The unhappy marriage of democracy and capitalism


Most Western countries, including Greece and Australia, have a system of democratic-capitalism. It marries a democratic political system with a capitalist economic system and they are perceived as being well-matched because both are founded on philosophies about individual freedom. It is, however, not necessarily a happy marriage. In the current Greek situation, it is very clear that capitalism is abusing its spouse democracy, and capitalism is dominating the marriage. What does that mean for the future of democracy? Can the marriage be saved? Or should democracy move out and find a new partner?

In January 2015, the people of Greece expressed their democratic right and elected a leftist government — a reaction to austerity measures that had been imposed on the people by previous governments since 2010.

Admittedly, Greece had been living beyond its means, accumulating mounting deficits each year, but as part of the euro-zone had no control over its own currency. With such control it could have devalued its currency or, if floated as an individual currency, it is likely that it would have been sold down well before the situation became as bad as it did. Germany, however, is the heart of the euro and its economic performance tends to drive the relative value of the euro on the world’s currency markets: so Greece was always going to end up in trouble and did so when the GFC hit.

But austerity measures made the situation worse, not better. Unemployment rose, reaching 26.8% in January 2013 and by April that year youth unemployment was 60%. Overall unemployment continued to rise, to 28% in February 2014, no doubt helped by the sacking of 15,000 public servants during 2013. Three-quarters of the unemployed were then long-term unemployed (longer than 12 months). The latest figure I was able to find shows unemployment has fallen slightly but is still at 25.3%.

GDP has been in ‘negative growth’ (that is falling rather than growing) for most of the time since the GFC in 2008, dipping to ‒8.9% in 2011 and was still at ‒3.3% in 2013. By 2013 GDP per capita had fallen to 2004 levels (GDP per capita is often a proxy for standard of living). In all, Greece’s GDP has slumped by 25% since 2008. In 2010 the government’s revenue was €97.2 billion but had fallen to €78.1 billion in 2014 (this for a population of about 11 million). And yet it is the revenue side of the equation that has been Greece’s main problem: its historic spending levels, around 50% of GDP, are similar to many other European governments but its revenue (around 40% of GDP) has been lower. If revenue had not fallen so disastrously (largely a result of the austerity measures), it could have achieved a balanced budget in 2012 or 2013 with no further cuts to spending. It is little wonder that Greek people took to the streets in reaction to the waves of austerity that were introduced. Apparently, Greece now has a ‘primary surplus’, meaning revenue can meet government expenditure, but it is the interest on loans and repayment of loans that is causing the problem, as the total government debt is now 170% of GDP.

There was a glimmer of hope in 2014 when GDP grew marginally but as successive presidential elections late in the year failed to achieve a clear outcome, and then the election of the leftist Syriza government in January 2015, GDP began falling again as financiers and big business pulled money out of the country (I have read estimates ranging between €40 billion and €55 billion). With the uncertainty, including the prospect that Greece may withdraw from the EU, people also began withdrawing their money from the banks, threatening the stability of the banks. The banks had been able to support themselves by borrowing money from the European Central Bank (ECB) using Greek government debt (bonds) as collateral but in February this year the ECB said it would no longer accept Greek government bonds — leading to more money being withdrawn (€23 billion so far this year). Despite that announcement, the ECB has made a €1.9 billion profit from trading Greek government bonds: it has agreed to pay that to the Greek government but has not yet done so. Greek government bonds are now considered ‘junk’: the rate demanded on the financial markets has varied between 19% and 25% to cover ‘risk’ — that is the sort of rate charged by ‘loan sharks’ and means the value of an initial loan would double in 3‒4 years. Borrowing at such rates would create an impossible situation which is why the Greek government is now mainly reliant on loans from the ECB and the IMF. Many of the private financiers were paid off in earlier bail-outs in 2010 and 2012 when they also took a 20% ‘hair cut’ (in other words, they were paid 80 cents in the dollar on what they were owed).

The new government has been trying to renegotiate the loans from the IMF and the ECB. It wants an easing of the austerity conditions. It does not want to undertake any further labour market reform (at least in the short term); it wants to rehire 4,000 public servants; and is refusing to make any further cuts to pensions although it is open to reform of the pension system. The government recently said that if forced to choose between repaying loans and paying the pensions, then it would pay pensions — in other words it would default on its loans.

The people have spoken in the home of democracy but the bankers aren’t listening.

