Joe Hockey’s budgetary tour de farce

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Joe Hockey is a small man, inflated by hubris, with little understanding or interest in economics. Dr Evan Jones asks who will prick this bubble in the public interest.

TREASURER JOE HOCKEY is the self-proclaimed saviour of Australia’s fiscal rectitude, supposedly hobbled from six years of Labor mismanagement.

It could not be said that Hockey lacks conviction; but he is not convincing — save to journalists, who are wont to treat him seriously.

This from 'serious' journalist Peter Hartcher, Sydney Morning Herald, 3 February, 2014:

Joe Hockey is supplying something the Abbott government has been lacking – a purpose. … The purpose is to impose the virtues of the Protestant ethic of work, thrift and self reliance. The irony is that it's being done by a Palestinian-Armenian Australian Catholic. "The age of entitlement is over," Hockey said on Monday. "The age of personal responsibility has begun."

Hartcher again, Sydney Morning Herald, on 15 February, 2014, said Margaret Thatcher

... led the world in shrinking the sphere of government and enlarging the scope for markets, the forerunner of Ronald Reagan and Paul Keating, Roger Douglas and John Howard. Sure enough, it's her ideals that the new Treasurer serves, her words he evokes.

A quarter-century after the Iron Lady left office and a year after her death, Hockey sees himself as one of the leaders of an antipodean Thatcherite renaissance, a great return sweep of the ideological, political and policy pendulum.

Sorry Peter, Thatcher, Reagan and Howard did not

‘... shrink the sphere of government and enlarge the scope for markets'.

Rather, they reoriented their governments’ priorities and enlarged the power of megacorps over markets — which is precisely what we can expect from Hockey in office.

Hockey’s career trajectory has produced no appealing landmarks.

As an adviser to John Fahey during the latter’s Premiership of New South Wales (1992-95), Hockey impressed several senior staff in the NSW Cabinet Office as being predominantly a man of bluster. But are appearances deceptive?

Hockey readily gained pre-selection and then election in the Federal seat of North Sydney in 1996, and rapid elevation to a ministry (Financial Services) as early as 1998.

An early puff piece in The Age in April 2009 painted Hockey as ‘no ordinary bloke’:

'He climbs mountains, rescues cats, raises money for a children's charity — and still Joe Hockey finds time to be a politician ...'

Then, at end of interview:

'Joe has a Mini idling and an iPod in need of a duet. Canberra awaits him and beyond that, Kilimanjaro. Joe Hockey's song is set: many rivers to cross, one big mountain to climb.'

Really? Is this the soon-to-be most human Federal treasurer in Australian history?

There is clearly more than one Joe Hockey.

Hockey served as minister for Small Business during 2001-04 – a junior ministry known for incumbent lassitude; Hockey did not depart from the norm. There was no concern by Hockey for the nurturing of Hartcher’s Protestant ethic of work, thrift and self reliance’ in a sector ground down by corporate predation.

As shadow treasurer, Hockey came out of the closet in October 2010 in criticising bank interest rate divergences from RBA levels. Hockey claimed the need for a ‘social compact’ for Australian banks, contrasting their pursuit of self-interest while being underwritten by the taxpayer.

Myriad bank victims hoped they might at last have found a champion in the corridors of power.

I emailed Hockey myself on 25 October 2010 to highlight the plight of SME/farmer borrowers foreclosed unconscionably by Australian banks and the need for regulatory attention.

There was no reply.

The potential champion of bank casualties had disappeared from view and has not re-emerged.

In early February this year, Hockey rebuffed Barnaby Joyce’s call for government involvement in mediating with banks regarding the restructuring of debt of drought-affected farmers.

Hockey retorted:

"They should speak to the people that they owe the money to as a starting point."

The predatory power of bank lenders over farmer borrowers is comprehensive. The cynicism of Hockey’s response provides a transparent window into the man’s character.

At his Press Conference on 5 March, Hockey made the extraordinary claim:

"It is also the case that we need, wherever we can, to get rid of unnecessary regulation. I know my colleague Arthur Sinodinos is having an almighty brawl in relation to FOFA.

"I want to back him 100 per cent, because all the regulation left by the previous Government is simply making it harder and not easier to get ahead and build enterprise."

This, in spite of the fact Hockey’s own mother-in-law has been a victim of corrupt activity by the Commonwealth Bank subsidiary Commonwealth Financial Planning.

