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May 192013
 

Byron-in-CabinetBefore I commit myself to voting for the Coalition on the basis of Our Plan, I thought I should spend a little time checking facts and understanding the economic context for the Coalition’s policies. After all, it’s our responsibility as voters to satisfy ourselves that our candidates know what they are talking about.
So, facts…
Well it took me a while to find a fact I could check. Statements made in ‘Our Plan’ are generally unsupported or only partially reference their sources. This is a little disappointing for a policy statement, but consistent with the Coalition’s preference for research by newspaper.

Net debt interest payments

The first fact with a source is on page 7.

Nebt Debt - the Our Plan version

Nebt Debt – the Our Plan version

The graph shows actual and forecast net debt interest payments from 2007 to 2016. I finally found the source data in Table D4: Australian Government general government sector net debt and net interest payments of the Mid-Year Economic & Financial Outlook 2012-2013. As with all of the other charts in ‘Our Plan’, it cuts off at 2007 and conceals how things were under the previous government. If you include data from 1996 onwards, it’s a far less compelling (but more truthful) picture.

Net debt interest payments, 1996-2016

Net debt interest payments, 1996-2016

Energy and minerals exports

Estimates suggest that Asian demand could almost double our net energy exports over the next 20 years. And that comes on top of projections that the volume of our minerals exports could increase by 40 per cent to 60 per cent in the period to 2025 (Page 10).

Bureau of Resources and Energy Economics data from 2012 predicts that total net energy exports to all markets are forecast to increase from 10,000 petajoules in 2012-13 to just over 20,000 petajoules in 2034-35. Note that this is a production estimate, not a demand estimate, and includes all energy exports, not just Asia. The production estimates also assume completion of a number of developments that have  been shelved or deferred since publication, so the statement is quite misleading.
What BREE actually said about minerals exports was – “Reflecting higher global consumption, world trade in these commodities over the period 2010 to 2025 is projected to increase at an average annual rate of 2.6 per cent for thermal coal, 3.6 per cent for metallurgical coal, 4.3 per cent for iron ore and 1.4 per cent for natural gas. ” So world trade may well increase by 40-60%, but that doesn’t mean that Australia’s market share will. Again, misleading.

Small business entries and exits

There are 11,000 fewer small businesses actually employing people now than there were in 2007. Small business start-ups have dropped by a staggering 95 per cent. The number going bankrupt has increased by 48 per cent. Small business insolvencies instigated by the Australian Taxation Office are up 46 per cent on previous years.(Page 11)

The latest ABS data available on counts of Australian businesses is from June 2011. The ABS states – “While the number of businesses declined between 2007-08 and 2008-09, there was a significant increase in the number of businesses over 2009-10 and 2010-11. Specifically, growth rates for the past four financial years were -0.1% during 2007-08, -1.0% during 2008-09, 3.6% in 2009-10 and 0.4% in 2010-11.” Which directly contradicts the unsupported statements made above.

Deficit spending

Australia is now more vulnerable to economic shocks due to excessive deficits and debt spending. (Page 12)

What constitutes an “excessive deficit” is not defined. Expressing net debt in terms of cash rather than as a percentage of GDP is deceptive as it does not allow for comparison with other economies. When you do compare with other economies, you find that, even if government debt increased ten-fold, Australia would still have one of the lowest net government debts in the developed world. In fact, in a longitudinal study conducted by the IMF, the term ‘profligate’ was only applied to two periods of Australian government – both in the term of the Howard government.
I have previously quoted the IMF’s opinion that Labor spending since 2007 was a necessary measure for economic stimulus. In fact, there is a strong school of thought that deficit spending actually contributes to GDP growth and improves resilience. As Richard Heinberg said recently about the US economy: “The conclusion is therefore inescapable: doing away with a substantial portion of deficit spending would reduce GDP by a roughly corresponding amount, almost certainly causing the economy to tip over into recession.” The recent United Nations Conference on Trade and Development made a similar point: “…the premature withdrawal of fiscal stimulus and the shift to fiscal austerity in developed countries in 2010 strongly affected global demand and economic recovery.”

General government net debt 2010

General government net debt 2010

So hostility toward government spending is not only unwarranted, it’s bad economics.

Australia needs to develop a more productive economy

“Since the global financial crisis, Labor has encouraged policies that are arguably the opposite of improving long-run sustainable growth in national output – the key determinants of which are saving and productivity improvements.The Economist Intelligence Unit now ranks Australia as the second worst of 51 countries for productivity growth ahead only of Botswana.(Page 13)”

‘Our Plan’ does not spell out what these policies are. According to the 2011 Grattan Report, the OECD singles out Australia as one of four countries to have experienced a ‘particularly strong deceleration in labour productivity growth’ between 1995-2000 and 2001-06. In other words, during the term of the previous government. The Grattan Report further notes that ‘the reforms of the latter part of the 1980s and the 1990s’ were the ‘prime candidate’ for the ‘most likely causes of the surge in productivity’ during the 1990s, and that

Instead of productivity-enhancing reform, Australia has since the early 2000s experienced a significant increase in productivity-stifling legislation and regulation, much of it in pursuit of ‘national security’ (in the aftermath of the terrorist attacks of September 11, 2001 and subsequently) and improved standards of corporate governance (following a series of ‘scandals’ in the US and Australia in the late 1990s and 2000s).