Mark Weisbrot from the US Centre for Economic and Policy Research said of the move by the ECB to refuse to accept Greek government bonds:
“They are trying to force the government to abandon its promises to the Greek electorate, and to follow the IMF program that its predecessors signed on to. … The ECB should be ashamed of its latest assault on Greek democracy. And they should not be able to get away with disguising it as anything less than that.”
And Joseph Stiglitz wrote:
Seldom do democratic elections give as clear a message as that in Greece. If Europe says no to Greek voters’ demand for a change of course, it is saying that democracy is of no importance, at least when it comes to economics.
It fits with a common criticism of our society since the 1980s: that the ‘economy’ has come to dominate political debate rather than debate about ‘society’; that we have become an economy, no longer a society; that dollars, not people, now rule and determine the actions of governments.

While money may be an essential part of our system, allowing exchange between people who do not know each other, for items that may be made by someone else, it appears to have also become a tradeable item (a commodity) in its own right. Capital markets do allow for borrowing for genuine purposes, like banking needs and productive activities, but they have also become, like stock markets, a source of speculation and profit making. In Australia we know that banks are amongst our most profitable institutions and, in Greece, banks are among the biggest private companies in the country. How have we allowed that? Money is meant to be a servant, a medium of exchange, but it has become so much more.

Consider who benefits from bail-outs to countries. A country may borrow funds to meet the normal activities of government, particularly for public infrastructure, but if the government cannot repay the loan when it falls due it may be bailed-out. That bail-out is not to help the government directly but to allow it to pay the original financiers. It is done because a ‘default’ is considered a threat to the international financial structure — why? One reason is that if one or two countries are allowed to get away with defaults, then others may follow suit, lenders would no longer feel confident about lending if they weren’t going to get their money back and lending could dry up. With no capacity to borrow, governments would have to print their own fiat currency — which they can do anyway — and there would be no need for international financiers! (And, of course, they can’t allow that to happen.)

We also saw during the GFC that the Wall Street banks were bailed out — they were ‘too big to fail’ — while ordinary people lost their homes. Why couldn’t people have been paid that money to pay out their mortgage and thus save their home? — the money would have gone back to the banks in payment of the mortgage. The government could make the payment as a loan, even at concessional rates (though given that US interest rates are so low it wouldn’t matter too much). As I understand it, the housing bubble burst, house values fell, so people owed more than their house was then worth and many just walked away. The government could have paid people to buy their houses at the lower price, saving the government money, and the banks would take a ‘hair cut’: they would get some money back but not the full value of the original loan. What’s wrong with that? Isn’t that just allowing normal operation of the market?

The banks had created the problem by buying and selling debt as a means to make a profit. They had mixed risky debt with a small amount of ‘safe’ debt and sold the entire package: they were making a ‘killing’ until it unwound. But still they were bailed out with taxpayers’ money.
Whatever regard they [the banks] may claim to pay to the wider concerns of the nation, their policies are dictated in the last resort by the desire to make profits and to secure the value of their own assets.
That was said by Ben Chifley in 1947 and nothing has changed.

Yes, we need a financial system but it has gone way beyond its original purpose, which was to support the operation of the market, and has become a market in its own right. Traders buy and sell currencies, not just to make necessary international transactions, but to speculate on a currency’s rise and fall and make a profit. Such speculation may even impact the value of a currency. Is that a valid use of the financial system? — I think not, but that’s only me.

I do not propose that we should go to a socialist system as that certainly didn’t work, as least as it was pursued in the Soviet Union, but governments should, at the least, be playing the role of arbiter between the market and society and not simply supporting the big end of town because of its economic power. Governments in a democracy are elected by the people and are meant to represent the people but too many seem bent on putting the economy, and the companies allegedly contributing to the economy, first.

As Eva Cox wrote in a piece for The Conversation:
… mainstream centrist parties’ economic emphases are struggling to engage voters as their policies are failing to respond effectively and acceptably to GFC-damaged market models.

A consistent trend is voter concern about public spending cuts and economic priorities that promote markets as the means to cut “excessive” public costs.

Questions need to be asked about why there is little or no serious discussion on the relative roles of government, markets and communities in delivering goods and services for the nation. [emphasis added]
The emphasis on the ‘free’ market that arose from the rise of neo-liberalism in the 1980s may have contributed to increased overall wealth but at the cost of greater inequality. Even the IMF has raised concerns that increasing inequality is leading to public distrust in the political process and greater social instability. In essence, the system is failing to support democracy and the people are realising it.

Is China the modern example we should be following? — a form of guided capitalism. We may not adopt its political system but a system where the government exercises greater control of the economy. There would be an outcry that that is against individual freedom as embodied in the free market but capitalism, in practice, already undermines the individual freedom of the majority as rising inequality makes clear (and according to Piketty that is inherent in the capitalist system).

I found it passing strange that Catherine Livingstone, President of the Business Council of Australia (BCA), told the National Press Club:
As it stands in Australia ... the gap between the digital literacy of our young people and that of our competitor nations is increasing.