Hockey’s interviewing persona is telling.

Master of avuncularity, when met with a question that threatens to expose his ignorance or prejudices he smirks and feigns a patronising air. Give me an audience worthy of my sagacity, he implies.

So here is Hockey about to present his first Budget.

The line has been "no gain without pain". "We all have to do the heavy lifting", he declares.

But Hockey will be using the Budget 2014 to cement financially his government’s priorities. Following his ideological forebears, those priorities are to further disadvantage the already disadvantaged.

The annual Budget is a government’s pre-eminent policy statement, but it renders oblique a government’s political priorities and it inhibits an understanding of a government’s complex contribution to economic development.

Through a glass darkly I

The Budget is an accounting statement — the means by which governments reconcile their economic and social programs with their revenue options.

The Budget is not the government’s program but rather the (short-term) financial reflection of the program. The government’s economic/social agenda has to be inferred — not least for the lack of an accompanying statement that outlines explicitly the government’s economic/social agenda.

For a government hiding an inegalitarian agenda behind a formal platform of universal sacrifice, obliqueness on the essentials is de rigueur. Learning how to read between the lines is a necessity.

Hockey only has to look to the end of his nose to find billions to plug ‘Labor’s’ deficit hole. As the SMH’s Peter Martin highlights regarding the Commission of Audit's deliberations, tax expenditures are missing from the deficit reduction recommendations.

Treasury’s tax expenditure statement (p11) provides ready directions.

Superannuation tax concessions stand at over $33 billion and rising rapidly. The subsidy directed to the private health insurance sector is currently at $1.5 billion. 

Hockey could draw the age of entitlement to a close in the mining sector, which the Australian Institute’s Matt Grundoff estimates to have received $4.5 billion assistance from Canberra in 2012-13 (add the uncosted tolerance of massive pollution-generated externalities).

But corporate tax evasion is the elephant in the room.

Recent publicity given to the tax evading genius of Google, Apple and Microsoft and the multiple tax haven opportunities is only the culmination of the long-standing plundering of the Australian tax base by multinational companies — including the auto companies, but with home grown Rupert Murdoch as past master.

Hockey should never have given the Reserve Bank close to $9 billion in October 2013. Abbott’s inegalitarian Paid Parental Leave scheme should be jettisoned. But Abbott’s fly-by-night jump into the F35 quagmire, throwing the national patrimony at a gold-plated lemon, exposes the essential jiggery-pokery of the entire deficit reduction propaganda.

Through a glass darkly II

The Budget’s financial accounting character also distorts the complex means by which governments contribute to national economic and industrial renewal.

The Budget certainly has complex implications for the prospects of economic stability and revitalisation, as it includes multiple appropriations for various contributory programs — job creation, investment subsidisation, trade and foreign investment initiatives, and so on.

However, the prospective overall economic impact of the Budget is formally subsidiary to the main point of the exercise — cutting budgetary appropriations to meet a pre-determined bottom line.

This emphasis on aggregates, distilled into a single figure, has been longstanding. Part of the reason is a tradition of the media pack looking for simple indicators of a budget’s meaning.

More deeply, the central agencies (Treasury and Finance), stacked with mainstream economists, have an orientation towards aggregate figures, courtesy of their training — what I call a macroeconomic fetishism.

Get the budget bottom line right and the rest will look after itself.

There is a meme that envisions the economy as innately resilient. At worse, it experiences occasional periods of excess, but the inbuilt cleansing aftermath serves as its own corrective. From this perspective, the enduring adversary of this functional mechanism is external interferences; government regulations, trades union intransigence, are the problem.

Clear away the impediments, embodied in the obscurantist catch cry ‘structural reform’, and it will be all systems go for the future.

Hockey waxed fervent in an interview with the Financial Times published 19 February, prior to the meeting of G20 finance ministers and central bank governors in Sydney on the 22nd:

"I believe in freedom, enterprise and liberty — they are the things that facilitate opportunity … I think our role as finance ministers is to facilitate ambition and lift the yoke of regulation, red tape, taxation and centralised control."

This robotically-generated mentality is an integral part of the neoliberal bag of tricks, but the long standing macro fetishism of policy-makers has provided an ideal environment for it to readily flourish.

In the same FT interview, Hockey pompously declaims:

"I have a unique goal to try to drive the world to greater growth and prosperity."

