </p>
<h2>1. Low wage growth is the new normal</h2>
<p>Rightly grabbing the headlines is yet another downgrade to wage growth. </p>
<p>In the April budget, wages were forecast to grow this financial year by 2.75%. In MYEFO, the figure has been cut to 2.5%. </p>
<p>Three years ago, when Scott Morrison was treasurer, the forecast for this year was 3.5%. </p>
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<a href="https://images.theconversation.com/files/307055/original/file-20191216-124036-1hfe9wb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/307055/original/file-20191216-124036-1hfe9wb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/307055/original/file-20191216-124036-1hfe9wb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/307055/original/file-20191216-124036-1hfe9wb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/307055/original/file-20191216-124036-1hfe9wb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/307055/original/file-20191216-124036-1hfe9wb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/307055/original/file-20191216-124036-1hfe9wb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/307055/original/file-20191216-124036-1hfe9wb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<p>Each time wages forecasts missed, treasury assumed future growth would be even higher, to restore the long-term trend.</p>
<p>Today’s MYEFO is a long-overdue admission from treasury that labour market dynamics have shifted – in other words, lower wage growth is the “new normal”. </p>
<p>Even by 2022-23, wages are projected to grow at only 3% (and even that would still be a substantial turnaround compared to today).</p>
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Read more:
<a href="https://theconversation.com/surplus-before-spending-frydenbergs-risky-myefo-strategy-128092">Surplus before spending. Frydenberg's risky MYEFO strategy</a>
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<p>Of course, wages are still rising in real terms (that is, faster than inflation), a fact Finance Minister Mathias Cormann is <a href="https://www.theaustralian.com.au/nation/politics/budget-surplus-to-survive-30bn-revenue-hit/news-story/21c9cdc83aaba1c7276c78bd778580a2">keen to emphasise</a>. </p>
<p>But Australians will have to adjust to a world of only modest growth in their living standards for the next few years. </p>
<h2>2. Economic growth is underwhelming, especially per person</h2>
<p>Economic growth forecasts have received a pre-Christmas trim. </p>
<p>Treasury now expects the economy to grow by 2.25% this financial year, down from the 2.75% it expected in April. </p>
<p>Particularly striking is the sluggishness of the private economy, with consumer spending expected to grow by just 1.75%, despite interest rate and tax cuts, and business investment idling at growth of 1.5%, down from the 5% forecast in April.</p>
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Read more:
<a href="https://theconversation.com/lower-growth-tiny-surplus-in-myefo-budget-update-128920">Lower growth, tiny surplus in MYEFO budget update</a>
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<p>The longer term picture looks somewhat better, with growth forecast to rise to 2.75% in 2020-21 and 3% in 2021-22, although treasury acknowledges there are significant downside risks, particularly from the global economy. </p>
<p>The government has made much of the fact our economy is strong compared to many other developed nations. But much more relevant to people’s living standards is per-person growth. Australia’s international podium finish looks less impressive once you account for the fact Australia’s population is growing at 1.7%.</p>
<p>As one <a href="https://insidestory.org.au/falling-behind-but-not-going-backwards/">perceptive commentator</a> has noted, while Australia is forecast to be the fastest growing of the 12 largest advanced economies next year, it is expected to be the <em>slowest</em> in per-person terms. </p>
<h2>3. The government is at odds with the Reserve Bank</h2>
<p>You can imagine the government’s collective sigh of relief that it is still on track to deliver a surplus in 2019-20, albeit a skinny A$5 billion instead of the the $7 billion previously forecast. </p>
<p>Given the treasurer declared victory early by announcing the budget was “back in the black” in April, missing would have been awkward, to say the least.</p>
<p>And another three years of slim surpluses are forecast ($6 billion, $8 billion and $4 billion respectively). </p>
<p>The real issue for the treasurer is how to deal with the growing calls for more economic stimulus, including from the Reserve Bank.</p>
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<strong>
Read more:
<a href="https://theconversation.com/we-asked-13-economists-how-to-fix-things-all-back-the-rba-governor-over-the-treasurer-126283">We asked 13 economists how to fix things. All back the RBA governor over the treasurer</a>
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<p>Depending on what happens to growth and unemployment in the first half of 2020, he will come under increased pressure to jettison the future surpluses to support jobs and living standards. </p>
<h2>4. High commodity prices are a gift for the bottom line</h2>
<p>High commodity prices are the gift that keeps on giving for the Australian budget.</p>
<p>Iron ore prices in excess of US$85 per tonne, well above the US$55 per tonne budgeted for, have helped to keep company tax receipts buoyant. </p>
<p>Treasury is maintaining the conservative approach it has taken in recent years by continuing to assume US$55 per tonne. </p>
<p>This provides some potential upside should prices stay high – Treasury estimates a US$10 per tonne increase would boost the underlying cash balance by about A$1.2 billion in 2019-20 and about A$3.7 billion in 2020-21. </p>
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<strong>
Read more:
<a href="https://theconversation.com/vital-signs-australias-wafer-thin-surplus-rests-on-a-mine-disaster-in-brazil-128705">Vital Signs: Australia's wafer-thin surplus rests on a mine disaster in Brazil</a>
</strong>
</em>
</p>
<hr>
<p>The budget bottom line remains tied to the whims of international commodity markets for the near future. </p>
<h2>5. The surplus depends on running a (very) tight ship</h2>
<p>The forecast surpluses over the next four years are premised on an extraordinary degree of spending restraint. </p>
<p>This government is expecting to do something no government has done since the late-1980s: cut spending in real per-person terms over four consecutive years. </p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/307063/original/file-20191216-123992-vhhhi7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/307063/original/file-20191216-123992-vhhhi7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/307063/original/file-20191216-123992-vhhhi7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/307063/original/file-20191216-123992-vhhhi7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/307063/original/file-20191216-123992-vhhhi7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/307063/original/file-20191216-123992-vhhhi7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/307063/original/file-20191216-123992-vhhhi7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/307063/original/file-20191216-123992-vhhhi7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<p>The budget dynamics are helping. Budget surpluses and low interest rates reduce debt payments, and low inflation and wage growth reduce the costs of payments such as the pension and Newstart.</p>
<p>But the government is also expecting to keep growth low in other areas of spending, in almost every area other than defence and the expanding national disability insurance scheme. </p>
<p>As the <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Budget_Office/Publications/Research_reports/Medium-term_budget_projections">Parliamentary Budget Office</a> points out, it is hard to keep holding down spending as the budget improves. </p>
<p>It is even more true while long term spending squeezes on things such as Newstart and aged care are hurting vulnerable Australians. </p>
<h2>Where does it leave us?</h2>
<p>The real lesson from MYEFO is that Australians are right to be confused: there is a disconnect between the health of the budget and the health of the economy.</p>
<p>MYEFO suggests both that the government is on track to deliver a good-news budget surplus underpinned by high commodity prices and jobs growth, and that the economy is in the doldrums with low wage growth in place for a long time.</p>
<p>Top of Frydenberg’s 2020 to do list: how to reconcile the two.</p><img src="https://counter.theconversation.com/content/128843/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The Grattan Institute began with contributions to its endowment of $15 million from each of the Federal and Victorian Governments, $4 million from BHP Billiton, and $1 million from NAB. In order to safeguard its independence, Grattan Institute’s board controls this endowment. The funds are invested and contribute to funding Grattan Institute's activities. Grattan Institute also receives funding from corporates, foundations, and individuals to support its general activities as disclosed on its website.</span></em></p><p class="fine-print"><em><span>Danielle Wood 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>MYEFO contains a long-overdue admission: that low wage growth is the new normal. It’ll take extraordinary spending restraint to make the surplus forecasts stick.Danielle Wood, Program Director, Budget Policy and Institutional Reform, Grattan InstituteKate Griffiths, Senior Associate, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1280922019-12-16T03:16:02Z2019-12-16T03:16:02ZSurplus before spending. Frydenberg’s risky MYEFO strategy<p>Today’s mid-year economic and fiscal outlook (MYEFO) continues to promise a <a href="https://budget.gov.au/2019-20/content/myefo/download/MYEFO_2019-20.pdf">small budget surplus</a> in 2019-20 and each of the following three years.</p>
<p>But the surpluses are very small, roughly half the size of those promised at the time of the April budget, and highly uncertain.</p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/307019/original/file-20191216-123998-1p1dthf.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/307019/original/file-20191216-123998-1p1dthf.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/307019/original/file-20191216-123998-1p1dthf.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=475&fit=crop&dpr=1 600w, https://images.theconversation.com/files/307019/original/file-20191216-123998-1p1dthf.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=475&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/307019/original/file-20191216-123998-1p1dthf.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=475&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/307019/original/file-20191216-123998-1p1dthf.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=598&fit=crop&dpr=1 754w, https://images.theconversation.com/files/307019/original/file-20191216-123998-1p1dthf.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=598&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/307019/original/file-20191216-123998-1p1dthf.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=598&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<p>The forecasts for economic growth and wages growth have been adjusted down, but are still optimistic, subject to downside risks, especially if international economic conditions deteriorate. </p>
<p>The lower wage growth forecast is an acknowledgement of the new reality that wage growth is not climbing and remains low. </p>
<h2>Uncertainties abound</h2>
<p>One key variable is iron ore prices: these affect both economic growth (gross domestic product) and company tax collections. </p>
<p>Recent high prices due in part to mining disasters in Brazil will not continue indefinitely. </p>
<p>Iron ore prices peaked in July at US$120 per tonne but are forecast to fall back to US$55 per tonne by the June quarter 2020. </p>
<p>The key determinant will be demand from China. Its steel mills might require more, or less, than expected. </p>
<p>MYEFO has a sensitivity analysis showing 2019-20 tax receipts could be lower than expected by A$0.8 billion or higher than expected by A$0.5 billion (and lower by $1.1b or higher by $1.3b in 2020-21) depending on how quickly prices fall. </p>
<h2>Housing versus households</h2>
<p>Another expected source of increased revenue is a recovery in capital city housing markets. </p>
<p>While this won’t have as large an impact on the Commonwealth as it will on the states which are reliant on stamp duties (see for example the recent <a href="https://www.budget.nsw.gov.au/nsw-budget-2019-20-budget-papers">NSW budget update</a>) the Commonwealth still benefits.</p>
<p>The assumption on households</p>
<blockquote>
<p>that some of the recent weakness in consumption reflects timing factors and that the household saving ratio will fall as households increase their consumption in response to higher after-tax income</p>