If we want increased productivity and participation, we need urgently to embark on a ten year plan to close that gap. [emphasis added]
I didn’t think we were allowed to mention 5 and 10 year plans: aren’t they something associated with socialist systems? But perhaps now that those systems no longer exist we can talk of such plans without the Cold War political implications. If even the BCA can be talking about 10 year government plans, then there is a case that business recognises that the market cannot provide everything that makes the market work. Governments still have a key role and should be fulfilling that role, not simply dreaming (as our current government does) that the market is capable of doing everything ‘better’ and more efficiently. Without that ‘10 Year Plan’, the BCA is well aware that efficiency and productivity may become historical constructs that we can only recall with fond memory. (It is also of more than passing interest that Bill Shorten’s emphasis on science, technology and maths education in his Budget Reply speech is exactly what the BCA asked for.)

The Greek situation has, in my mind, brought this tension between capitalism and democracy into sharper focus. But governments are in thrall to the big capitalists and the financial institutions and are yet to acknowledge it. They will not recognise it while they remain blinded by the ‘free market’ philosophy of neo-liberalism, and refuse to see that it is not only the market but also governments and communities (as Eva Cox said) that have a role in ensuring a country gets the goods and services it needs and wants.

Is it time that ‘democracy’ sought a divorce from this domineering and aggressive ‘capitalism’ so that governments again understand that the ‘demos’ in democracy means ‘the people’, not markets and money?

What do you think?
Who is really running the nation? The government or the bankers and capitalists? And where do we, ‘the people’, fit in that? While Syriza in Greece is trying to redefine and reassert the government’s role in the economy, and a similar party, Podemos, is gaining popularity in Spain, should the people of Australia, as Ken suggests, also be demanding a change? Or are most Australians too apathetic to care? Is Labor offering an alternative or not? Ken’s piece raises many questions and we will be pleased to share your views on those questions.

Next week we return to budget issues when 2353 discusses ‘The $19,990 special’.


NAPLAN — a guide or a competition


Most educational institutions in Australia have a ‘tag line’ — a statement that is supposed to be a pithy description of what the entire school community believes in. It isn’t surprising that a lot of the ‘tag lines’ have something to do with recognising the individual talents of each student and working with those talents to develop self-reliance and the ability to cope with whatever circumstances arise in the future. In other words, a lot of educational organisations claim that each student is a unique individual, with recognition made for the different life skills, aspirations and capabilities in their future lives — and is treated as such.

So to assist the educators in respecting each child as an individual, we as a society make the million or so Year 3, 5, 7 and 9 students in the country sit a standardised test every year. Counterintuitive isn’t it? The testing takes place over thee days (in 2015 the dates were 12, 13 and 14 May) and is called NAPLAN.

The claim is standardised testing ‘supports good teaching, valuable data and school improvement’. The data is also used on the Myschool website. According to the NAPLAN website:

NAPLAN is not a test of content. Instead, it tests skills in literacy and numeracy that are developed over time through the school curriculum. Excessive test preparation using previous tests is not useful.
So what is standardised testing? Wikipedia will tell you that:

A standardi[s]ed test is a test that is administered and scored in a consistent, or "standard", manner. Standardi[s]ed tests are designed in such a way that the questions, conditions for administering, scoring procedures, and interpretations are consistent and are administered and scored in a predetermined, standard manner.
Standardised testing has a place in society. Medicine is put through a number of standardised tests prior to release to ensure that the health benefits outweigh any short or long term negative effect. Vehicles are crashed into concrete walls around the world to assess their safety should the vehicle unfortunately replicate the incident on the road with people inside it. Food, drink and many other substances are also tested to reduce or eliminate ill effects. Generally speaking, science knows that if a person ingests a known quantity of a pain relieving medication, it will perform certain actions in the body to give the effect of less pain. It’s the same with food, drink, detergents and so on — there is a certain amount of chemical that is considered to give a beneficial effect with little or no adverse side effects. Modern vehicles with engineered crumple zones and airbags also protect a human’s biology, so they can walk away from a crash that in the past would have caused severe injury or death.

That our medicine, motor vehicles, food, drink and other substances are subject to standardised testing is to be applauded and ensures our safety. Testing at this level also looks at our biology and how it interacts with external influence — not how our intellect is affected with stimulus.

If every school student in Australia were being prepared to be a statistician, standardised testing would be a useful method to ascertain if progress was being made. You could also argue that if everyone in Australia was a statistician, there would be a lot of necessary work that wouldn’t be done — and we probably don’t need more statisticians in any event.