Notes SMH reporter Matt Wade:

‘Mr Hockey's global growth message is at the heart of Australia's presidency of the G20 this year. The government has chosen to make that topic, especially job creation, one of the two core themes for this year's G20 agenda.’

Hockey ups the ante at the G20 meeting, as reported:

Treasurer Joe Hockey has committed Australia to an economic growth rate of 3 per cent, well above the official forecast of 2.5 per cent, and foreshadowed sweeping reforms in the budget aimed at cutting unemployment. … He defended the language used about the aim for higher growth, saying the important thing was that finance ministers and central bank governors had "decided to put a number on" an increase in growth.

But Hockey does not know how jobs are created. Nor do other Finance Ministers or central bankers.

The idea that these luminaries should congregate in Sydney (and soon in Brisbane) to gasbag about employment growth would be humorous if it were not so depressing.

From Wade again:

Pushing for stronger global growth is nothing new for international forums. Mike Callaghan, Australia's former G20 deputy, warns that G20 meetings have regularly agreed to boost growth and create jobs but the follow-up has been ‘poor’.


G20 meetings generate hot air rather than jobs, but Hockey has picked up the patois like a natural.

Not merely Finance/Treasury Ministers but Finance/Treasury Ministries lack the wherewithal. Central agencies staff are ill-educated as to how national economies in a global capitalist system function, survive and develop. They know their statistics, but are weak on their meaning. Their knowledge of history is feeble.

The power of the Australian Treasury really doesn’t begin to grow until after 1950. Previously a bean counter Department staffed by accountants, Treasury increasingly was staffed with economists self-confident yet narrowly trained. Treasury has fought a battle for bureaucratic supremacy ever since, and has ultimately successfully beat off all challengers — not least by having other Departments and agencies colonised by clones.

Thus bureaucratic ‘expertise’ (including that of the Productivity Commission) is at an historical low in terms of an understanding of the sources of economic renewal, jobs growth, taxable capacity and quality of life. The Treasury adopted a cargo cult mentality towards the resources sector in the late 1960s – as its saviour from long dependence on the unstable rural sector – and fused this with undergraduate nostrums of ‘comparative advantage’ to provide the sum of its intelligence. Hockey’s ignorance is thus afforded bureaucratic complicity.

Matters for Hockey’s consideration beyond the deficit phobia

Hockey talks about spending on infrastructure — a rare idea of substance.  

But gains aren’t to be made by wholesale selloff of existing public entities. Current privatisations have been myopically centred on the cash cows. The adverse implications for long term budget management are considerable — a point hammered for years by economist John Quiggin.

But what will the loot be spent on?

If it merely goes into roads and ancillary subsidisation of the developer sector, it will disappear into the bottomless pit of the ubiquitous Public Private Partnership rort (commercial confidentiality assured).

Privatisation and contracting out have gradually emasculated the longstanding engineering expertise of public sector agencies that underpinned nation building — and, incidentally, war-time capacity). The effective management of privately-provided public infrastructure is now a pipedream.

Simultaneously, the twenty year disdain for vocational training – at both State and Federal level – has further undermined the capacity for industrial renewal and decent jobs generation. An open slather 457 Visa framework compounds the dysfunctionality.

Moreover, slavish colonial cringe ‘free trade’ agreements with Asian powerhouses – and even lowly Thailand – are merely going to reinforce Australia’s colonial status.

Dig it up, ship it out.

An indication of the intelligence impasse may be seen in the Coalition Government’s cavalier jettisoning of the Australian auto industry in its entirety.

That industry has received generous subsidies, but it has been of substantial significance in terms of employment – both, quantitatively, 45,000 in assembly and components manufacturing, and location-wise – and of technical development spinoffs. The costs have been documented by the partisan Productivity Commission but the benefits have been ignored. There is no doubt that the foreign-owned companies have blackmailed successive governments, but industrial blackmail is endemic to national capitalist economies.

Research sponsored by the University of Adelaide’s John Spoehr estimates that the overall long term adverse impact of the closure of Holden’s production dwarfs the cost of recent annual subsidies to Holden. But input-output modelling is marginalised in circles of official expertise, and the Spoehr study has been studiously ignored by Hockey et al in spite of its substantial media exposure.

But what about the innate generative capacity of an economy experiencing sectoral catharsis?