</blockquote>
<p>seems optimistic.</p>
<p>However the treasury acknowledges </p>
<blockquote>
<p>there is a risk that consumers remain cautious and the fall in the household saving ratio is slower than expected.</p>
</blockquote>
<p>It is possible that households will remain nervous about the future and save rather than spend; or that we are seeing deeper shifts in preferences away from consumer spending.</p>
<h2>Surplus before spending</h2>
<p>MYEFO includes previously-announced new spending on infrastructure projects, drought and aged care, but there were no major additional announcements. </p>
<p>This is in line with the government’s determination to have a surplus this year, even if smaller than expected at budget time. </p>
<p>The underlying cash surplus of $5.0 billion forecast for 2019-20 is indeed small - a fraction under 1% of the total receipts number, $502.5. </p>
<p>MYEFO graphs the confidence we can have in the surplus forecasts: there is considerable uncertainty. </p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/307015/original/file-20191216-124009-1nal5ws.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/307015/original/file-20191216-124009-1nal5ws.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/307015/original/file-20191216-124009-1nal5ws.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=458&fit=crop&dpr=1 600w, https://images.theconversation.com/files/307015/original/file-20191216-124009-1nal5ws.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=458&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/307015/original/file-20191216-124009-1nal5ws.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=458&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/307015/original/file-20191216-124009-1nal5ws.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=576&fit=crop&dpr=1 754w, https://images.theconversation.com/files/307015/original/file-20191216-124009-1nal5ws.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=576&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/307015/original/file-20191216-124009-1nal5ws.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=576&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<hr>
<p>Governments can always introduce either spending cuts or additional revenue raising measures in pursuit of a surplus. </p>
<p>The question is why. It is puzzling that having a surplus has become a sign of good economic management. </p>
<h2>Surplus for the sake of surplus</h2>
<p>Arguably what is more important is people’s real incomes, whether their chance of unemployment is rising or falling, whether they will be looked after in old age, have their health needs met, and be able to offer their children a good education. </p>
<p>There is a good argument against debt – government debt has to be paid off before the money spent servicing it can be spend on other needs, and excessive debt exposes a country to risk. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/5-things-myefo-tells-us-about-the-economy-and-the-nations-finances-128843">5 things MYEFO tells us about the economy and the nation’s finances</a>
</strong>
</em>
</p>
<hr>
<p>Within reasonable bounds though, neither ratings agencies nor international financial markets care if a budget is $5b in surplus or $5b in deficit – these are for all intents and purposes the same number in terms of the government’s impact on the economy. </p>
<p>The government is no longer projecting net debt will fall to zero by 2029-30 – instead, it will fall to 1.8% of GDP (still much lower than the 2019-20 net debt of $392.3 billion or 19.5% of GDP). </p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/307021/original/file-20191216-124022-kjg5r7.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/307021/original/file-20191216-124022-kjg5r7.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/307021/original/file-20191216-124022-kjg5r7.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=509&fit=crop&dpr=1 600w, https://images.theconversation.com/files/307021/original/file-20191216-124022-kjg5r7.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=509&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/307021/original/file-20191216-124022-kjg5r7.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=509&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/307021/original/file-20191216-124022-kjg5r7.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=640&fit=crop&dpr=1 754w, https://images.theconversation.com/files/307021/original/file-20191216-124022-kjg5r7.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=640&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/307021/original/file-20191216-124022-kjg5r7.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=640&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
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<hr>
<p>This is however a heroic projection, based on estimates of the structural budget position that are unlikely to be be realised.</p>
<p>The structural estimates (estimates of where the budget would be were it not for whatever was happening in the economy at the time) have surpluses growing every year up to 2029-30; an unlikely scenario in the face of an ageing population together with other pressures on government spending. </p>
<p>The impact of ageing will be analysed in more depth in the next Intergenerational Report to be produced by Treasury.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/307059/original/file-20191216-124004-1rv9i4a.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/307059/original/file-20191216-124004-1rv9i4a.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/307059/original/file-20191216-124004-1rv9i4a.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=436&fit=crop&dpr=1 600w, https://images.theconversation.com/files/307059/original/file-20191216-124004-1rv9i4a.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=436&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/307059/original/file-20191216-124004-1rv9i4a.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=436&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/307059/original/file-20191216-124004-1rv9i4a.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=549&fit=crop&dpr=1 754w, https://images.theconversation.com/files/307059/original/file-20191216-124004-1rv9i4a.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=549&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/307059/original/file-20191216-124004-1rv9i4a.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=549&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
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</figure>
<p>This may explain why the Treasurer today announced the next five-yearly <a href="https://treasury.gov.au/intergenerational-report">Intergenerational Report</a> will not be published in March next year as scheduled, but held over until July, after the budget and after the report of the government’s <a href="https://theconversation.com/5-questions-about-superannuation-the-governments-new-inquiry-will-need-to-ask-124400">retirement incomes inquiry</a>. </p>
<p>There are several gaps in the estimates of spending.</p>
<h2>Likely costs left out</h2>
<p>There is no provision for additional spending on the new services delivery model, Services Australia, previously known as the department of human services, which runs Centrelink. Modelled on Services NSW, which offers a better customer experience, it will be expensive. </p>
<p>Services NSW meets its costs by charging other government agencies, spreading costs across government. There is less scope for this in the Commonwealth, and therefore a potentially higher direct call on the budget. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-dirty-secret-at-the-heart-of-the-projected-budget-surplus-much-higher-tax-bills-124273">The dirty secret at the heart of the projected budget surplus: much higher tax bills</a>
</strong>
</em>
</p>
<hr>
<p>Although the announced funding for aged care is included, most observers of the work of the aged care royal commission expect this is only a first instalment. </p>
<p>Other pressures on the budget are not included for technical reasons. For example, possible future disasters are not included in the forward estimates because they are unpredictable. </p>
<p>Should climate change make Australia more prone to frequent and costly disasters, future budgets will face additional pressure. </p>
<p>There are thus numerous uncertainties around MYEFO – among them the growth path of the Chinese economy and its impact on iron ore prices, consumer demand, wages, spending pressures. </p>
<p>The projections might be achieved if all goes well – but there are considerable risks all will not.</p><img src="https://counter.theconversation.com/content/128092/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Bartos 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>The treasurer has pulled out all stops to continue to forecast budget surpluses, but they are low, and don’t take account of several likely costs.Stephen Bartos, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1289202019-12-15T23:21:04Z2019-12-15T23:21:04ZLower growth, tiny surplus in MYEFO budget update<p>The government has shaved its forecasts for both economic growth and the projected surplus for this financial year in its budget update released on Monday. </p>
<p>The Australian economy is now expected to grow by only 2.25% in 2019-20, compared with the 2.75% forecast in the April budget. </p>
<p>The projected surplus has been revised down from A$7.1 billion at budget time to $5 billion for this financial year.</p>
<p>By 2022-23 the surplus is projected to be tiny A$4 billion, a mere one fifth of one per cent of GDP, less than half the $9.2 billion projected in April.</p>
<p>Combined, $21.6 billion has been slashed from projected surpluses over the coming four years.</p>
<hr>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/306991/original/file-20191215-124016-1dz66fi.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/306991/original/file-20191215-124016-1dz66fi.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=332&fit=crop&dpr=1 600w, https://images.theconversation.com/files/306991/original/file-20191215-124016-1dz66fi.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=332&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/306991/original/file-20191215-124016-1dz66fi.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=332&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/306991/original/file-20191215-124016-1dz66fi.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=417&fit=crop&dpr=1 754w, https://images.theconversation.com/files/306991/original/file-20191215-124016-1dz66fi.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=417&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/306991/original/file-20191215-124016-1dz66fi.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=417&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<hr>
<p>The revenue estimates have also been slashed, down from the pre-election economic and fiscal outlook (PEFO) by about $3 billion in 2019-20 and $32.6 billion over the forward estimates. </p>
<p>The changes this financial year reflect downgrades to superannuation fund taxes, the GST and non-tax receipts. The downgrade in later years reflects changed forecasts for individual taxes, company tax and GST. </p>
<p>The official documents sought to put as positive a spin as possible on the worse economic figures:</p>
<blockquote>
<p>Australia’s economy continues to show resilience in the face of weak momentum in the global economy, as well as domestic challenges such as the devastating effects of drought and bushfires. </p>
<p>While economic activity has continued to expand, these factors have resulted in slower growth than had been expected at PEFO.</p>
</blockquote>
<p>The revised figures forecast growth will be 2.75% next financial year. </p>
<p>The impact of the drought is reflected in the fact farm GDP is expected to fall to the lowest level seen since 2007-08 in the millenium drought. </p>
<p>The downgrades will fuel calls already being made by the opposition and some stakeholders and commentators for economic stimulus. </p>
<p>But the government, which since the budget has brought forward some infrastructure and announced spending on aged care and drought assistance, is continuing to resist pressure for stimulus now, wishing to hold out until budget time. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/surplus-before-spending-frydenbergs-risky-myefo-strategy-128092">Surplus before spending. Frydenberg's risky MYEFO strategy</a>
</strong>
</em>
</p>
<hr>
<p>The budget update - formally called the mid-year economic and fiscal outlook (MYEFO) - contains more bad news for workers’ wages. </p>
<p>Wages are forecast to rise in 2019-20 by 2.5%, compared with the forecast of 2.75% in the budget.</p>
<p>Employment growth remains at the earlier forecast level of 1.75% for this financial year, but the unemployment rate is slightly up in the latest forecast, from 5% at budget time to 5.25% in the update. </p>