Australians have a large variety of roles and obligations. While the country does need statisticians, we also need farmers, transport operators, sales assistants, office workers, teachers and a host of other professions. You might be able to argue that we also need politicians — after all ‘someone’s got to do it’!

Although we need a variety of people with different skills to run our society, there is probably an argument for the imposition of a standardised test across the country to determine that people can read, write and have a degree of numeracy as they leave school. Which would be fine if that’s all it was used for.

A few paragraphs earlier, I mentioned that the NAPLAN results are being fed into the school data that are freely available on the Federal Government’s Myschool website. Humans are a competitive species; accordingly, some will look for any advantage to give their children a perceived competitive edge. While the Myschool website is not supposed to be a ranking table

… the results have now become an informal selection test, taken into consideration by schools when accepting new students. For another, schools and parents have come to regard the test results as an absolute measure of education delivery.
The logic that your child will obtain a certain result because similar results were achieved in previous years is fatally flawed as it doesn’t take into account the very real probability that different cohorts of students have different abilities and skills, despite the educators teaching to the same script. Again, each person is an individual. If for example, the school that Einstein or Steven Hawking attended was subject to the NAPLAN process, it is likely that the result would be skewed as the particular cohort went through the school; others would have excelled as well due to the interaction between Hawking or Einstein and those around them on a daily basis.

If we are testing mathematical ability, standardised testing may have some validity — after all if the answer is 42, it is what it is. The only variable is if the student showed how they worked it out, or guessed the answer. While numeracy is tested, so is the student’s reading, writing and language (spelling, grammar and punctuation). Writing on the Fairfax website, Emily Frawley suggests:

NAPLAN's persuasive writing tasks do not showcase the skills teachers value nor those students need to master.
There would be a great deal of difficulty in ensuring standardised marking when it comes to persuasive writing for a test administered across Australia. While there would have to be a moderation system in place at the end of the day, most students would have a result based upon one educator’s view of their writing ability. Those that write professionally (and amateurs like me) will tell you that, while there is considerable thought put into each piece of persuasive writing, each reader will approach the writing differently, taking a different message from the text.

So do teachers teach what the student will need in real life or do they teach for the test? While you would like to hope that the NAPLAN was used in the way it was intended, evidence would suggest that some believe it is the be all and end all of education in Australia. The government body that oversees NAPLAN does have some practice papers on the website but will not release past papers (claiming copyright). There are however plenty of others that will step into the breach when there is a perceived need in the market, as this discussion on the Whirlpool Internet forum shows.

While schools can use the NAPLAN data to improve teaching practices for their students, parents have the right to withdraw their children from NAPLAN testing. The ACT Education Directorate is concerned about the high number of parents doing so in the ACT (they claim it is due to a philosophical objection). The ABC however suggests there could be other factors at play here. The High School Principal’s association has called for the removal of NAPLAN data from the Myschool website to reduce the possibility of the NAPLAN results being used as the sole determinant of future schooling by some parents.

Perhaps the Year 3 teachers at St Paul’s Primary School in Gracemere, Queensland, have the right approach. It has been reported widely that they gave their students the following note:

The NAPLAN Letter

To our dearest students from Year 3,

Next week you will sit your first Naplan test. Before you take this test there is something very important for you to know.

This test does not assess all of what makes each of you exceptional and unique.

The people that score these tests don't know that some of you love to sing, are good at drawing or can teach others how to use a computer program. They have not seen the way that some of you can dance with grace or speak confidently to a large group. They do not know that your friends count on you to be there for them when they are sad. They do not know that you participate in sports, help your mum and dad or that you play with your little brother, sister or cousins. They do not know that you are caring, thoughtful and that everyday you do your best. Because these attributes cannot be tested.

The scores you get from this test will tell you how you did on that day, but they will not tell you everything. They can't tell you that you have improved on something that you once found difficult. They can't tell you that you brighten up your teacher's day. They can't tell you how amazingly special you are. So come to school ready to do your best for the Naplan test and remember there is no one way to 'test' all of the wonderful things that make you, YOU!

Kind regards,

Mrs Egan, Mrs Schluter and Miss Bailey
While the note is alleged to be based on a similar item some years ago that originated in the USA, it is a sharp reminder that all the million or so students that recently sat the NAPLAN program in 2015 do have talents, skills and the right to the education they need to be their best. We can’t all be rocket scientists (or statisticians); not all of us have the skills or the desire. We all do have the skills and abilities to be an effective member of our community and wider society. Testing is probably a part of the process. Isn’t it better for well trained professional teachers to assess the capabilities of each student in their charge and implement strategies based on the individual teacher and/or their colleagues’ experience to bring out each students best?

What do you think?
While NAPLAN has become an integral part of our education system, is 2353 right in suggesting we are misusing it? Did the government make a mistake when it included the NAPLAN data on the Myschool website? Let us know what you think about NAPLAN.