Optimism is called for, says know-it-all SMH columnist Peter Hartcher:

Still, it's one thing to allow the collapse of a failed industry. It's quite another to generate new industries and new jobs. Especially at a moment when the mining boom is fading and the economy softening.

How can Hockey be so confident? One reason is precedent: "We've done it before, we can do it again," says the Treasurer. He's right about that. The near-hysteria over the collapse of the car sector suggests amnesia in the opposition and much of the media. Australia stripped back its tariff wall in the 1980s and 90s, saw enormous job loss in manufacturing, yet went on to record its longest boom in recorded history.

Note Hockey’s royal plural. Hartcher’s history is also glib.

The post-WWII long boom was dramatically more substantial than recent growth, but marred by a 1961 recession induced by Treasury stupidity.

Hartcher readily attributes the long post-1992 growth period to Hawke-Keating (deregulatory) ‘reforms’. But we don’t know.

As for the future, lacking strategic direction from government, some outcomes are more likely than others. 

Examining Hartcher’s unexamined glorious era provides lessons.

The period benefited from an external factor that had nothing to do with initiatives at home — an extraordinary rise in the terms of trade – linked to Asian resources demand – as per the graph.

This abnormal external stimulus has now gone off the boil.

Other dimensions of this ‘growth’ period are instructive.

Sectoral change has involved a general shift into lower productivity sectors.

The 2012 study by Green/Toner/Agarwal, Understanding Productivity: Australia’s Choice, for the McKell Institute, notes (Appendix):

'Most of the employment growth [over 80%] over the 12 years from 2000 to 2011 was in industries that have below average, and in some cases substantially below average, value added per worker [more accurately, value added per hour worked].'

Industry consultant co-author Phil Toner claims that the empirical results for the 2000s hold for the 1990s as well.

For the 20 year period (from unpublished data), mining is the standout performer in terms of value added per hour worked (~$300, the average being $60), but it contributed only 3.5% of an employment growth of 3.277 million (adjusted for hours worked) in the period.

The category ‘Professional, Scientific & Technical Services’, with a tolerable value added ($52), also had a healthy contribution to employment growth (15.7%); ditto the Construction category ($50 value added, 15% employment growth contribution).

But the categories of Health Care & Social Assistance, Retail Trade, Accommodation & Food Services, and Other Services, all with low value added, contributed in total 36% of employment growth.

With the Coalition Government eliminating the Science portfolio and showing disdain for the CSIRO, and facing recommendations from its Audit Commission to cut industry innovation support and export assistance programs, this trend towards lower productivity sectors will be enhanced.

There have been related significant changes in the composition of the workforce.

There has been a significant increase in part-time work and casual work — the latter rising since the 1980s. Casual work, deprived of conventional employment entitlements, now constitutes roughly a fifth of the workforce — including the self-employed. An increasing percentage of the so-called self-employed are those forced onto formal ‘independent contractor’ status but are in reality dependent workers also without conventional employment entitlements. We now have a dramatically bifurcated workforce and a concomitant bifurcated earnings structure to boot.

In addition, sectoral and structural dysfunctionalities abound.

Uncritical financial deregulation since the early 1980s has bequeathed a relentless ‘financialisation’ of the economy.

Financial corporations' income as a percentage of total corporate income (and of total business income in parentheses) has increased from 5% (3%) in 1980-81 to 11% (7.5%) in 1991-92 to 20% (15%) in 2012-13.

A financialisation that is grossly dysfunctional.

We have a $1.5 trillion superannuation kitty, wastefully managed, that functions more to push up asset and share values than to facilitate productive nation-based investment. We have a food bowl in crisis, partly for lack of functional sources of finance. We have a rapacious and predatory banking and financial system wreaking carnage on small business / farmer borrowers and on investors seeking safe returns.

We have an out-of-control predatory retail duopoly that dominates and disfigures the supply chain in multiple industries. With manufacturing going out backwards, we have a domestic economy fundamentally dependent upon construction and development, whose life blood is based purely on population growth and political corruption. We have an environment going to buggery.

About these troublesome matters, Treasurer Joe Hockey neither knows nor cares.

Healthy economic and jobs growth shall be pulled out of the hat with the rabbit. This alchemist will forge gold from the blood of the elderly and the next generation.

From his own mouth, the evidence indicts Joe Hockey as a charlatan.

Hockey is a small man, inflated by hubris. But who is going to prick this bubble in the service of the public interest?

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