<hr>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/306992/original/file-20191215-123983-rvj5qr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/306992/original/file-20191215-123983-rvj5qr.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=222&fit=crop&dpr=1 600w, https://images.theconversation.com/files/306992/original/file-20191215-123983-rvj5qr.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=222&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/306992/original/file-20191215-123983-rvj5qr.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=222&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/306992/original/file-20191215-123983-rvj5qr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=279&fit=crop&dpr=1 754w, https://images.theconversation.com/files/306992/original/file-20191215-123983-rvj5qr.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=279&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/306992/original/file-20191215-123983-rvj5qr.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=279&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p>In its bring forward and funding of new projects, the government is putting an extra $4.2 billion over the forward estimates into transport infrastructure projects. </p>
<p>Its extra spending on aged care will be almost $624 million over four years, in its initial response to the royal commission. This is somewhat higher than the $537 million announced by Scott Morrison in November.</p>
<p>While the projected surplus has been squeezed, the government continues to highlight the priority it gives it, saying that despite the revenue write downs, it expects cumulative surpluses over $23.5 billion over forward estimates. </p>
<p>Spending growth is estimated to be 1.3% annual average in real terms over the forward estimates. Payments as a share of GDP is estimated at 24.5% this financial year, reducing to 24.4% by 2022-23, which is below the 30 year average. </p>
<p>Treasurer Josh Frydenberg said the update showed “the government is living within its means, and paying down Labor’s debt”.</p>
<p>He said “the surplus has never been an end in itself, but a means to an end. An end which is to reduce interest payments to free up money to be spent elsewhere across the economy.” </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/5-things-myefo-tells-us-about-the-economy-and-the-nations-finances-128843">5 things MYEFO tells us about the economy and the nation’s finances</a>
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<hr>
<p>The government’s economic plan was “delivering continued economic growth and a stronger budget position. </p>
<p>"MYEFO demonstrates that we have the capacity and the flexibility to invest in the areas that the public need most.”</p>
<p>Shadow treasurer Jim Chalmers said the update showed the government’s economic credibility was destroyed. At its core, there were “two humiliating confessions - the economy is much weaker and the government has absolutely no idea and no plan to turn things around”.</p>
<p>Chalmers said Morrison and Frydenberg “couldn’t give a stuff that Australians are facing higher unemployment and weaker wages and slower growth. </p>
<p>"If they cared enough about the workers and families of this country, they would stop sitting on their hands and they would come up with an actual plan to turn around an economy which is floundering on their watch.”</p><img src="https://counter.theconversation.com/content/128920/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan 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>The projected surplus has been revised down from A$7.1 billion at budget time to $5 billion for this financial year.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1089192018-12-17T19:07:02Z2018-12-17T19:07:02ZMYEFO rips A$130 million per year from research funding despite budget surplus<figure><img src="https://images.theconversation.com/files/250913/original/file-20181217-185264-1kkui2j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The shockwaves of this cut will be felt for years to come at Australian universities.</span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p>Yesterday morning, the mid-year budget update unveiled research funding cuts of A$328.5 million over the next four years. This <a href="https://www.universitiesaustralia.edu.au/Media-and-Events/media-releases/Budget-ram-raid-on-university-research#.XBchYWgzaUk">budget raid on research</a> was more than double the size expected by the university research community.</p>
<p>This new freeze on growth in research funding and PhD scholarships follows <a href="https://www.abc.net.au/news/2017-12-18/myefo-university-help-funding-frozen-and-caps-introduced/9268326">last year’s freeze</a> on funding for student places. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/universities-get-an-unsustainable-policy-for-christmas-89307">Universities get an unsustainable policy for Christmas</a>
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</em>
</p>
<hr>
<p>The effect will be felt immediately by the nation’s researchers and their research projects in positions lost and projects slowed, limited or not started. But the damage done will be felt for much longer – in inventions, ideas and opportunities missed.</p>
<h2>Why has it been done?</h2>
<p>As yet, there has been no adequate public explanation from government, save for two paragraphs in Education Minister Dan Tehan’s <a href="https://ministers.education.gov.au/tehan/funding-flows-research-australias-universities">media release</a> yesterday:</p>
<blockquote>
<p>The decision to pause indexation of research block grant programs for 12 months, along with adjusting growth for RSP (the Research Support Program), will allow the government to prioritise education spending, including on regional higher education.</p>
</blockquote>
<p>And this further par: </p>
<blockquote>
<p>We have invested over A$350 million since the 2018-19 Budget to support students in regional and remote Australia.</p>
</blockquote>
<p>In truth, most of Australia’s regional universities will lose millions of dollars more under the 2017 funding freeze than will be redistributed to them via this latest research cut. And under this new research freeze, they, too, will lose scholarships for PhD students – our next generation of brilliant research talent.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/250914/original/file-20181217-185249-1ylcnqd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/250914/original/file-20181217-185249-1ylcnqd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/250914/original/file-20181217-185249-1ylcnqd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/250914/original/file-20181217-185249-1ylcnqd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/250914/original/file-20181217-185249-1ylcnqd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/250914/original/file-20181217-185249-1ylcnqd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/250914/original/file-20181217-185249-1ylcnqd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&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">Research funding also goes towards keeping the lights on in libraries and labs so researchers can complete their work.</span>
<span class="attribution"><span class="source">from www.shutterstock.com</span></span>
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</figure>
<p>Nationwide, the government will fund up to 500 fewer of these scholarships for PhD candidates next year due to the research funding freeze. That’s 500 fewer people who will dedicate their talent to the creation of new knowledge in the national interest.</p>
<p>The education minister has tried to repair the damage inflicted by the 2017 decision of his predecessor – Simon Birmingham – only to compound the damage with this second freeze. That’s throwing bad policy after bad. </p>
<p>Regional universities were <a href="https://www.abc.net.au/news/2018-06-14/university-funding-freeze-regional-campuses-worst-hit/9857532">among those hardest hit</a> by the 2017 MYEFO decision to cut funding for student places. And that decision continues to cut deeper each year – it will be felt more in 2019 than 2018, and more in 2020 than 2019.</p>
<h2>How this will affect Australian research</h2>
<p>The harm this will inflict is manifold. </p>
<p>First, it will cut the research funding program. This scheme enables universities to pay the salaries of researchers and technicians whose work enables ground-breaking discoveries. It also funds keeping the lights on in labs and libraries. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/educational-researchers-show-us-your-evidence-but-dont-expect-us-to-fund-it-87338">Educational researchers, show us your evidence but don’t expect us to fund it</a>
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<hr>
<p>These overheads of research are not funded by competitive grants. For every A$100,000 an Australian university secures in competitive research grants, it must find an extra A$85,000 to be able to deliver that research. Where will universities find these funds?</p>
<p>Second, it will cut the research training program. This funds scholarships for PhD students to enable them to complete their higher degrees – a necessary first step on the way to a career in research. This is a cut into their brilliant careers, and Australia’s future research capacity.</p>
<p>Third, it damages Australia’s standing as a global research leader. Why would a great researcher come to or stay in Australia, when the government has sent a message that, in a time of budget surplus, it’s prepared to cut into research?</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/250915/original/file-20181217-185240-wqqlht.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/250915/original/file-20181217-185240-wqqlht.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/250915/original/file-20181217-185240-wqqlht.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/250915/original/file-20181217-185240-wqqlht.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/250915/original/file-20181217-185240-wqqlht.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/250915/original/file-20181217-185240-wqqlht.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/250915/original/file-20181217-185240-wqqlht.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&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">Research funding is critical to Australia’s status as a global research leader.</span>
<span class="attribution"><span class="source">from www.shutterstock.com</span></span>
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</figure>
<p>Fourth, it will further undermine Australia’s position in research and development investment relative to our economic competitors. China now invests 2.1% of its GDP in research and development – while Australia’s total investment from all sectors in research and development (government, business and research institutions) is now just 1.88% of GDP. China’s economy is ten times bigger than Australia’s, but they’re investing 30 times more than we are.</p>
<p>Our government only spends A$10 billion on research and development each year. Only last Friday, it was revealed Australia’s government spending on research and development was already <a href="https://www.universitiesaustralia.edu.au/Media-and-Events/media-releases/Funding-cuts-risk-life-changing-research--as-R-D-spend-plunges#.XBcvz2gzaUk">forecast to fall this year</a> to its lowest level in four decades as a percentage of GDP – to 0.5%. This new research funding cut only worsens this situation.</p>
<h2>With the budget in surplus, it makes no sense</h2>
<p>University leaders knew research funding was at risk, and so jobs for researchers, technicians and researchers were at risk. But beyond these jobs are the projects they support and the Australians from all walks of life whose lives have or will be transformed by Australian research.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/margaret-gardner-freezing-university-funding-is-out-of-step-with-the-views-of-most-australians-92570">Margaret Gardner: freezing university funding is out of step with the views of most Australians</a>
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</p>
<hr>
<p>Universities Australia has stories of survivors of stroke, cervical cancer and family violence speaking about how crucial university research has been in the lives of people like them at <a href="http://keepitclever.com.au/petition/">#UniResearchChangesLives</a>.</p>
<p>With a government budget surplus in sight, it makes no sense to cut the research capacity that will create jobs, income and new industries for Australia.</p><img src="https://counter.theconversation.com/content/108919/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Professor Margaret Gardner is the President and Vice-Chancellor of Monash University and Chair of Universities Australia. She is also a member of the Group of 8 universities. </span></em></p>With a budget surplus in sight, it makes no sense to cut funding from Australia’s research capacity.Margaret Gardner, President and Vice Chancellor, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1088302018-12-17T01:25:25Z2018-12-17T01:25:25ZMore mirage than good management, MYEFO fails to hit its own targets<p>The Morrison government wants next year’s election to be about economic management.</p>