Next week Ken looks at the Greek debt crisis and sees embedded in it a battle between capitalism and democracy in his piece, ‘The unhappy marriage of democracy and capitalism’.

Government budget trickery


I would like to state upfront that I already had the word ‘trickery’ in this title before Bill Shorten used it in his Budget Reply speech. I could say he stole it from me but I suspect he thought of it himself. It is such an appropriate word for this budget.

One thing Bill Shorten didn’t mention was the blatant strategy adopted by Abbott and his minions in the lead-up to the budget. First there was the approach that the budget would be ‘dull’ and ‘boring’: the government basically trying to tell us ‘nothing to see here’, forget about it and just go about your normal business. They were initially telling us that, after last year, this year’s budget would be a do nothing budget that we could ignore.

Then there was an apparent change. They had three new words: that the budget would be ‘reasonable, measured and fair’, that it wasn’t quite something to ignore but nothing to worry about, something that would not raise our hackles. And after the reaction to the previous year’s budget, this one would be ‘fair’. (I will come back to that word.)

Then came the final stage in their three-part plan. (Why do they have a fixation on ‘three’?) As you are aware the government began making announcements about budget measures prior to budget night but they were the ‘positives’: such as the child-care package and the benefits of the changes to the pension, including dropping the previous idea of linking pension increases to CPI rather than growth of the average wage. At that time they weren’t saying very much about how the new measures would be paid for — although they occasionally mentioned, when pressed, that there would be off-setting savings, there wasn’t much in the way of detail regarding those savings.

They had learned the lesson from the previous year when their mantras of ‘debt and deficit disaster’ and ‘Labor’s mess’ had failed to convince people that the draconian cuts were necessary. This time they were trying to influence our mind-set going into the budget: rather than focusing on a negative, they wanted us to see the positives that would be announced and were making sure we noticed by announcing or leaking them in advance. We were being softened up and, to my mind, it was so obvious and contrived (partly because it was such a stark contrast to last year) that it was almost laughable. You could see that it was planned, that ministers were still being given their daily messages, the lines they needed to follow at ‘door stops’ and interviews: first, ignore the budget; then don’t worry about it, it will be measured; and finally, ‘gee whiz’, look at this, look at the offer we have for you. Do they really think the voters are so stupid as not to see through that?

After last year when their budget was widely lambasted as unfair, this year they decided to come out fighting and try to control the debate around that word ‘fair’. Now they were claiming that everything about this budget was ‘fair’. Again they were trying to shape our mind-set to their interpretation of the word and not let it be controlled by the Opposition and the media. Rather than being a word that could be used to attack their budget, this time they were trying to attach it in our thinking to what was to come on budget night.

While it may have been ‘fair’ to reduce the asset limit for the part-pension, they took fairness too far when they claimed that women receiving both government-paid and employer-provided parental leave were ‘rorting’ the system. Hockey even refused to rule out that it could be ‘fraud’ when Laurie Oakes used that word. At the very least, it was ‘double dipping’. The new proposal was that the stay-at-home parent (they seemed to have forgotten that men can also claim parental leave) could access only one form of parental leave and that this was ‘fair’ because we all know that double dipping is unfair (unless, of course, you are a board member of four or five companies and government authorities/inquiries/businesses). As others have pointed out, when the current government system (based on the minimum wage) was introduced by Labor it was designed to operate with employer-provided schemes to allow people to top up their income or to extend their period of leave: in other words, it was a compromise proposal to support parental leave without becoming too expensive for government (as Abbott’s gold-plated version would have been — which was one reason it was abandoned; the other being that he was asking big business to fund it with an extra 1.5% tax).

To further undermine their argument, it turned out that some Liberal ministers’ wives had used both. They tried to justify it by saying that the current system allowed it — but was that ‘fair’? It was double dipping! They told us so. If they already knew it was double dipping, why didn’t they act on principle and refuse the additional support?

On budget night, they finally made clear that their new child care package would be funded by major changes to Family Tax Benefit Part B. This was something left over from the previous budget that had not passed the Senate but now it was being ‘sugar coated’. While people may like the new child-care package, they won’t get it unless the savings measure is passed by the Senate — in plain language, a bribe. Of course, it is also tied to the change to parental leave entitlements. People will be forced to accept the new child-care package because they will be forced back to work earlier if they can only receive the minimum wage for a maximum of 18 weeks.

These approaches are justified by the government (by Scott Morrison) in terms of being ‘workforce’ measures. They are not about supporting people (welfare) but only supporting people who are in work or seeking work. They are aimed solely at improving workforce participation.

