Category: Politics

  • Richard Butler. The Dissolution of Iraq?

    On June 10th, some 1,500 fighters from the Jihadist group ISIS (Islamic State of Iraq and Greater Syria) seized Iraq’s second largest city, Mosul. Half a million citizens fled to the Kurdish areas. ISIS then moved further south, towards Baghdad, and took the cities of Tikrit and Samarra, a sacred Shia site.

    On June 13th, the leading Shia cleric in Iraq, Grand Ayatollah Ali Sistani, called on all Iraqi Shia to fight the invaders, who are Sunni.

    Internationally, Iran sent para- military forces to assist the Baghdad government, which like Iran is almost exclusively Shia.

    Also on June 13th, President Obama, having acknowledged the gravity of these events, stated: “The United States is not simply going to involve itself in a military action in the absence of a political plan by the Iraqis that gives us some assurance that they’re prepared to work together”.

    The next day it was announced that a US carrier and two guided missile destroyers were being sent to the gulf. The Pentagon’s press secretary stated that this move “will provide the commander-in-chief additional flexibility should military options be required to protect American lives, citizens and interests in Iraq”. He did not say additional to what or what specifically would now be at the disposal of the commander-in-chief, but such a carrier based battle group would typically include cruise missile capability and airborne weapons systems.

    The grave circumstances now being faced in Iraq are; complex, years in the making, involve an elemental confessional dispute between Shia and Sunni Muslims but have now taken on a dimension that has been shaped by external intervention in the region and seriously corrupt governments. On the origins of the current problems, the relentlessly historicist Tony Blair has stated: “You know we can rerun the debates about 2003 – there are perfectly legitimate points on either side – but where we are now in 2014, we have to understand this is a regional problem” and even without the eight-year occupation by the US and UK, “you would still have a major problem in Iraq”.

    This is such tendentious nonsense. There is no longer any debate, even in strongly conservative circles, about the gravity of the error and the mendacious deceptions involved in the Bush/Blair decision to invade Iraq in 2003. The Economist, not remotely a pink paper, states in its current editorial: “No doubt his predecessor’s decision (G. W. Bush’s) to go to war – which we mistakenly backed at the time – was a disaster”.

    Many things can be discerned, with clarity, about the present circumstances. Key ones are: the Maliki Government in Baghdad has put the very existence of Iraq at risk by its refusal to meet its obligation to ensure that Iraq is managed on a basis of inclusion of Shias and Sunnis; it is widely recognized as being corruptly managed and of deeply dubious competence; the US/UK invasion of 2003 is in good measure responsible for this situation but more particularly, for region wide disrespect for western motives, no matter what the west says about those, and determination by groups such as ISIS to establish islamist societies.

    Then there are the interests of other powers external to the region: Iran’s support for Maliki in Baghdad and Assad in Damascus; Russia’s support for Assad; Saudi Arabia and the Gulf States’ support for Sunni and anti-Assad causes and groups.

    It’s about as messy as international relations can be, with horrible human consequences, and the hard won principles of the Charter of the United Nations, such as the peaceful settlement of disputes, and the content of the Universal Declaration of Human Rights are nowhere to be seen.

    What is visible is the determination of a fanatical, religion based group, ISIS, which is considered so extreme, so odious that its original source of motivation – Al Qaida – has disowned them. ISIS is seeking to establish a fundamentalist Islamist state incorporating eastern Syria and north western Iraq and the ultimately south west to Jordan and possibly Israel. A new Caliphate may be in prospect.

    Notwithstanding their successes in the past week, they are relatively small in numbers, and should be able to be defeated – if there is a will to do so. This latter question is, yet, unanswered.

    Think of the bitter irony involved in President Obama’s words on June 13th about the relationship between military action and a political plan. The 2003 invasion was just that: a military action, contrary to international law, unaccompanied by any remotely, thoughtfully considered, political plan. This led, in good measure, to the circumstances now being faced, in addition of course, to the clearly bogus nature of the reasons given for the invasion and the access it gave to US companies to profit from the invasion, such as the Halliburton Company, over which Vice President Cheney had presided.

    The possible dissolution of Iraq, which has been predicted for some time, and in some cases recommended, as the only viable means to avoid confessional conflict in Mesopotamia (and may also prove to be true for Syria), is something which cannot and should not be imposed from outside.