In other words, the previous Liberal government bears as much if not more responsibility for weak productivity than the current Labor government. In this context, it is interesting to note that the Coalition both advocates saving and proposes to abandon planned increases in superannuation. This is a disappointing position, as the Reserve Bank found some years ago that compulsory superannuation resulted in higher household saving.
The Reserve Bank also noted last year that strong terms of trade had reduced pressure on businesses to force productivity improvements. In the same report, the Bank noted that high commodity prices were driving investment into less economically attractive and more technologically challenging investments, thus reducing marginal productivity. With prices now falling, the Bank concluded that the response of firms and workers to competitive pressures is likely to contribute to some improvement in trend productivity growth.

It is interesting that few of the elements of the Better Productivity Plan are strongly endorsed by the Grattan Report, and a number of important recommendations also in this report have been ignored. These include improvements in education and training, infrastructure investment (other than roads and highways), improvements in the commercialisation of innovation, and various tax reforms, such as reducing company income tax, improving the taxation of non-renewable resources and land, replacing a range of narrow product taxes with a broad-based cash flow tax, and improving the structure of other taxes aimed at improving social outcomes.

What does ‘Our Better Productivity Plan’ recommend? Among other things, it focuses on workforce participation, improving competition rules, better infrastructure spending and workplace relations.

Workforce participation

Labour force participation - 2000-2010It is worth observing that workforce participation is in fact higher under Labor than it ever was under the Coalition. There is nothing in ‘Our Plan’ that explains how the proposed initiatives will improve either workforce participation or productivity. One could argue that forcing people into the workforce who in some way currently find it difficult to obtain employment, and failing to provide commensurate incentives,support, training and infrastructure, could actually worsen productivity.

Improving competition rules

We will review competition policy and deliver more competitive markets because there will be, for the first time in two decades, a root and branch review of competition laws.

The Coalition seems to have forgotten about the Dawson Report of 2003. Perhaps this is because, as Australian Competition Law observes:

The Howard Government, while announcing (several times) that it would introduce legislation to criminalise cartel conduct, as recommended by the Dawson Report, never introduced such legislation before losing power. The new Rudd government, following the release of two exposure draft bills, introduced the Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008 in December 2008. Following minor amendments the bill passed through Parliament in June 2009.

Workplace relations

We will fully restore the Australian Building and Construction Commission (ABCC) so that there will be less union militancy. This will help keep business costs down and improve productivity.(Page 23)

I could not find any strong evidence that the ABCC had a strong influence on union militancy. It is worth quoting from a recent Allen Consulting report to the Business Council of Australia.

It is broadly clear that there has been a reduction in industrial disputes over the last several years. In fact, days lost to disputes have been particularly low since 2006 in the Australian construction industry at large and in statistics for the NSW construction industry. While this improvement is often attributed by industry to the establishment and operation of the previous Australian Building and Construction Commission (ABCC), the introduction of a national code of practice and implementation guidelines, as well as specific building industry legislation, the strength of this linkage cannot be definitively established with the data.

The Coalition has again manipulated the data by showing working days lost only from 2007. Again this hides the fact that the numbers were much higher under the prior government.

Infrastructure spending

The grand visions in this section of ‘Our Plan’ were already on the shelf by December of 2012.

Education

We will aim to have 40 per cent of high school students studying a foreign language, preferably an Asian language, in year 12, to ensure the youth of Australia become more ‘Asia-capable’ and are better equipped in the future to engage with our trading partners in our region and in the global economy.

This is about all the Coalition have to say about education. According to the Drum, it was the Howard government that in 2002 that cancelled the funding for the National Asian Languages and Studies in Australian Schools Strategy.

An important driver of technological innovation (apart from adversity) is education spending. But in terms of public expenditure on education – as a percentage of GDP – Australia ranks 25th out of 33 OECD nations. Therefore it is unfortunate that the Coalition has rejected the Gonski reforms and endorsed Labor cuts to university funding.

Last words

So, in summary, ‘Our Plan’ has manipulated history, glossed over the destructive policies of the previous Howard government, and casually ignored the economic context. Where it is not simply endorsing or abandoning existing functional policies, it proposes a set of largely ineffective and counter-productive reforms. Fortunately, I have more respect for my readers than the Coalition has for the voting public. I cite my sources, for a start. You can do your own fact-checking here.

  2 Responses to “Our Plan – mad, bad, and dangerous to know…”

  1. I need to get my head around your comments – it is an interesting analysis of some quite scary house-of-cards figures. As my Dad, an accountant was overly fond of saying “Figures can’t lie but liars can figure”.

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