<p>So understandably, it’s using the improved bottom line in the <a href="https://www.budget.gov.au/2018-19/content/myefo/index.html">Mid Year Economic and Fiscal Outlook</a> (MYEFO) to talk up its economic credentials. </p>
<p>But the numbers in MYEFO show it has failed to hit many of its own targets. </p>
<h2>Target 1: Surpluses on average over the cycle</h2>
<p>The government’s overarching fiscal objective is to deliver budget surpluses: not just in one year but on average over the economic cycle. </p>
<p>MYEFO indicates the government is expecting a $5.2 billion deficit in 2018-19 (0.3% of GDP). </p>
<p>It will be the 11th consecutive deficit for the Commonwealth budget. </p>
<p>Deficits have averaged $33.2 billion (2.1% of GDP) over those 11 years.</p>
<p>Yes, a $4.1 billion surplus is forecast for next year, with surpluses projected to reach $19 billion (0.9% of GDP) by 2021-22. </p>
<p>But so big have the recent deficits been, that even if everything goes well and the fiscal position continues to improve, the budget would need to be in surplus for decades to produce a surplus on average over each year, far longer than what most economists consider a typical economic cycle.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/myefo-reveals-billions-more-in-revenue-9-billion-in-fresh-election-tax-cuts-108889">MYEFO reveals billions more in revenue, $9 billion in fresh election tax cuts</a>
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<p>A related fiscal target is that budget surpluses will build to at least 1% of GDP as soon as possible. </p>
<p>Despite revenue windfalls from income and company taxes (discussed below), the government is still forecasting it won’t reach that 1% of GDP surplus target until 2025-26. </p>
<p>Policy decisions in this year’s budget and MYEFO – including income and company tax cuts, additional funding for independent and Catholic schools, and changes to the GST formula to placate Western Australia – have weakened the bottom line in 2021-22 by $10.5 billion. </p>
<p>Hardly the actions of a government in a hurry to deliver a sizeable surplus.</p>
<p><strong>Verdict: Fail.</strong></p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/250847/original/file-20181217-185234-o597i4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/250847/original/file-20181217-185234-o597i4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/250847/original/file-20181217-185234-o597i4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/250847/original/file-20181217-185234-o597i4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/250847/original/file-20181217-185234-o597i4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/250847/original/file-20181217-185234-o597i4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/250847/original/file-20181217-185234-o597i4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/250847/original/file-20181217-185234-o597i4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<hr>
<h2>Target 2: Reduce the payments-to-GDP ratio</h2>
<p>The government’s policy is also to maintain strong fiscal discipline by controlling expenditure, with a falling payments-to-GDP ratio its measure of success. </p>
<p>Whether it has met the target depends on the starting year. Governments payments are forecast to reach 24.9% of GDP in 2018-19, up from 23.9% in 2012-13 before the Coalition took office. </p>
<p>The government prefers the starting point of its first year in office 2013-14 where payments were 25.5% of GDP.</p>
<p>Either way, payments in 2018-19 remain above the 30-year historical average of 24.7% of GDP.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/morrisons-return-to-surplus-built-on-the-back-of-higher-tax-parliamentary-budget-office-102712">Morrison's return to surplus built on the back of higher tax – Parliamentary Budget Office</a>
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</p>
<hr>
<p>While the government projects that spending will fall slightly further to 24.6% of GDP by 2021-22, this relies on spending growth across the government’s major programs <a href="https://insidestory.org.au/budget-2018-built-on-good-fortune-relying-on-luck/">falling substantially compared to the previous four years</a> – without major policy changes to help facilitate the fall. </p>
<p><strong>Verdict: Debateable pass.</strong></p>
<hr>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/250850/original/file-20181217-185243-qc3s97.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/250850/original/file-20181217-185243-qc3s97.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/250850/original/file-20181217-185243-qc3s97.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/250850/original/file-20181217-185243-qc3s97.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/250850/original/file-20181217-185243-qc3s97.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/250850/original/file-20181217-185243-qc3s97.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/250850/original/file-20181217-185243-qc3s97.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&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"></span>
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<hr>
<h2>Target 3: Tax-to-GDP ratio below 23.9% of GDP</h2>
<p>In last year’s budget, the government introduced a new target of capping tax collections at 23.9% of GDP. </p>
<p>Why 23.9%? That was the average level of tax during the final two terms of the Howard/Costello government. </p>
<p>While the Coalition is understandably keen to follow the lead of one of its most electorally successful governments, that was also a period where tax collections were historically high.</p>
<p>Tax collections are projected to reach 23.8% of GDP in 2022, on the back of stronger than forecast personal income tax and company tax receipts. </p>
<p><strong>Verdict: Pass</strong>.</p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/250852/original/file-20181217-185243-1astx8p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/250852/original/file-20181217-185243-1astx8p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/250852/original/file-20181217-185243-1astx8p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/250852/original/file-20181217-185243-1astx8p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/250852/original/file-20181217-185243-1astx8p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/250852/original/file-20181217-185243-1astx8p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/250852/original/file-20181217-185243-1astx8p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/250852/original/file-20181217-185243-1astx8p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">MYEFO Chart.</span>
</figcaption>
</figure>
<hr>
<h2>Target 4: New spending measures more than offset by reductions in spending elsewhere</h2>
<p>Since becoming prime minister, Scott Morrison has sent mixed signals about whether his government will adhere to the longstanding budget rule that all new spending proposals be matched with budget savings. </p>
<p>At the MYEFO press conference, Finance Minister Matthias Cormann said it was a “matter of balancing competition priorities”. </p>
<p>Here’s the straight answer – the net effect of policy changes announced in MYEFO are an additional $12.2 billion in spending over four years. </p>
<p>In other words, the government has not offset new spending with cuts to other spending programs. The Turnbull government similarly failed to offset its new spending in 2017-18 (although it succeeded in prior years). </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/mondays-myefo-will-look-good-but-it-will-set-the-budget-up-for-awful-trouble-down-the-track-107567">Monday's MYEFO will look good, but it will set the budget up for awful trouble down the track</a>
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<p>There have been some reductions in spending because of improvements in the economy. The government claims these reductions offset its recent spending announcements. But genuine offsets come from policy changes, not economic good luck. </p>
<p><strong>Verdict: Fail.</strong></p>
<h2>Target 5: Shifts due to changes in the economy banked as an improvement in budget bottom line</h2>
<p>This objective is key to the government’s fiscal conservative credentials. </p>
<p>If it has some economic good luck, it commits to use the proceeds for budget repair rather than new spending or tax cuts. </p>
<p>This rule has been irrelevant for most of the past decade, because almost every budget had revenue collections falling short of forecast. </p>
<p>But the Morrison government is in the middle of a mini revenue boom – revenue collections were higher than forecast in both the 2018-19 budget and MYEFO. </p>
<p>Company tax collections are higher largely due to strong commodity prices. Income tax collections are up and government spending is down because of improvements in the economy.</p>
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Read more:
<a href="https://theconversation.com/labor-would-deliver-bigger-surpluses-than-the-coalition-bowen-96678">Labor would deliver bigger surpluses than the Coalition: Bowen</a>
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<p>So has the government used this chance to show off its fiscal prudence? </p>
<p>Not exactly. It will spend around $11.8 billion of this windfall, give away another $19.3 billion in tax cuts and bank just over half of it ($35.2 billion) to the bottom line.</p>
<p>And in the shadow of an election, we can almost certainly expect further spending. The $9 billion in decisions taken but not announced – potentially a pre-election warchest – suggests that more tax cuts could also be on the way. </p>
<p><strong>Verdict: Fail.</strong></p>
<h2>Our final verdict</h2>
<p>The challenge in assessing budget management is separating good luck from good management. Governments will always seek to take credit for economic upswings that boost the bottom line. </p>
<p>Fiscal targets are there to keep them on the straight and narrow. </p>
<p>An objective assessment of the government’s performance against its own key targets suggests its good news budget is more mirage than magnificent management.</p><img src="https://counter.theconversation.com/content/108830/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The Grattan Institute began with contributions to its endowment of $15 million from each of the Federal and Victorian Governments, $4 million from BHP Billiton, and $1 million from NAB. In order to safeguard its independence, Grattan Institute’s board controls this endowment. The funds are invested and contribute to funding Grattan Institute's activities. Grattan Institute also receives funding from corporates, foundations, and individuals to support its general activities as disclosed on its website.</span></em></p><p class="fine-print"><em><span>Kate Griffiths 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 assessed by the government’s own rules, MYEFO fails. The government is spending the latest revenue windfall even though it promised not to.Danielle Wood, Program Director, Budget Policy and Institutional Reform, Grattan InstituteKate Griffiths, Senior Associate, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1088902018-12-16T08:55:14Z2018-12-16T08:55:14ZView from The Hill: Morrison goes a bridge too far to outsmart Shorten<p>The Morrison government is going over the top in trying to outsmart and smother Bill Shorten and the Labor national conference.</p>
<p>Leaving aside the holding of the July Super Saturday byelections when the ALP meeting was originally due, the government is attempting to outdo the rescheduled conference at every turn.</p>
<p>Some time ago the budget update was set for Monday, to overshadow the second day of the conference. </p>
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Read more:
<a href="https://theconversation.com/mondays-myefo-will-look-good-but-it-will-set-the-budget-up-for-awful-trouble-down-the-track-107567">Monday's MYEFO will look good, but it will set the budget up for awful trouble down the track</a>
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<p>Not content with that, Scott Morrison decided to announce Australia’s new Governor-General, David Hurley, on Sunday morning at the exact same time as Shorten’s opening address in Adelaide.</p>
<p>The prime minister rang Shorten at 7:30am to tell him about the 10 o'clock announcement.</p>
<p>Labor has a legitimate point in complaining about Morrison’s failure to consult on the appointment. He was under no formal obligation to do so, but given that Hurley will not be sworn in until after the election, it would have been the proper course to take.</p>
<p>Regardless of any argument about that, the timing of the announcement was absolutely the wrong course. When Morrison was asked about it he could provide no convincing justification. It was indeed rather disrespectful to Hurley, because the obvious attempted one-upmanship would inevitably be controversial.</p>