    As the President noted in his June 13th remarks; Iraq is, after all, the business of the Iraqis. But he faces powerful sources of pressure to take flawed decisions, to repeat the past.

    In the domestic polity the Republicans, seem to be led on such matters by Senator John McCain. The Senator, defeated candidate for Obama’s job, seems never to have seen a war he didn’t want to join and if possible expand; never saw a US foreign policy problem that he believed could not be solved by US military action. He and his like seem determined to live out Lord Acton’s dictum that power corrupts.

    The President must resist this. As he must the Israel lobby, which has been smart enough to keep its counsel on the Syrian events, at least publicly, but remains ever hawkish on anything Iranian.

    One cannot know what level of apoplexy they will experience, or what pressure they will bring to bear on the White House when they see that one important step in containing the present Iraq crisis will be for Washington and Tehran to talk about it and, directly cooperate.

    Richard Butler AC, formerly: Australian Ambassador to the United Nations, Chairman of the UN Special Commission to Disarm Iraq, now a Professor of International Relations at Penn State University.

  • John Tulloh. Misery accomplished in Iraq as disintegration threatens.

    Perhaps dictators have their place after all. Saddam Hussein presided over Iraq for 24 years. While he was cruel and vainglorious, he generally succeeded in ensuring Iraqis stayed in line and kept the peace. He was toppled in 2003 when the U.S., with the support of Australia and other allies, invaded the country with the aim of introducing democracy and an altogether more acceptable way of life. Today his country is unravelling with astonishing speed as a small Islamic extremist group takes control of large areas with impunity. Iraq could be even on the verge of disintegration.

    Since the 2003 invasion, by the most conservative estimate, half a million people have lost their lives. They have been killed as the result of fighting throughout the country, religious violence, executions, lawlessness, random bombings and widespread other terrorism. Hundreds of thousands of people have been uprooted and forced to flee for their lives to seek refuge elsewhere in Iraq or other countries.

    President George W.Bush called the initial bombing of Baghdad a ‘shock and awe’ campaign and within six weeks proudly declared ‘mission accomplished’. Given the results 11 years on, it has proved to be as shocking and awesome on any scale of political and humanitarian disasters.

    It is all the more so when you consider the calamity now facing the Iraqi government with the fall of its second largest city, Mosul, to Islamic insurgents, who are said to be heading in the direction of Baghdad. Now Kirkuk in the north has been taken over by the Kurds who might see this as an opportunity to establish their long-desired independent homeland.

    It is a catastrophic setback for a weakened regime still trying to establish itself. That a movement – the Islamic State in Iraq in Syria (ISIS) – of said to be less than 10,000 fighters could take over a city of more than 1,500,000 people and intimidate the security forces there to shed their uniforms and flee is the humiliating reality of the state of Iraq today.

    ISIS declared it had come to ‘liberate’ Mosul. It hoisted its flag over the city. It was no colourful, reassuring victorious pennant. It was a sinister flag in the grim black and white style of the piratical skull and crossbones. Little wonder when reports said that half a million Mosul residents had fled the city. They had good reason.

    As relatively small as it is, ISIS already controls other parts of Iraq and reports says it has enforced its rule with a reign of terror, including assassinations, beheadings and amputations. It is so extreme that even its former partner. al-Qaeda, severed ties. It is reported to have attracted the interest of hundreds of foreign fighters eager to support its ambitions.

    It is a force which started in Iraq as part of al-Qaeda before splintering. It then moved into Syria during the uprising against the Damascus regime. It had no interest in working with other rebel groups in overthrowing Bashar al-Assad, but simply wanted to establish an Islamic state there. Now, with ISIS back in Iraq in a big way, it wants to eliminate the border with Syria altogether to form one state, hence its name.

    It is an unwelcome crisis for President Barack Obama whose cautious, tip-toeing foreign policy has been heavily criticised. After initial threats to take action in Syria, he decided that the tragedy there could somehow take care of itself without US involvement. But after what has transpired in the past 11 years in Iraq since the initial shock and awe and now a terrorist body of potential mass destruction and misery roaming the desert landscape, does the U.S. have any moral obligation to rescue what it created?