That fits with the government’s philosophic approach that focuses on individuals and families and their role in the economy — ‘communities’ do not exist (it was the same under the Howard government). In Hockey’s budget speech the word ‘community’ (or communities) is used in only three contexts: ‘regional communities’ (probably The Nationals’ influence), assisting jobseekers where ‘community workers’ are mentioned, and in relation to terrorist threats to ‘our communities’. Families are mentioned 11 times. For the Liberals, a community cannot exist in its own right but only as an agglomeration of families and individuals. There is no such thing as ‘community spirit’ because that is counter to the spirit of ‘individual self-interest’ that is the basis of their philosophy and, they believe, of economic growth. You will rarely, if ever, see a Liberal government of recent ilk providing funding for ‘community’ services — only services for individuals and families (even if they are delivered by ‘community’ organisations).

Aside from the changes to Family Tax Benefit Part B, there are other measures in this budget that are left over from the previous budget. The government didn’t mention them but Bill Shorten, state premiers and media commentators did. The big one is the reduction in funding ($80 billion) to the states for schools and hospitals over the next decade. Although the premiers will be meeting with Abbott at a ‘COAG retreat’ in July to discuss that, the savings from the measure are built into the forward estimates. That is one of a number of matters that make a mockery of Hockey’s claim that the government has established a ‘trajectory’ to a surplus. If the government has to find at least some of that money to meet state demands, surplus projections move ever further into the future.

A future surplus is now almost entirely dependent on real GDP growth and the commentators have suggested that the estimates contained in the budget are optimistic: they are higher than the current estimates of GDP growth by the Reserve Bank. There is nothing inherently wrong with allowing for GDP growth except when it is optimistic and future revenue does not match the forecasts based on that optimism (see my piece ‘Are budgets worth the paper they’re written on?’).

The other aspect that will contribute to better future revenue for the government is ‘bracket creep’, when pay-as-you-go wage earners move into higher tax brackets as their wages rise. Talk of reducing taxes to overcome the effect of bracket creep has disappeared for now in favour of achieving a surplus.

Neither of those was spoken about by the government and yet they underlie its future projections. They could possibly have gotten away with that if they hadn’t made such a hue and cry about the ‘debt and deficit disaster’ the previous year. Last year the government had to fix ‘Labor’s mess’ — which, they said, comprised high spending and growing debt. This year that doesn’t seem to matter. No wonder people are left wondering which is true — one budget must be based on a lie but which one? Or are they both based on lies, just different lies!

Associated with that, they again rolled out, when interviewed after the budget, that they had inherited a $48 billion deficit (as I recall, it was $46 billion — I am not sure where the extra $2 billion has come from, other than the rubbery figures of Hockey-nomics). That figure has been disproven previously. The actual deficit at the time was $30 billion: the additional $18 billion (or a major 60% increase in the deficit) came from decisions made by the Abbott government after it came to office and before it issued the 2013 MYEFO. Their decisions also added to future deficits and debt by abandoning Labor’s revenue measures (see ‘Abbott continues to tell porkies’).

I will concede that on the ‘plus’ side, the government realised at last that the economy was faltering badly (that it wasn’t just Wayne Swan’s fault) and it needed to do something to stimulate it — hence the tax reduction and accelerated depreciation for small business. Unless the economy grows, and business invests and wages rise, the government’s revenue will remain in the doldrums. So on this side of the equation they have their new catch-cry: ‘have a go’. It should be noted, however, that one of the measures it had previously removed was Labor’s accelerated depreciation scheme: it wasn’t quite as generous as the current proposal but it was built into the system whereas Abbott and Hockey’s proposal is only for two years — what happens after that we don’t yet know. Might I suggest, however, that the $5 billion now for small business will become the same $5 billion for the child care package when it is introduced in two years’ time — that’s a neat trick if they can pull it off!

Now just a few figures (after all we are talking about a budget). First it is interesting that the main income figures are ‘cash accounting’ but the main spending figures are ‘accrual accounting’: there are tables that allow one to match the systems but why the main figures are done in two different ways I don’t know. (A clue to the two accounting methods in the budget documents is contained in the words: if it refers to ‘revenue’ and ‘expenses’, then it is accrual accounting, but if it refers to ‘receipts’ and ‘spending’ or ‘payments’, it is cash accounting.) Following my piece, ‘Are budgets worth the paper they’re written on?’, I will, for consistency, stick with accrual accounting figures.