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Read more:
<a href="https://theconversation.com/nsw-governor-david-hurley-will-be-australias-new-governor-general-108886">NSW Governor David Hurley will be Australia's new Governor-General</a>
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<p>Less provocative but also designed as a distraction from the attention on Labor was Sunday night’s announcement for the 7pm news of a $552.9 million increase in aged care funding, including the release of 10,000 high level home care places within weeks. </p>
<p>In other years, the Coalition would have wanted all attention on the Labor shindig, expecting fiery debates. But this time the government is worried about a conference which is a highly managed affair where divisions are being contained and participants have their eyes firmly on the prize of Labor winning power next year. </p>
<p>It is all about showcasing Shorten as fit to lead the nation. </p>
<p>Not that there weren’t some fracas on the first day. But they came from demonstrators rather than delegates. Anti-Adani and pro-refugee protesters invaded the stage as Shorten prepared to speak, and there were noisy scenes outside the Adelaide convention centre.</p>
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Read more:
<a href="https://theconversation.com/labor-promises-a-comprehensive-overhaul-of-federal-environmental-framework-108888">Labor promises a comprehensive overhaul of federal environmental framework</a>
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<p>Shorten in his speech unveiled initiatives on housing affordability, the protection of superannuation and the creation of new national environmental architecture. </p>
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Read more:
<a href="https://theconversation.com/shortens-subsidy-plan-to-boost-affordable-housing-108881">Shorten's subsidy plan to boost affordable housing</a>
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<p>His address was workmanlike - comprehensive rather than a rhetorical rallying cry. His approach at this conference is cautious and careful, designed to avoid false steps - although in policy terms Labor is bold and willing to be a big target.</p>
<p>The ALP’s new national president Wayne Swan told the conference that “the focus now shifts to us”.</p>
<p>In these three days Labor is committed to presenting itself as a convincing alternative government. Its message is that it’s ready for office.</p>
<p>There are two days to go for Labor in Adelaide. But at the end of day one the government was looking desperate while the opposition was looking determined.</p><img src="https://counter.theconversation.com/content/108890/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan 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>The government is worried about a conference which is a highly managed affair where divisions are being contained and participants have their eyes firmly on the prize of Labor winning power next year.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1075672018-12-13T19:11:48Z2018-12-13T19:11:48ZMonday’s MYEFO will look good, but it will set the budget up for awful trouble down the track<p>An appallingly perfect storm is brewing for the federal budget: </p>
<ul>
<li><p>a government with much more income than expected</p></li>
<li><p>a federal election due within months </p></li>
<li><p>a government well behind in the polls</p></li>
</ul>
<p>With the election all but announced for May, next Monday’s Mid Year Economic and Fiscal Outlook (MYEFO) will be the effective start of the campaign.</p>
<p>The latest figures put the government’s budget position <a href="https://www.finance.gov.au/publications/commonwealth-monthly-financial-statements/2018/mfs-october/">about A$10 billion better than was expected</a> when it was delivered last May.</p>
<p>The budget has been gifted much higher revenues from corporate income taxes, almost entirely driven by mining companies selling more than they expected (at higher prices than they expected) to China.</p>
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Read more:
<a href="https://theconversation.com/morrisons-return-to-surplus-built-on-the-back-of-higher-tax-parliamentary-budget-office-102712">Morrison's return to surplus built on the back of higher tax – Parliamentary Budget Office</a>
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<p>A stronger than expected domestic economy has also helped, producing small upside surprises in various other taxes and cutting the need for government spending.</p>
<p>In the past six months the stars have aligned to hand the government a virtual war chest with which to fight the election. </p>
<h2>A full MYEFO, then an election budget</h2>
<p>Prime Minister Scott Morrison has laid out the timetable. </p>
<p>MYEFO is due on Monday December 17 and an early Budget will be handed down on Tuesday April 2, days before the government is expected to call the May election.</p>
<p>In announcing it, he promised to deliver <a href="https://www.pm.gov.au/media/press-conference-treasurer">a budget surplus in 2019/20</a>.</p>
<p>This tells us two things, firstly, that he has zero interest in bringing that surplus forecast forward to the current financial year, 2018-19; and second, that that surplus is unlikely to be materially different from what Morrison previously forecast (as treasurer) in May.</p>
<p>That will give him room to make some very expensive announcements.</p>
<p>With as much as (or more than) an extra A$10 billion per year to play with, Morrison’s ministers will be rubbing their hands together working out how to get the most electoral bang for the bucks.</p>
<h2>Endangering the budget long term</h2>
<p>This does not bode well for government finances beyond the next few years.</p>
<p>Highly targeted spending measures aimed at improving election prospects are rarely the best use of public funds.</p>
<p>New spending commitments in the just past few months are set to cost the budget just under A$500 million this year, rising to almost A$1.5 billion next year. </p>
<p>Spending all or most of the extra money that’s pouring into the Treasury coffers risks creating a budget black hole if the sources of that revenue prove to be temporary.</p>
<p>A slowdown in Australia or a drop in China’s demand for raw materials could take a big chunk out of the budget.</p>
<p>The damage to the government’s finances after the global financial crisis was only partly the result of spending aimed at averting a recession. </p>
<p>We now know a big part of the surge in revenues in the years before the crisis were temporary.</p>
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Read more:
<a href="https://theconversation.com/budget-policy-check-does-australia-need-personal-income-tax-cuts-94500">Budget policy check: does Australia need personal income tax cuts?</a>
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<p>The increased spending and repeated lower taxes they funded were permanent, creating a structural budget deficit that has taken a decade to repair.</p>
<p>As mentioned, the latest upside surprises on revenue are largely due to strong commodity prices and a rising tax take from mining companies. </p>
<p>They might vanish as quickly as they appeared.</p>
<p>Commodity prices are notoriously volatile and almost entirely dependent on what is happening in China.</p>
<h2>Problem: China</h2>
<p>Perversely, China is buying more of our commodities because it has upped spending on infrastructure to boost a slowing economy under threat of trade war.</p>
<p>The boost in infrastructure spending won’t last.</p>
<p>Eventually we will see a shift in the drivers of Chinese growth towards domestic consumption and business investment and away from metal-intensive infrastructure spending. </p>
<p>It will curtail the growth of our exports and weaken our corporate income tax take.</p>
<p>Dark clouds are forming at home as well. </p>
<h2>Problem: Australia</h2>
<p>Bank profitability has stopped growing, and the indications from the Hayne Royal Commission are that bank profits will be challenged over the next few years as remediation costs rise and lending slows.</p>
<p>And then there is housing. </p>
<p>While not a direct source of revenue for the federal government, the fall in house prices could start to bite into economic activity as early as next year. </p>
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Read more:
<a href="https://theconversation.com/vital-signs-we-are-witnessing-a-slowly-deflating-property-bubble-for-now-98624">Vital Signs: we are witnessing a slowly deflating property bubble, for now</a>
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<p>While consumers have so far looked past the lower house values, that is likely to change in 2019 if prices continue to fall.</p>
<h2>It’d be wise to hang on to the extra billions</h2>
<p>The best economic approach would be for this government to save money and leave it for the next government to use them prudently as needed. </p>
<p>It’s certainly not going to happen.</p>
<p>Centre right governments tend to characterise unexpected bumps in revenue as belonging to the citizenry and to be given back. </p>
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Read more:
<a href="https://theconversation.com/howards-end-how-the-coalitions-last-budget-created-the-ground-for-the-current-deficits-13848">Howard's end: how the Coalition's last budget created the ground for the current deficits</a>
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<p>They usually do it in the form of income tax cuts. We should prepare for substantial fresh income tax cuts, from as soon as July 1, 2019.</p>
<p>Control of the Treasury is one of the most important weapons available to a political party contesting an election.</p>
<p>Having a prime minister who spent several years as treasurer only enhances the weapon.</p>
<p>The government’s timeline for MYEFO and the April budget suggests they fully intend to use it.</p><img src="https://counter.theconversation.com/content/107567/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Warren Hogan 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>History suggests the government will spend most of the extra $10 billion per year that the MYEFO will reveal on Monday. The only problem is, those riches won’t last.Warren Hogan, Industry Professor, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/893072017-12-21T00:03:08Z2017-12-21T00:03:08ZUniversities get an unsustainable policy for Christmas<figure><img src="https://images.theconversation.com/files/200285/original/file-20171220-4973-1gfpm1i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The government is proposing to save A$2.2 billion on education over the next four years, which will hit students the hardest.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>On Monday, the government announced its third attempt to significantly reduce spending on higher education in the <a href="http://www.budget.gov.au/2017-18/content/myefo/html/">Mid-Year Economic and Fiscal Outlook</a> (MYEFO). </p>
<p>It’s unclear whether the proposal is intended to be a long-term policy, or a bargaining chip to achieve the cuts Education Minister Simon Birmingham <a href="https://ministers.education.gov.au/birmingham/focusing-facts-higher-education-reform">tried to push through earlier this year</a>. </p>
<p>Overall, it’s not very good policy, as it’s primarily about making savings rather than improving higher education. Australia needs a higher education system that can respond to change, not one that is locked down. It will become extremely difficult for any minister to reverse these funding cuts after a couple of years. Students will pay a greater share of costs as a result. </p>
<h2>What’s in the proposal?</h2>
<p>The government is <a href="https://www.education.gov.au/higher-education-reform-package-student-overview">proposing</a> to achieve savings in ways that don’t require Senate approval. It proposes to:</p>
<ul>
<li><p>freeze Commonwealth Grant Scheme (CGS) funding for bachelor level courses in 2018 and 2019 at 2017 levels. This means no increases for any additional bachelor degree student places or for increased costs due to inflation</p></li>
<li><p>increase CGS funding for bachelor level courses in 2020 and subsequent years by the growth rate in the 18-64 year old population (so, <a href="http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/3222.0main+features52012%20(base)%20to%202101">around 1.2% a year</a>), but only for universities which meet performance targets (the detail of which will be discussed in 2018) </p></li>
<li><p>reduce the number of funded postgraduate student places by removing 3,000 postgraduate places, which we are told are not used (and hence do not cost anything)</p></li>
<li><p>cease funding over 1,000 student places <a href="https://ministers.education.gov.au/pyne/coalition-announces-additional-university-places">allocated in 2013</a> to meet priority skill and regional needs - 419 postgraduate places in allied health and nursing, 533 in language diplomas and 250 in enabling/tertiary preparation courses; and</p></li>