    Washington certainly wouldn’t want to revisit its military occupation which cost its own forces 4500 lives. Iraq has a weak and almost helpless government. Its parliament cannot even raise a quorum at a time of grave emergency. It faces rising tensions between the dominant Shiites in Baghdad and the Sunnis whom ISIS supports. Its troops seemingly have no will to do their duty. Mosul and Kirkuk, both important commercial hubs, are lost for now. And the billions of dollars the U.S. has spent on training and equipping the Iraqi military have proved a dubious investment.

    But what can the U.S. and its Western partners do? President Obama says the U.S. is considering all options short of sending in ground troops. That probably will be limited to what the U.S. can do from the air. Tony Abbott, ever eager to please, is not ruling out Australian involvement.

    So while the policy-makers wonder what to do next, spare a thought for the innocent victims of this upheaval who so often are forgotten. The estimated 500,000 Iraqis who’ve fled Mosul join four million other Iraqi refugees around the world, according to the United Nations High Commission for Refugees. UNHCR says nine million Syrians have had to flee their homes since the uprising three years ago. About 2.5 million of them – more than the population of Brisbane – are sheltering in Turkey, Lebanon, Jordan and even Iraq. Their future is even more uncertain now.

    The Iraqi and Syrian borders were drawn up by Britain and France after World War One and the collapse of the Ottoman empire. Who knows, nearly 100 years on, current events may force cartographers to have to change their atlases with new borders.

    A poetic postscript: Mosul, famed for its muslin fabric, is on the Tigris River on the opposite bank from the ancient Assyrian city of Nineveh. Once upon a time, every Australian schoolchild learned John Masefield’s poem ‘Cargoes’. Its first verse was:

    Quinquireme of Nineveh from distant Ophir,

    Rowing home to haven in sunny Palestine,

    With a cargo of ivory,

    And apes and peacocks,

    Sandalwood, cedarwood and sweet white wine.

    If only a tiny semblance of that charming scenario were so today.

    John Tulloh had a 40-year career in foreign news.

     

     

     

     

     

     

     

     

     

     

     

  • John Menadue. Joe Hockey and class warfare.

    In his speech to the Sydney Institute last night, Joe Hockey said that the criticism of the budget was unfair and reminiscent of ‘class warfare’ of the 1970’s.

    Joe Hockey was right on one thing. There is class warfare and he is waging it particularly against the young and the aged in Australia. Warren Buffet a multi billionaire put it pungently in the US recently ‘There is certainly class warfare going on and my class is winning it’.

    There has been wide-spread commentary about the unfairness of the budget. Ross Gittins for example has said: ‘This is the most ideologically driven budget we have seen … They cut the real growth in pensions but left high income earners absurdly generous superannuation tax concessions untouched. They tightened up the family allowance and cut young people’s access to the dole, but didn’t tackle the concessional taxation of capital gains, negative gearing or company cars, while ignoring the miners’ diesel fuel rebate and other business welfare. They imposed a co-payment on GP visits, but didn’t abolish the private health insurance rebate. … So it’s the “end of entitlement” for people in the bottom half, but no change to the entitlements of the well-off, save for a small three year tax levy.’ (SMH June 9)

    Joe Hockey complains about welfare in Australia, yet government outlays here as a percentage of GDP are one of the lowest in the world. The OECD recently published a report on government outlays for the 18 highest income OECD countries in 2012. Australia was the second lowest in terms of government outlays. Only Switzerland was lower. Countries such as Denmark, France, UK, Germany, Norway, Japan and the US all spent more on government outlays than we did.

    At less than 36% of GDP (all levels of government ) Australia’s public sector is a dwarf. The OECD average size of government is 40.4% of GDP and successful northern European countries such as Germany, Netherlands and the Nordic countries, all have public sectors above 43% of GDP.

    Furthermore Australia has one of the most effective means-tested welfare systems in the world. This needs continual updating but it does ensure that support goes to those in greatest need. This means of course that if welfare payments are reduced it’s going to hit hard those least able to afford it.

    There is increasing concern around the world about growing inequality in developed countries. It is much worse elsewhere such as in the US but the trend in Australia is significant. In the blog which I posted on June 9. ‘What to do about growing inequality in Australia’ you will find the following.