For 2015-16 they are estimating revenue of $405.4 billion which is more than $21 billion above the estimate for this year: this year’s estimate has come down from $411.6 estimated in 2013-14, to $391.3 billion estimated in the original budget, to 385.9 billion in the MYEFO and now $384.1 billion. Revenue has come in below the budget night estimate every year since 2010-11, so why should revenue now jump by 5.5%? There is no apparent answer other than the government hoping it will based on a few ‘green shoots’ as Hockey called them. This positive approach seems to be a result of the government finally coming to the realisation that continued negativity, although perhaps good politics, was having an adverse impact on business and consumer confidence and thus also impacting the economy — so from a false sense of doom and gloom they have moved to a false sense of optimism after successfully creating doom and gloom.

Government expenditure for 2014-15 has also increased above the original budget night estimate: from $414.8 billion to $420.3 billion. No doubt that can be blamed on the Senate not passing all of their ‘savings’! Expenditure for 2015-16 increases to $434.5 billion, an increase greater than just the concessions for small business but in the budget they claim:

… new spending measures will be more than offset by reductions in spending elsewhere within the budget …
The final expenditure figure does not seem to justify that claim.

Their continued claim to be a low taxing government is also undermined by the fact that taxation revenue in 2013-14 was 21.4% of GDP but has risen to 21.9% in 2014-15, rises to 22.3% in 2015-16 and rises each year to reach 23.4% in 2018-19 (that is only taxation revenue). Total revenue rises from 23.5% of GDP in 2014-15 to 25.2% in 2018-19.

Overall, as Jonathon Green wrote:
There is a purity about the play of politics in this budget week. Nothing is, but what I say it is. I can be a big spending, big taxing government — verifiably so — and yet claim that the opposite qualities are in my very marrow.
It is very much a Humpty Dumpty budget because it does things that they say they do not do and it is tricky because even when they are doing something it is not what it appears.

What do you think?
Following the budget, the Fairfax-Ipsos poll put voting intention at 50‒50 although both Newspoll and Galaxy suggested the budget had not made any difference to the government vote. Do you think people have seen through the budget? Should the budget have done more to boost the economy? Or, as many commentators have suggested, was it just a ‘political’ budget?

Come back next week when 2353 considers the NAPLAN test run in our schools and asks whether it provides a guide to help teachers and schools or creates a competition between schools.

Hope for the homeless


Throughout the world there are people who ’sleep rough’ every night. For a few, that is the way they choose to spend their lives; for the majority, however, the habit is not one of choice or desire — the choice is made for them due to circumstances relating to employment or their personal lives. While Australia is not immune to this social problem, generally those in Australia who are sleeping in the park, under the bridge or in their car do not suffer the climatic extremes as those who ‘sleep rough’ in other parts of the world.

Homelessness or living in cars and so on is not just a problem because it ‘makes the place look untidy’: it is an indicator of how society looks after its members who have usually hit the bottom — and are looking for some help to re-establish their lives — frequently as a result of circumstances the person had no control over. A network of organisations attempts to assist those who are homeless as well as those who through misfortune are likely to become homeless. Most of the organisations that provide this service in Australia are owned and operated by the non-government sector (some of these organisations do receive government support but nowhere near enough and most have suffered cuts since the Abbott government came to power). As you would expect there are organisations in other countries that perform similar activities — some of which use a counterintuitive process with great success thanks to government funding.

There are a number of practical issues when you are in a position where you don’t have a ‘usual’ address, a bed to sleep on at night and all that is represented by having a roof over your head. Probably the most important one is there is no certainty in your life — you literally don’t know where your next meal is coming from, if you will be safe if you do fall asleep, where you will find a place that is sheltered that evening and what tomorrow will bring. In addition, your family does not know where you are; services such as Centrelink require an address to ‘put you on the books’ and access to a computer to receive correspondence; and employers will react to you far more favourably if you take some care with your personal hygiene (a bit hard if you don’t have access to running water) as well as having conventional contact details. If you do manage to scrape together enough for the bond and rental for a property, the real estate agent, under the guise of looking after the interest of the property owner whom they represent, will generally require a reference from a previous landlord prior to renting you a property to live in — a bit hard if your previous address was the third park bench from the light pole.

Anglicare recently published its 2015 rental affordability snapshot as a continuation of the process it has followed for at least the last four years. In 2015, the survey looked at 65,614 properties across Australia and measured where a tenant in the bottom 40% of household income distribution would spend greater than 30% of their disposable income to rent a place to live — the definition of ‘housing stress’. The results are frightening. From the 65,614 available properties:

  • 3.4% of properties met the affordability requirements of a couple who relied on the age pension
  • 0.9% (or 600 properties) met the affordability requirements for a single age pensioner
  • 10 out of the 65,614 (that is not a typo) properties would be affordable for a single person on Newstart; and
  • 8 (again not a typo) properties meet the affordability requirements for a single beneficiary of Youth Allowance.
It doesn’t get much better if you do have a job. Anglicare calculates that around 2.3% of the rental properties available at the time of the 2015 survey would be affordable if you are single and living on the mandated minimum wage; which is slightly over $33,000 per annum. Should you be a part of a young family comprising two adults on the minimum wage and receiving full child support and child care payments for your two children, still only somewhere around 24% of the properties surveyed would be suitable for you.