<li><p>change the current allocation of student places for diplomas, associate degrees and postgraduate level courses to better meet industry needs and reflect institutional outcomes (the detail of which will be discussed in 2018).</p></li>
</ul>
<p>The government also indicated it would pursue some savings requiring Senate approval. These are to:</p>
<ul>
<li><p>lower the HELP repayment threshold to A$45,000 and make other changes to the HELP repayment schedule to speed up student debt repayments; and</p></li>
<li><p>introduce a lifetime lending limit across all HELP programs, including HECS-HELP, capped at A$104,440 for most students and A$150,000 for students in medicine, dentistry and veterinary science. </p></li>
</ul>
<h2>What will the proposals do?</h2>
<p>The government estimates these proposals will save around A$2.2 billion over the next four years. Most of the savings come from freezing funding for bachelor degree courses in 2018 and 2019, and the limit on funding growth for those courses from 2020 onwards. </p>
<p>This funding is delivered through the student place subsidies paid under the CGS. Combined with a student’s contribution (usually paid through HECS-HELP), these cover the cost of teaching students.</p>
<p>The CGS provides subsidies for all courses, not just bachelor degree courses. It also provides a number of loadings, such as <a href="https://theconversation.com/a-new-approach-to-regional-higher-education-is-essential-to-our-economic-future-88537">the regional loading</a>, to help to meet extra costs. In 2017, CGS spending will be around A$7.1 billion in total. </p>
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<p>The main target of the government’s proposals is the A$6 billion of spending on bachelor degree courses. Currently, universities can offer as many places for bachelor students as they want in the demand-driven system, so spending on this element of the CGS can increase without government approval. </p>
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<em>
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Read more:
<a href="https://theconversation.com/uncapping-of-university-places-achieved-what-it-set-out-to-do-so-why-is-it-dubbed-a-policy-failure-61082">Uncapping of university places achieved what it set out to do. So why is it dubbed a policy failure?</a>
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<p>In the case of other courses, such as diplomas, associate degrees and postgraduate degrees, the government still controls how many places a university can offer. It controls its spending on these courses and special loadings. </p>
<p>The government will no longer try to lower the amounts of its contribution to student places, which are specified in higher education funding legislation. Instead, it will use a provision in the legislation that allows it to put a cap on funding for bachelor degree courses without Senate approval. </p>
<p>This is achieved simply by inserting a sentence specifying the upper limit on bachelor degree course funding in a university’s CGS funding agreement. The only restriction placed on the government is that the amount cannot go down from the previous year. So, in 2018, a university’s maximum funding for bachelor degree courses cannot be less than it was for 2017.</p>
<p>Universities don’t have the option not to sign these funding agreements. They are a precondition of getting any CGS funding and having any Commonwealth supported students. </p>
<p>Currently, the government will pay a university for every domestic bachelor degree student according to the legislated subsidy levels for the relevant year. It will still do this, but only up to the maximum amount specified in the funding agreement - then it will just stop. </p>
<p>When the maximum amounts for every university in 2018 are added up, they will not exceed the A$6 billion expected to be spent in 2017. The same goes in 2019.</p>
<h2>What happens after the freeze lifts?</h2>
<p>From 2020, a university may have its maximum amount for student places in bachelor degree courses increased by the growth rate in the 18-64 year old population, if the university meets performance targets. On current <a href="http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/3222.0main+features52012%20(base)%20to%202101">ABS population projections</a>, that is likely to be around 1.2% each year.</p>
<p>Assuming all universities meet the performance targets, there are two ways of looking at the impact:</p>
<ol>
<li><p>If a university grows its bachelor degree student places to match Australia’s growing population, the government subsidy component will never be increased to compensate for the increased costs of providing bachelor level places due to inflation. </p></li>
<li><p>If a university never increases its bachelor degree student places, the government subsidy component cannot rise by more than 1.2%. If inflation is 2.5%, the real value of the subsidy will be reduced by 1.3%.</p></li>
</ol>
<p>Education Minister Simon Birmingham <a href="https://ministers.education.gov.au/birmingham/interview-abc-rn-breakfast-hamish-macdonald">has been asked</a> what his policy will mean for the number of domestic student places. He can’t answer these questions because it’s not his decision. Universities are unlikely to increase domestic bachelor degree student places and the policy settings are likely to distort university decision-making.</p>
<p>Universities may decide to have fewer students in courses with above-average subsidy levels, such as health sciences, nursing, engineering and agriculture. They may increase students in courses with low subsidy levels, such as law, accounting, economics and administration. </p>
<p>The government hasn’t released estimates of how university funding will be reduced due to restricting growth in bachelor degree funding. The graph below indicates how it is likely to be reduced each year to 2025, based on a fairly conservative set of assumptions. It shows how rapidly the savings from such a proposal escalate. </p>
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<p>If the government’s policy is implemented, any minister would find it almost impossible to reverse. Ministers who want to change policy and increase spending have to find savings from elsewhere to cover the costs. The cost of reversing this policy would be massive, as it takes only a few years for it to produce savings of over a billion dollars a year.</p>
<h2>How does this affect students?</h2>
<p>While the government will substantially reduce its funding contribution by eroding its real value, students will continue to pay more as their contribution to the cost of their degree continues to increase with inflation. </p>
<p>In addition, if a university decides to grow its bachelor level student places despite not receiving any government subsidy for them, the student will still be required to make their contribution. </p>
<p>Both of these factors mean the 30-year trend of shifting the cost of higher education from government to students will continue. This is despite it being a major part of the reason student debts are continuing to grow and greater amounts are not being repaid - a problem the government claims it’s trying to fix. </p>
<h2>The demand-driven system is not unsustainable</h2>
<p>The rapid expansion that occurred under the demand-driven system <a href="https://www.universitiesaustralia.edu.au/Media-and-Events/media-releases/University-enrolment-growth-remains-stable--latest-data#.Wjr52lT1VBy">has largely stabilised</a> and total funding for general research and tertiary education has declined in real terms by 1.3% over the last four years. </p>
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<p>Previous savings paid for most of the demand-driven expansion in student places and Australia’s spending on tertiary education as a share of GDP is <a href="http://melbourne-cshe.unimelb.edu.au/news-and-events/beyond-the-demand-driven-obsession-and-policy-impasse">now lower</a> than it was before the demand-driven system was introduced.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/vocational-education-and-training-sector-is-still-missing-out-on-government-funding-report-88863">Vocational education and training sector is still missing out on government funding: report</a>
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<p>The government is giving the objective of returning the budget to surplus a higher priority than the development of our tertiary education sector. This includes the vocational education and training system, which has already had its funding eroded over many years. </p>
<p>We can have both budget repair and well-funded tertiary education, but not with this policy.</p><img src="https://counter.theconversation.com/content/89307/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Warburton is a part-time consultant and associate of PhillipsKPA, an education industry consulting group. He worked for Universities Australia in 2015 and prior to that was a public servant for 32 years, advising both Labor and Coalition Governments on higher education. </span></em></p>The cuts to higher education funding are more about making savings than improving higher education, and would be extremely hard to change in the future.Mark Warburton, Honorary Senior Fellow, LH Martin Institute, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/705952016-12-19T19:07:45Z2016-12-19T19:07:45ZThere are two big political problems buried in the latest budget update<p>Whether or not we end up in surplus in five years’ time, <a href="http://www.budget.gov.au/2016-17/content/myefo/html/">yesterday’s Mid Year Economic and Fiscal Outlook (MYEFO)</a> exposes nasty political problems for the Turnbull government in the here and now. </p>
<p>Real GDP growth for 2016-17 has been sensibly but shockingly revised down to 2% – the lowest outcome since the global financial crisis, the second lowest in 16 years and the third lowest since the long upswing began in 1991/92. Sensible, because we know, from the third-quarter GDP numbers and other indicators this year, that the upswing in residential investment has peaked before (and perhaps well before) an upswing in business investment has begun. </p>
<p>Shocking, because if labour productivity continues to run a little above 1% – as it has for the last four years – the implied growth in employment of 1% or so will probably not be enough to stop unemployment rising. The MYEFO projects the unemployment rate in the June quarter next year at 5.5% – lower than today and lower than the average of 5.8% over the last four years. </p>
<p>Yet, at 2.6% year average GDP, growth in those four years has been markedly stronger than the 2% MYEFO now projects for 2016-17. Even with the projected decline in the participation rate, the MYEFO unemployment forecast will be a struggle. </p>
<p>Disappointing GDP growth is political problem number one for Malcolm Turnbull and Treasurer Scott Morrison. Problem number two is the implacable persistence of substantial federal deficits.</p>
<p>These deficits limit the government’s response to problem number one. In 2012-2013 government receipts were 23.0% of GDP, payments 24.0% of GDP, and the deficit 1.2% of GDP. Labor lost office a little over nine weeks after the end of that fiscal year. </p>
<p>In these latest projections for the 2016-17 Budget, four years on from 2012-2013, receipts are expected to be 23.3% of GDP, payments 25.2% of GDP and the deficit 2.1% of GDP. Compared to 2012-13, receipts have increased 0.3% of GDP, spending 1.2% of GDP and the deficit 0.9% of GDP. Receipts are up, but spending is up even more and so is the deficit.</p>
<p>There are plenty of reasons for this woeful fiscal performance, mostly to do with modest increases in profits and wages and the tax-minimisation policy of former Treasurer Peter Costello. But these reasons are not ones that square with Treasurer Morrison’s rhetoric, or which can any longer be laid at the door of the previous Labor government. </p>
<p>Nor does the MYEFO give any confidence that the troubles of the Turnbull government will soon be eased. The path to the return to surplus depends completely on increasing tax revenue. </p>
<p>Spending as a share of GDP is now, according to these MYEFO projections, locked in at 25.2% of GDP right through to the end of the forward estimates period (and beyond the next election) in 2019-20. The projected decline of the deficit arises only because tax receipts are expected to increase over that period by 1.6% of GDP. </p>
<p>A slow economy, a rising tax take, perhaps rising unemployment, and not much room to move. 2017 won’t be cheerful for the prime minister or treasurer – or for the rest of us.</p><img src="https://counter.theconversation.com/content/70595/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Edwards is Nonresident Fellow at the Lowy Institute for International Policy and is a member of the board of CEDA</span></em></p>Next year GDP will grow at the second-slowest rate in 16 years, according to MYEFO. This has big implications for unemployment and the deficit.John Edwards, Nonresident Fellow at the Lowy Institute for International Policy and Adjunct Professor with the John Curtin Institute of Public Policy, Curtin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/701142016-12-19T03:56:33Z2016-12-19T03:56:33ZFactCheck: what are the facts on jobs and growth in Australia?<blockquote>