    • In Australia in 2011-12, the mean household net worth of the lowest 20% of our population was $31,205. The highest 20% had a mean household net worth of $2,215,032.
    • The same report quoted from a paper by Andrew Leigh, ‘from the mid-1970s, full-time wages for the bottom tenth of the income distribution had grown only 15%, while full-time earnings for the top tenth have increased by 59%. In recent decades the income share of the top 1% has doubled, the wealth share of the top 0.001% has more than tripled and the share of the top 0.0001% (the richest one millionth) has quintupled. In 2009, the top 20 CEOs earned more than 100 times the average wage. (We saw an example of this this week with the CEO of Australia Post being paid $4.8 million p.a., almost ten times the salary of the Prime Minister whilst sacking 900postal workers.)

    There are numerous examples of corporate welfare and subsidies for the wealthy. This is where the real ‘welfare’ is to be found. Some examples include

    • Superannuation concessions costing $36 billion p.a.
    • Negative gearing costing $4 billion p.a.
    • Subsidies to private health insurance costing $5 billion p.a.
    • Income-splitting trusts costing $3 billion p.a.
    • Capital gain discounts costing $5 billion p.a.
    • Fossil fuel subsidies for polluters costing $11 billion p.a.
    • Funding of private schools costing $9 billion p.a. that benefit a lot of wealthy schools
    • Tax avoidance that I mentioned in my post of June 10 costing perhaps $10 billion p.a. or a lot more!

    There is enough corporate and high income welfare here…$82b pa and counting …to more than meet the “structural budget deficit” of $65b pa. And of course there is also  paid parental leave.

    In the face of growing inequality, government largesse and benefits are being increasingly distributed to the more prosperous members of our community. Joe Hockey probably regards all these benefits as incentives rather than welfare.Or as he more insultingly puts it, the government “should be rewarding lifters and not leaners”

    His comments about class warfare are an ideological smoke screen to hide the unfairness of his budget. It is he and his supporters who are waging class warfare. And they are winning. The age of entitlement is still very much alive for the people Joe Hockey listens to…like the people on the Business Council of Australia or his own North Sydney Forum.

    We need a just and efficient society. Growing inequality acts counter to both those objectives. But in the end the case for greater fairness and equality is a moral one. Taxes are the price we have to pay for a civilised and decent society.

     

  • Nicholas Carney. Advancing the Australia-India relationship under Prime Minister Modi

    Narendra Modi’s ascension to the prime ministership of India has sparked interest around the globe, including here in Australia.

    The world is right to pay attention to Mr Modi’s rise. In the recent Lok Sahba (‘House of the People’) election, the Bharatiya Janata Party (BJP) that he leads took 282 of the 543 seats in the Lok Sahba. The result gives the BJP a majority for the first time in its history, and India its first majority government since the 1984 election. The new government’s majority rises to a commanding 336 seats if those won by the BJP’s coalition partners in the National Democratic Alliance are included.

    Mr Modi and the BJP were expected to perform well in the election – after all, Indian economic growth languishes between 4-5%, inflation is stuck around 9%, corruption is rife, and the former United Progressive Alliance (UPA) government appeared impotent to respond – but nobody expected a victory of this magnitude.

    The electorate has given Mr Modi a resounding mandate to pursue his promised program of growth, governance and infrastructure, and savaged the once-dominant Congress Party that led the UPA. The Congress Party, which has long been controlled by the Gandhi dynasty, recorded easily its worst result, as its seats fell from 206 in 2009 to just 44.

    It should surprise no one that Prime Minister Tony Abbott was quick to call and congratulate the new Indian leader on his victory. India represents a golden economic opportunity for Australia: it is enormous (with approximately 1.2 billion people), young (with a median age of 27), and on course to become the world’s most populous country by 2025 (leapfrogging China).

    The India that Mr Modi has pledged to deliver – a resurgent India, growing again at 8%, building and benefiting from new and long-overdue infrastructure, investing in its relatively young population – will have an insatiable appetite for resources, commodities, education and agriculture from Australia, just as China has over the last decade. Mining services, infrastructure and project management, and healthcare present extraordinary opportunities as well if we can seize them.

    India is also a key actor and potential strategic partner for Australia in our increasingly contested neighbourhood. Both countries have a clear interest in the stability and security of the Indian Ocean but our mutual interests extend further in the Indo-pacific region.