Clearly if you are in any of the situations above, you are probably reading this on a computer you don’t own — as discretionary expenditure such as internet connections, electricity supply, car and contents insurance, car repairs and, possibly at times, even food are all dispensed with so that you can retain that roof over your head. Again according to Anglicare, around 65,000 Australians do not have the financial security to ensure that they will have sufficient food each day.

The reality is that Australia is certainly not the worst place in the world to be homeless. Our climate in large population areas is rather benign in comparison to some parts of Europe, the USA and Canada, where some major population centres have similar climates to Mt Buller or Perisher. Despite never having been fortunate enough to travel to New York City or London, I am certainly aware of the stories of people that effectively live in subway stations and similar areas as they are (relatively) warm and sheltered — until they are ‘befriended’ by the relevant city’s transport police.

Like in Australia, various government and non-government organisations attempt to help the homeless across Europe, the US and Canada. Some do it better than others. In addition to trivialities such as food and shelter, in cold climates across the world people are also responsible for heating their homes; the purchase of warm clothes as well as additional food to stay warm. If there is a constant battle to find shelter, clearly other requirements for life take a back seat. As an example, a CBS Television Station in Minnesota (WCCO) highlighted during April 2015 that their state government reported 43 people died during their winter where exposure to cold was either fully or partly responsible for their death. While not all these people were homeless (one died trying to rescue another person from a lake), the link does look at the fate of some homeless people. Apparently this is an improvement on previous years.

Around 10 years ago in Utah, the Republican Governor was convinced to try a radical plan to reduce homelessness in the state — give them a home. The charmingly named Desert News reports that it saves money!
In one of the leading examples around the nation of counterintuitive thinking, Utah has been giving away apartments to the homeless. It is a program that has actually saved Utah money. For each homeless person, estimates for emergency medical bills alone are more than $16,000 a year on average. Giving them an apartment costs about $11,000. And it has drastically reduced the need for emergency medical visits.
Outside of medical, various other costs, including legal and justice system costs are estimated to add another $20,000 to $30,000 dollars a year (depending on the location). Utah’s housing, and support for the individuals once they are residing in a home, cuts those total costs by over half, all-in-all, from about $19,000 a year to under $8,000.
Utah wasn’t the originator of the idea. Again the Desert News reports:
Designed by the Utah Department of Workforce Services, the program was modelled after the “Housing First” program pioneered in New York City more than 20 years ago. This approach involves putting housing ahead of all other concerns. When followed, alcohol consumption rates have been found to go down, along with drug usage and public nuisance behaviour. Each year some 10 percent leave the program and become fully independent, and only 6 percent are ejected from the program. The rest continue to work year by year with their caseworker.
The Washington Post recently discussed the origins, benefits and economics of the program and celebrated its success in one of the USA’s most conservative states (Utah is the home of the Mormons). Other US states such as Florida and Wyoming also operate similar programs, so the experiment is repeatable.

If a person has a home, they are in a better position to access government services, a job application is easier (as personal hygiene is better and the potential employer has a contact point) and a person can make plans for the future. The Australian Government is in contrast withdrawing money from social service providers. Conservative states in the USA demonstrate that the current Australian Government’s policy is deeply flawed and doesn’t help anyone. At the same time, the Abbott government — to the detriment of our economy — supports processes such as negative gearing, novated leasing and capital gains.

In Joe Hockey’s world, the homeless are ‘leaners’ as they do not contribute to society. The reality is that those that are ‘sleeping rough’ in Australia are not taking much from society either. It’s a pity some of those that Hockey would define as ‘lifters’ are shifting profits offshore or structuring their affairs so that they make a tax loss (which are all still legal activities). The example to Australia from New York and Utah’s ‘homes for the homeless’ program would seem to suggest that if those who fall to the bottom of society are given some support rather than derision, they become overall contributors to society — at the same time as they are lifting themselves out of poverty, danger and risk. All it takes is someone to give them a chance.

What do you think?
As he did in ‘The “trickle-down” effect’, 2353 presents us with an alternative approach that is already being shown to work. Why can’t governments see the benefit of spending money now for longer term benefits — and savings? Should Labor be picking up such approaches and showing the shortcomings in the current approach? Please let us know what you think.

Next week Ken returns with his view of the government's budget, including the way it began selling it before budget night: 'Government budget trickery'.