<p>There have been a lot of jobs created this year. The economy is actually not going too badly in comparison particularly to other OECD countries, we have the highest growth rate in the G7 so we are getting some things right and I think 2017 is a year to be looking forward to. <strong>– Christopher Pyne, minister for defence industries, <a href="https://soundcloud.com/fiveaa/final-two-tribes-for-2016">speaking on radio 5AA Adelaide</a>, December 7, 2016. (Listen from 6.30.)</strong></p>
</blockquote>
<iframe width="100%" height="450" scrolling="no" frameborder="no" src="https://w.soundcloud.com/player/?url=https%3A//api.soundcloud.com/tracks/296578006&auto_play=false&hide_related=false&show_comments=true&show_user=true&show_reposts=false&visual=true"></iframe>
<p>The government’s half-year budget update, the <a href="http://www.budget.gov.au/2016-17/content/myefo/html/">Mid Year Economic and Fiscal Outlook (MYEFO)</a>, includes some sobering projections about Australia’s future. The budget deficit is <a href="https://theconversation.com/aaa-rating-saved-despite-bigger-deficits-in-budget-update-70587">expected to deepen</a>, sparking fears about Australia’s AAA rating. </p>
<p>In the lead-up to the MYEFO release, minister for defence industries Christopher Pyne said that a lot of jobs were created in 2016 and Australia has the highest growth rate in the G7. Is that true?</p>
<h2>Checking the source</h2>
<p>The Conversation asked Christopher Pyne’s spokesperson for sources to support his statement but did not hear back before deadline.</p>
<p>Nevertheless, there is a range of credible sources against which his assertion can be checked. </p>
<h2>Does Australia have the highest growth rate in the G7?</h2>
<p>To begin with, it’s worth noting that Australia is an OECD country, but not part of the Group of 7 (<a href="http://www.cfr.org/international-organizations-and-alliances/group-seven-g7/p32957">G7</a>). The G7 consists of the United Kingdom, the United States, Canada, France, Germany, Italy and Japan. This is the group the International Monetary Fund (IMF) describes as the world’s seven major advanced economies.</p>
<p>We can compare Australia’s economic performance with the G7 countries using international data sources, including the IMF’s <a href="http://example.com/">World Economic Outlook database</a> and the <a href="http://stats.oecd.org/">OECD Statistics</a> database. </p>
<p>When Pyne said Australia has “the highest growth rate in the G7”, he was talking about economic growth. A standard way to measure growth or contraction in an economy is to measure the rate of change in a country’s Gross Domestic Product (GDP). </p>
<p>The table below shows the annual rate of growth of GDP in 2015, 2016 and 2017 for Australia, the G7 countries and country aggregates.</p>
<p>According to the <a href="https://www.imf.org/external/pubs/ft/weo/2016/02/weodata/index.aspx">IMF World Economic Outlook data</a>, Australia’s GDP grew faster than six of the seven G7 countries in 2015. Australia’s GDP growth was second only to the United States last year. </p>
<p>The data for 2016, charted below, may appear at first blush to support Pyne’s statement.</p>
<iframe src="https://datawrapper.dwcdn.net/il6F4/4/" frameborder="0" allowtransparency="true" allowfullscreen="allowfullscreen" webkitallowfullscreen="webkitallowfullscreen" mozallowfullscreen="mozallowfullscreen" oallowfullscreen="oallowfullscreen" msallowfullscreen="msallowfullscreen" width="100%" height="390"></iframe>
<p>However, the figures for 2016 are <em>estimates</em>. The <em>actual</em> data for 2016 is available only until the third quarter (Q3). The table below shows OECD data for the first three quarters of 2016.</p>
<iframe src="https://datawrapper.dwcdn.net/WsEYp/3/" frameborder="0" allowtransparency="true" allowfullscreen="allowfullscreen" webkitallowfullscreen="webkitallowfullscreen" mozallowfullscreen="mozallowfullscreen" oallowfullscreen="oallowfullscreen" msallowfullscreen="msallowfullscreen" width="100%" height="400"></iframe>
<p>The OECD data shows Australia’s performance has worsened over the course of 2016, with growth turning negative in the third quarter (Q3). In fact, in Q3 Australia performed well below any G7 country and well below the OECD average.</p>
<p>The cumulative growth rate – the sum of the three quarters – shows that Australia is performing in line with the G7 and slightly worse than the OECD average.</p>
<p>Therefore, for Pyne to say that Australia has the highest growth rate in the G7 is an overstatement. </p>
<h2>Were ‘a lot of jobs created this year’?</h2>
<p>The table below shows the rate of employment growth and the rate of unemployment in Australia and G7 countries in 2015 and 2016. The data for 2016 is based on end-of-year estimates.</p>
<iframe src="https://datawrapper.dwcdn.net/aJDNr/4/" frameborder="0" allowtransparency="true" allowfullscreen="allowfullscreen" webkitallowfullscreen="webkitallowfullscreen" mozallowfullscreen="mozallowfullscreen" oallowfullscreen="oallowfullscreen" msallowfullscreen="msallowfullscreen" width="100%" height="350"></iframe>
<p>Employment growth in Australia was higher than all the G7 countries in 2015. Based on end-of-year estimates, Australia will also record higher employment growth than the G7 countries in 2016. </p>
<p>The story is different when it comes to unemployment. Australia’s unemployment rate is estimated to have improved by 0.4% between 2015 and 2016, but unemployment in Australia is still higher than unemployment in four of the seven G7 countries. </p>
<h2>Growth in part-time employment</h2>
<p>The Australian Bureau of Statistics (ABS) <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6202.0%5D(http://www.abs.gov.au/ausstats/abs@.nsf/mf/6202.0">data</a>, between January and November 2016, employment in Australia grew by almost 88,000 (using the seasonally adjusted figures).</p>
<p>However, full-time employment fell by about 3,800 (using seasonally adjusted figures). This tells us that there was an increase in part-time employment. The increase in part-time employment and corresponding decline in full-time employment might reflect a change in the preferences of Australian workers. But it could also reflect a progressive loss of job security.</p>
<h2>Verdict</h2>
<p>Christopher Pyne has overstated how well Australia is performing on jobs and growth compared to other major economies. </p>
<p>IMF <em>estimates</em> for 2016 on GDP growth had put Australia ahead of the G7 countries. But the latest available data – which are actual figures as of the third quarter of 2016, not estimates – show that Australia’s cumulative growth in 2016 so far is at the level of the G7 and not higher. So Australia is performing in line with the G7 and slightly worse than the OECD average. </p>
<p>As for jobs, it’s estimated that Australia will record higher employment growth than the G7 countries in 2016, as we did in 2015. Between January and November 2016, employment in Australia grew by almost 88,000 – but <em>full-time</em> employment fell by about 3,800. This tells us that there was an increase in part-time employment, while the full-time job market did not improve. <strong>– Fabrizio Carmignani</strong></p>
<hr>
<h2>Review</h2>
<p>The author is correct in saying that the claim Australia has the highest growth in the G7 is an overstatement. However, it is also worth noting that temporary factors contributed to the fall in GDP in the September quarter. For example, the ABS noted that the <a href="http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/5206.0Main%20Features2Sep%202016?opendocument&tabname=Summary&prodno=5206.0&issue=Sep%202016&num=&view=">wet weather hampered residential building</a>. A more general issue is whether simply comparing GDP growth rates across countries is that informative about their relative economic performance. For example, Australia’s population growth is considerably stronger than most European countries, so its trend output growth should also be higher, all else being equal.</p>
<p>The author is correct to point out that employment growth in Australia this year has been in part-time employment. In addition to comparing unemployment rates across countries, it’s also useful to look at the employment to population ratio, as the participation rate can vary across countries. For example, in Australia the participation rate currently is <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/6202.0Main+Features1Nov%202016?OpenDocument">64.6%</a>, whereas for the US is 62.7%. So even though the US currently has a lower unemployment rate, a higher share of Australia’s population currently is employed (<a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/Latestproducts/6202.0Main%20Features2Nov%202016?opendocument&tabname=Summary&prodno=6202.0&issue=Nov%202016&num=&view=">61%</a>, compared to <a href="https://www.bls.gov/news.release/empsit.nr0.htm">59.7%</a>). <strong>– Tim Robinson</strong></p>
<hr>
<p><div class="callout"> Have you ever seen a “fact” worth checking? The Conversation’s FactCheck asks academic experts to test claims and see how true they are. We then ask a second academic to review an anonymous copy of the article. You can request a check at checkit@theconversation.edu.au. Please include the statement you would like us to check, the date it was made, and a link if possible.</div></p><img src="https://counter.theconversation.com/content/70114/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Fabrizio Carmignani receives funding from the Australian Research Council for a project on the estimation of the piecewise linear continuous model and its applications in macroeconomics.</span></em></p><p class="fine-print"><em><span>Tim Robinson receives funding from the Australian Research Council.</span></em></p>Ahead of the Mid Year Economic and Fiscal Outlook, minister for defence industries Christopher Pyne said a lot of jobs were created in 2016 and Australia has the highest growth rate in the G7. Is that true?Fabrizio Carmignani, Professor, Griffith Business School, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/703442016-12-18T19:01:54Z2016-12-18T19:01:54ZWhat is rumbling Australia’s economy ahead of MYEFO<p>The Turnbull government’s <a href="http://www.budget.gov.au/2016-17/content/myefo/html/">Mid-Year Economic and Fiscal Outlook</a> (MYEFO) takes place in a dramatically different environment from 2015-16. </p>
<p>The dual shocks of Brexit, and the promulgation of a protectionist Trump administration in 2017, present major challenges to the global economy. In late 2015, few predicted either of these scenarios emerging. The US and British economies, and stable US-China economic relations, are critical to Australia’s growth, wealth and living standards. As Britain prepares for Brexit, and the Trump administration awaits inauguration in January, what impact will these dramatic development have on Australia’s economic outlook?</p>
<p>There’s an old saying: “America sneezes and Australia gets a cold.” </p>
<p>If you believe that Australia’s dependence upon the American economy is so 20th century, think again. Despite China’s centrality to Australia’s present and future growth, the world economy is inextricably linked with US economic power, policies and performance. The Trump administration’s management of Washington-Beijing relations, together with its declared intention to <a href="https://theconversation.com/trump-can-kill-trade-deals-but-he-cant-kill-globalisation-68571">withdraw from international trade agreements</a>, threaten the structure of the liberal global economic order.</p>
<p>Last week, the national accounts showed that Australia was half way towards a technical recession, with a 0.5% contraction in the September 2016 quarter. Troubling figures emerged in the December unemployment numbers, with South Australia again occupying the unenviable top ranking for November, <a href="http://www.adelaidenow.com.au/news/south-australia/sa-unemployment-rate-leaps-from-64-per-cent-seasonally-adjusted-to-7-per-cent/news-story/a6cddc3e6007f7733780cf7802d85f6a">with 7.0% of the labour force</a> out of work. Nationally, unemployment is up fractionally, <a href="http://www.abs.gov.au/ausstats/abs@.nsf/0/F756C48F25016833CA25753E00135FD9?Opendocument">to 5.7%</a>.</p>
<p>Business investment has <a href="http://www.businessinsider.com.au/australia-capex-q3-report-2016-12">also declined consistently</a> over the last 18 months, with construction down significantly, while mining has fallen off the cliff since 2014. Manufacturing investment is also down, as new investment in the automotive industry evaporates, intensifying the unemployment problem in South Australia. Non-mining and non-manufacturing investment is trending downwards slightly.</p>
<p>The bright spot on the commodity front is coking coal, which <a href="http://www.indexmundi.com/Commodities/?commodity=coal-australian&months=60">spiked up to around US$100 per tonne</a> in November, a price it hasn’t seen at since early 2013.