    The new Indian PM may be singularly focused on growth at home but he has made clear that isolationism is not an option if this goal is to be achieved. India will continue to pursue its ‘Look East’ foreign policy under Mr Modi but the emphasis will be on investment and trade opportunities.

    If Mr Modi’s approach as Chief Minister of Gujarat is anything to go by we should expect an assertive style of ‘economic diplomacy’ focusing on China, Japan, Singapore and other South East Asian nations, where the Indian government is not shy to promote its companies. Mr Modi courted these countries in his former role in Gujarat and developed good relations with leaders, especially with Japan’s Prime Minister Shinzo Abe.

    India has long been seen as a logical counterweight to China, a country that, in recent months, has adopted a more aggressive approach towards territorial disputes with its neighbours. However, Mr Modi will however be loathe to antagonise China because of its importance to his growth mission. How effectively he manages this relationship could have grave implications for the region and Australia.

    For Australia, a confident, regionally-engaged India is in our interest, particularly at a time when the US commitment to military engagement has diminished.

    With so much on Mr Modi’s plate and so many other countries queuing up for his attention – President Obama was also quick to call after the election – what, if anything, can Mr Abbott do to advance the Australian relationship in the halls of Delhi and Mumbai?

    A meeting with the new Indian PM is essential. Fortunately for Mr Abbott and Australia, Mr Modi is almost certain to attend the G20 Leaders Summit in Brisbane in November. This will be the first time an Indian PM has visited Australia since Rajiv Gandhi in 1986. Mr Abbott must make the most of this serendipitous opportunity by locking in a bilateral meeting during the visit.

    The agenda for the meeting will be critical. The following topics must be discussed: finalisation of the uranium export agreement; a roadmap to resolve any outstanding issues in the Australia-India Comprehensive Economic Cooperation Agreement negotiations; cooperation in the Indian Ocean; as well as specific Australian trade and investment proposals that will support Indian growth – for example, how Australian education providers can assist India to meet its goal to deliver vocational education to 500 million citizens by 2022 when its current capacity is only 5 million, or how our mining sector can help India to access more efficiently its substantial iron ore deposits.

    Their meeting must not be a one-off. Prime Minister Abbott should follow former NSW Premier Barry O’Farrell’s example and lead annual or biennial trade delegations to India. These delegations create people-to-people links and put Australia front of mind for Indian businesses and diplomats.

    Another way the Australian Government can promote these links is by including India in the new Colombo Plan, which funds student exchange and internships in Asia, and funding the Australia India Strategic Research Fund (funding was not renewed in the recent budget).

    Having Australian students and researchers studying in India, or undertaking joint projects with Indian colleagues, will form life long friendships and academic and business partnerships which will serve Australia well in trade and security matters.

    India’s young population means connections with Indian youth are especially important. The Government should foster these connections by supporting organisation like the Australia India Youth Dialogue, which brings together passionate and energetic young people from both countries to consider issues central to bilateral relations.

    Prime Minister Abbott can also wield soft power by embracing the Indian diaspora in Australia. According to the 2011 census, there were 295,000 Indian migrants in Australia and 390,000 people who claimed Indian ancestry. At its best, the Indian diaspora can be a cheer-squad for Australia in Delhi and Mumbai, with better access to government and business than our diplomats can hope for.

    Given Mr Modi will have his hands full trying to lift Indian growth, improve governance and kick-start infrastructure projects, Australia must be proactive in promoting this important relationship. Mr Modi’s second visit to Australia later this year is an opportunity that cannot be wasted.

    Nicholas Carney is a Senior Associate at Herbert Smith Freehills and he sits on the Council of the University of New South Wales. In 2014, he was a participant in the Australia India Youth Dialogue. The views set out in this article are his own.  

  • Mark Isaacs. The Salvos on Nauru.

    Judging the Salvation Army’s role in Nauru is difficult. Their job was to provide humanitarian support to asylum seekers in a detention centre that was established to deter desperate people from seeking protection by subjecting them to cruel conditions. The contradictory nature of the Salvation Army’s position meant they were damned by the government if they assisted the asylum seekers, and damned by their staff if they didn’t. Despite this the employees of the Salvation Army, my colleagues, showed utmost care for the asylum seekers we worked with and implemented a wide range of programs that alleviated some of the mental pressure placed upon these people This justified the need for a humanitarian organisation to act as a service provider within detention centres.

    Having said that, my introduction to Nauru highlights several issues in the Salvation Army’s implementation of their contract in Nauru that were not confined to my initial experiences, but rather became consistent, systemic failures.

    I was hired by the Salvation Army in September 2012 to work in the Nauru Regional Processing Centre as a support worker, or ‘mission worker’. The camp had been established just two weeks prior.  The Salvation Army were desperately hiring people to fly out to Nauru on four week contracts. Accounts from members of the Salvation Army suggest that the organisation wasn’t expecting the camp to be opened so quickly, that they thought they had more time to prepare.

    I was hired without a job interview and without training of any kind. I was given no concept of what work I was about to become involved in. There was no job description or mission brief provided to staff in these early days. There was no idea of what the Salvation Army hoped to achieve by accepting the contract to run the centre. There were no clear directives to the staff in how we could meet these mysterious goals of the mission that one would assume the Salvation Army had discussed before accepting the contract. There was no education provided on the type of men we would be working with; where they came from, their cultural sensitivities, the types of stories we might hear, or why they were coming to Australia. I was given no guidance on how to work with traumatised refugees, or mentally ill clients who could be, and some proved to be, suicidal. The only advice given was to ‘go out and help the men’. My experiences were not isolated. In fact, in the first deployments, the most common characteristic of the Salvation Army support workers was an inexperience in working with asylum seekers and refugees.

    The Salvation Army have since responded to these claims by stating that the role of a support worker was to ‘fulfil unskilled duties in support of the provision of basic needs for transferees’ and that ‘support worker roles typically do not require individuals to have particular skills or experience’. The Salvos also refute my claim that I wasn’t interviewed prior to being offered a position in Nauru, suggesting that a phone interview was conducted before deploying me. I would assert that this brief phone conversation was not a sufficient format through which to assess my skills for a role as important as a support worker for asylum seekers. Having said that, the role I was taking did not require me to have ‘particular skills or experience’.

    I believe that, although the Salvation Army’s motives were admirable in accepting the brief to assist some of the world’s most desperate people, the inexperience of their managing staff in working in the refugee sector was detrimental to the well-being of the men they were contracted to care for and the workers they employed to enact this task. The statement mentioned above, provided almost eighteen months after my initial deployment, either demonstrates a complete lack of understanding of the needs of asylum seekers in a place such as Nauru, or an equally complete disregard for the workers’ and the asylum seekers’ welfare.

    I believe that from day one there emerged a trend of the government pressuring the Salvation Army into submission. It was a commonly accepted view amongst my colleagues that the government would argue points of contention by threatening to ‘tear up the contract’, and the Salvation Army management would toe the line. Often this was at the expense of the asylum seekers well-being and that of Salvation Army staff. Greg Lake, former head of the Department of Immigration in Nauru, states that the Salvos were contracted by the government as the lead agency in the Processing Centre. The ramifications of the Salvos inability to assume the lead agency role meant that the humanitarian care for the men suffered.

    I can support all my claims with a number of examples, but in this blog I have only space for one.

    It took the Salvation Army over a month to hire their first professional case managers whose role it was to monitor the men’s well-being, a responsibility that we were led to believe was one of the Salvation Army’s contractual obligations. Prior to this Wilson Security assumed the responsibility of welfare services. The first two Salvo case managers were expected to establish case management practices in a camp that housed over two hundred men, the numbers increasing weekly. The impracticality of my colleague’s workload became apparent when one of her clients became involved in a prolonged hunger strike. The Department of Immigration demanded a file be presented on the client, a file that did not exist. Rather than support my colleague, Salvation Army management demanded she write a case file retrospectively.

    I believe the Salvos did not do enough to defend the human rights of the asylum seekers, and that this was a disservice, not only to the men imprisoned in Nauru, but to the Australian public who could rightly assume that the presence of a humanitarian organisation in Nauru would mean that human rights would be upheld and if those human rights were being abused, then the Salvos would voice their concerns.

    In summation, I believe that although the original motives of the Salvation Army were admirable, the implementation of the ‘Nauru mission’ suffered due to inexperience, poor preparation, and the Salvation Army’s inability to defend the asylum seekers’ human rights and handle government pressure. This resulted in a far more oppressive atmosphere for inmates that could have been avoided. Furthermore, the lack of respect shown to their own employees has left many embittered against the organisation and the experience of working in Nauru.