Nevertheless, in November, <a href="https://www.theguardian.com/business/2016/nov/21/australia-budget-deficit-beyond-2021-scott-morrison">Treasurer Scott Morrison admitted that</a> wages were growing at a glacial pace and corporate profitability had fallen, in the face of much weaker terms of trade and fluctuating commodity prices.</p>
<p>Why has this occurred, even as <a href="http://www.mining.com/coking-coals-stunning-rally-wreaking-havoc-on-steel-iron-ore-markets/">iron ore and coal prices</a> have strengthened considerably? Most of the changes in demand have been stoked by Chinese domestic policies (and the steel market’s <a href="http://www.businessinsider.com.au/iron-ore-has-been-thumped-tumbling-below-80-a-tonne-2016-12">outlook in Tangshan, China</a> can change in a blink of an eye).</p>
<p>Despite a high level of trade interdependence, there has been essentially <a href="https://www.lowyinstitute.org/the-interpreter/china-and-australia-how-closely-linked-are-our-economies-really">no correlation between Chinese and Australian GDP growth</a> for the past six years. Conversely, there has been a relatively close correlation between US GDP expansion and contraction and Australia’s economic performance. This was disrupted, briefly, by the global financial crisis in 2008-09, but the US’s traditional influence upon Australian economic growth has been restored.</p>
<p>Consequently, the decisions of the incoming Trump administration will have a significant impact upon Australia’s economic performance. More importantly, Trump’s fiscal expansionist agenda is now on a direct collision course with that set by Fed chair Janet Yellen. The US Federal Reserve (Fed), which still effectively sets global interest rates, raised interest rates on December 15, delivering its first rate hike in 12 months, and only the second since the global financial crisis struck. The increase is small, raising the Fed funds rate to 0.5-0.75%, but the signal that Yellen is sending demonstrates zero interest-rate policy (<a href="http://theconversation.com/in-a-world-of-low-rates-what-else-can-the-rba-and-central-banks-do-61981">ZIRP</a>) is well and truly over.</p>
<p>Bond markets are predicting two more Fed rate rises for 2017, while the Fed itself has signalled three. The bottom line? Funds are flooding to US dollar-denominated assets, while the Australian dollar is falling against the greenback.</p>
<p>But that’s positive, isn’t it? A depreciating Australian dollar will help drive exports.</p>
<p>Not so fast.</p>
<h2>Of debt and US dollars</h2>
<p>The problem is that weakness against the greenback hides the Australian dollar’s strength relative to its major Asian trading partners – its key export markets. <a href="http://www.afr.com/news/economy/monetary-policy/australian-dollar-drops-on-heightened-policy-divergence-with-the-us-20161214-gtbev9">James McIntyre at Macquarie Bank argues</a> that the dollar has, in fact, appreciated against the yuan and the yen. </p>
<p>Fact: the US holds more Australian debt than any other country. As Treasurer Scott Morrison noted this week, American bond holders own almost <a href="http://sjm.ministers.treasury.gov.au/speech/023-2016/">A$600 billion in Australian debt</a>, with the UK owning another A$400 million. </p>
<p>Why? Australian debt is AAA-rated and typically pays a <a href="http://www.investopedia.com/terms/c/coupon-rate.asp">relatively high coupon rate</a>. That makes it an attractive and safe investment asset.</p>
<p>Bear in mind that the US and UK are Australia’s two biggest sources of foreign direct investment. But investors are notoriously flighty; consequently, how the Trump and May governments negotiate the next few months will have a profound longer-term impact on Australia’s growth. </p>
<p>President-elect Trump has foreshadowed a <a href="http://www.politico.com/tipsheets/morning-transportation/2016/11/trumps-plan-for-1-trillion-in-infrastructure-investments-217315">massive US$1 trillion reinvestment</a> in US infrastructure, utilising public-private partnership and tax breaks. Trump’s promises, if implemented, would increase <a href="http://fortune.com/2016/09/22/donald-trump-national-debt-trillion/">the fiscal deficit by US$5.1 trillion</a>, according to one estimate. </p>
<p>If Trump does cut taxes and increase US fiscal deficits, that amounts to a significant expansion of the US bond market. And, in a world of rising interest rates and relative investment scarcity, that means two things. First, the Australian capital market pool (where banks obtain their wholesale funding) will get a little shallower; and, second, the cost of capital is going up in 2017. And you can take that to the bank.</p>
<h2>Rogue Trump: A trade wars story</h2>
<p>If Trump’s behaviour as President-elect is any indication of how he’ll conduct his presidency, expect shambles and chaos. In a mere matter of weeks since November 8, Trump has:</p>
<ol>
<li> Spoke on the phone with Taiwan</li>
<li> Queried US adherence to the “One-China” policy</li>
<li> Threatened to cancel the Trans-Pacific Partnership (TPP)</li>
<li> Threatened to renegotiate the North American Free Trade Agreement (NAFTA)</li>
<li> Threatened to deport <a href="http://www.economist.com/news/united-states/21711336-if-he-wins-second-term-president-elect-could-realistically-expel-around-4m-people">millions of unlawful immigrants</a> (ironically, non-unionised, immigrant labour, is essential to keeping a lid on infrastructure costs)</li>
<li> Criticised the cost of the F35 Joint Strike Fighter, <a href="https://www.theguardian.com/business/2016/dec/12/lockheed-martin-share-prices-donald-trump-tweet">slashing Lockheed shares</a> by US$4 billion and sending <a href="http://www.afr.com/markets/trump-smashes-defence-shares-with-lockheed-f35-tweet-20161212-gt9n7b">defence firms’ stocks plummenting</a>.</li>
</ol>
<p>Trade wars are negative-sum games: everybody loses. However, for the first time <a href="https://history.state.gov/milestones/1921-1936/protectionism">since Herbert Hoover</a>, America now has a president-elect in Trump who apparently believes in zero-sum trade: for one side to gain, the other has to lose. </p>
<p>China, the US and Britain rank first, third and seventh, respectively, among Australia’s trade partners. How adroitly policy makers in London and Washington handle issues such as Brexit and US-China relations will determine whether the Australian economy stays on the boil or gets frozen out.</p>
<h2>Heading for a Brexit</h2>
<p>If you’re confused by Brexit, you’re not alone; so is the British government. Six months after the seismic shock ushered in on 23 June, Theresa May’s government has pondered various Brexits: hard, soft, black, white, grey and now, finally, <a href="https://www.theguardian.com/politics/2016/dec/06/theresa-may-calls-for-red-white-and-blue-brexit">“red, white and blue.”</a> </p>
<p>Yes, that’s right: a patriotic Brexit. I prefer another term: Phony Brexit. Phony because the British government has swallowed the EU Single Market rules hook, line and sinker with the <a href="http://www.independent.co.uk/news/uk/politics/great-repeal-bill-brexit-law-eu-law-theresa-may-david-davis-a7343256.html">inappropriately-named Great Repeal Bill</a>. </p>
<p>The UK will likely end up in a “pay and obey with no say” situation, at a <a href="http://www.independent.co.uk/news/uk/politics/brexit-uk-growth-forecast-autumn-statement-philip-hammond-a7433941.html">cost to the budget</a> of £100 billion. </p>
<p>Britain’s economic performance for the foreseeable future really depends upon how optimal a deal it manages to strike with the EU. The UK ranks second only to the US among Australia’s biggest foreign investors, and decreases in capital flows from London to Sydney are almost inevitable throughout the next 10 years. But the City of London’s position as the world’s premier centre for financial services is also under pressure, even under a “soft” Brexit.</p>
<p>London does more euro currency-denominated business than Paris and Frankfurt combined. Foreign direct investment and short-term capital investment flows from the EU, via London, to Australia’s relatively liberal capital markets. London is a global conduit for outward foreign direct and portfolio investment, irrespective of the capital’s origin.</p>
<p>Britain’s position as a global financial services centre is not threatened, but it will be diminished by a sub-optimal Brexit outcome. In combination with tighter US monetary policy over the next 12 months, and uncertainty over the incoming Trump administration’s trade polices, the Australian economy is increasingly vulnerable to trade shocks in 2017.</p>
<p>In this respect, how Trump handles China trade issues, in view of his “<a href="http://money.cnn.com/2016/12/06/news/economy/nafta-trump-tariff-jobs/">45% tariffs</a>” promise, will prove a critical test of his presidency. And <a href="https://www.theguardian.com/world/2016/nov/14/china-threatens-to-cut-sales-of-iphones-and-us-cars-if-naive-trump-pursues-trade-war">how Beijing chooses to retaliate</a> will have a profound impact upon the two economies.</p>
<p>In 2015-16, the MYEFO <a href="http://www.budget.gov.au/2015-16/content/myefo/html/02_part_2.htm">stated</a> that, “The transition is being supported by historically low interest rates, the fall in the Australian dollar and low oil prices”. </p>
<p>That was then; this is now. Both Brexit and Trump have ensured there is absolutely no certainty about any of those variables in 2017.</p><img src="https://counter.theconversation.com/content/70344/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Remy Davison's Chair is funded by the EU Commission.</span></em></p>A lot has changed in the global economy since the Federal Budget 2016.Remy Davison, Jean Monnet Chair in Politics and Economics, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.