    Having recently been employed as a case manager for an asylum seeker settlement service in Sydney, I see how organisations can work in this intricate political space of advocating for clients while still being contracted by the government, reinforcing my belief that the role of humanitarian support in these camps is essential to the asylum seekers’ welfare.

    Mark Isaacs also wrote a guest blog which was posted on March 28 – ‘Deterring boat arrivals’.

     

    Mark Isaacs is the author of ‘The Undesirables: Inside Nauru’

     

    www.markjisaacs.com

    https://twitter.com/MarkJIsaacs

    https://www.facebook.com/isaacsmark1

     

  • Mary Chiarella. Nurses – debt and job satisfaction.

    In the AFR Laura Tingle rightly points out that nurses do not tend to fit the mould as one of those groups of fortunate students who may reap significant income returns for the cost of their university education. She goes on to point out that “modelling released by Universities Australia this week suggest nurses’ uni debts will rise from $19,398 to as much as $37,390 under the budget proposals. This is for a job paying a starting income of $48,729”. She calculates that a nursing graduate who works 6 years full time on graduation, followed by six years part-time before returning to full time work, would have a debt of $66, 195 that would take 22 years to repay.

    So this brave new world of market forces is pretty bad news for nursing recruitment. That is even if you consider that caring ought to be commodified in the first place or whether there are some things that are so important the market should protect them rather than hang them out to dry. Remarkably people often feel quite differently about these matters when they are in need of intensive or palliative care.

    But wait, there are more spanners to throw into the works. It’s also ipso facto bad news for nursing retention. This comes not long after Health Workforce Australia’s report Health Workforce 2025 (HWA, March, 2012) modelled future requirements for registered nurses and identified that, with no changes to the status quo, there would be a shortfall in registered nurses of 109,000 or 27%. As it turns out the government also decided to get rid of HWA in the last budget, so these data won’t bother them for much longer.

    Note this is a report on registered nurses. This distinction matters for safety and quality in health care.  We have an abundance of information about the impact of baccalaureate prepared RN staffing on reduction of adverse events. If the cumulative evidence from these studies were a pill, they would have stopped the trials and given the pill to everybody. Duffield et al’s work (2007) in NSW looked at the relationship between skill mix and adverse events, and governments and their advisory bureaucracies should ignore it at their peril. It is the biggest study ever undertaken examining the relationship between these two issues at unit level and she has received international acclaim as a result of it. For every 10% increase in RNs there is a 27% decrease in failure-to-rescue –we have wards way below that level today.

    But HWA’s report points out that we wouldn’t need that many nurses if we only retained 1 in 5 (ONE IN FIVE!!)  of the ones we currently lose. A 20% improvement in retention would ameliorate the predicted RN shortage –so we really only need to understand why they are leaving and do something about it. Elementary.

    A synthesis of serial investigations and reports demonstrates that the two primary reasons why nurses leave the profession are a sense that they are not valued and a belief that they are not able to deliver high-quality care. Job satisfaction is therefore connected with both skill mix and shortages. The work environment plays an important role in job satisfaction and patient safety as well, as Aiken and colleagues’ multi-country studies indicate (2010). In a number of their studies, hospitals providing “supportive” environments, in terms of staffing levels and organisational factors, were more likely to have better patient outcomes compared to less “supportive” hospitals. These findings are consistent with other surveys indicating the central role of the work environment in job satisfaction and patient safety. So a simple question, will increasing the HECs debts and anxiety improve the work satisfaction of our RN workforce Mr Abbott?

    Mary Chiarella is Professor of Nursing, University of  Sydney.

  • John Menadue. Taxes and the free riders.

    Our tax system is in a mess. It is easily exploited by the wealthy who can afford expert financial and taxation advice. We hear from Alan Jones and the Daily Telegraph about dole-bludgers. The Minister for Social Services Kevin Andrews says that disabled pensioners should get off the couch.

    Tax avoidance and tax bludging however are much greater problems.

    The Henry Review of Taxation addressed many problems but by and large the Rudd and Gillard Governments did not grasp the tax nettle. The scandal continues.

    Let us look at a few recent examples.

    Peter Martin in the SMH on 13 May reported that the latest tax statistics show that 75 ultra-high-earning Australians paid no tax at all in 2011-12.  Their average income from investments and wages was $2.6 million each. They paid no income tax, no Medicare levy, no Medicare surcharge, even though 60 of them paid private health insurance premiums. PHI always favours the wealthy. These 75 ultra-high-earning Australians had a taxable income of $1.10 each. It is hard to believe but it is true.

    The AFR on 23 May reported that ‘Almost 9,200 self-managed super funds have a balance of more than $5 million, a rise of 75% in the past three years, and that the number of funds with over $10 million had doubled. These self-managed superannuation funds are really on shore tax havens for the rich. The AFR continued ‘A lot of these tax strategies involve shuttling money in and out of super funds to trigger a lower tax rate or glean tax deductions on personal expenses. The most popular are 55 year old executives who start drawing a tax-free pension from their fund, while tipping their entire salary into it and effectively reducing their tax rate from 46.5% to about 15%. Another common strategy is to put money into super to get a tax deduction and then pull the money straight out tax-free.’

    The AFR of 21 May this year, reported the Deputy Commissioner of Taxation, Mark Konza, as saying ‘While the global debate about how to tax multi-nationals has centred on such companies as Google and Apple, energy and resources companies were also a target. The tax office is reviewing international transactions by 233 multinationals and has identified 86 of these as high risk.’ In 2011-12 according to the AFR, Australian companies shifted $130 billion offshore, mainly to minimise tax.

    In its last annual report Google Australia disclosed annual revenue of $3.6b and paid tax of only $296,000.  What was that about ending the age of entitlement!

    There are numerous tax havens. Mark Zirnsak of the Uniting Churches’ International Mission Unit examined the tax subsidiaries of Australia’s top 100 companies. He found that News Corp topped the list with 146 such subsidiaries. AMP had 15, Telstra 19 and Toll Holdings 64. All the banks had them.

    In its 2010 annual report Westfield had 56 subsidiaries. But surprise, surprise we learn from the Saturday Paper that the Westfield report of 2013 did not mention a single subsidiary in Jersey or Luxembourg.

    In May last year Business Day revealed that all but one of Australia’s top 20 companies listed on the stock exchange have subsidiaries in low tax countries or tax free jurisdiction including Hong Kong and Singapore. At least half those companies have subsidiaries in tax havens such as Bermuda, Switzerland, Jersey and the British Virgin Islands.

    We have the continuing problem of hobby-farmers who purchase vineyards or dairy farms for lifestyle reasons and also to minimise tax. In the wine industry, these hobby farmers are responsible for a significant part of the over-production of wine. to the detriment of full-time wine producers.

    According to Roman Lanis at UTS, the Westfield empire paid an effective tax rate of only 8% over the last decade. That 8% tax rate was well below the 22% average rate paid by ASX 200 companies which in turn is below the 30% company tax rate. Lanis said that tax minimisation like this is common in the real estate sector. If the full 30% tax rate had been paid Australians would have an extra $2.6b in tax revenue. This behaviour of Westfield is undoubtedly legal, but is it right?  Further the privileged children of Frank Lowy are the highest paid executives in Australia. Last year Peter Lowy was paid $11.5 m up 43% on the previous year.  Steve Lowy was paid $10.9 m, up 23%.  Westfield’s small business lessees, consumers and taxpayers are subsidising these excessive salaries. As the Americans say it is an enormous advantage to be born on third base.

    The Auditor General, Ian McPhee, has just released a report on the Australian Tax Office’s handling of high wealth individuals (HWI). He said that ‘Tax compliance of the 2,650 HWIs and 3,700 potential HWIs who had a total estimated wealth of $500 billion in 2012-13 represented a “significant revenue risk”. He added ‘These wealthiest people use a complex web of trusts and companies to hide what could be potentially billions of dollars from the tax office.’

    All this sounds like a catalogue of artful tax dodging. The age of entitlement is not over for the rich, particularly for those with inherited wealth and with tax havens littered around the world. Don’t tell me about dole bludges and people lounging on couches.

    Our problem is not government spending. It is overwhelmingly the decline in government revenue. There are some good examples above of why and how that is occurring

     

  • What to do about growing inequality in Australia.

    On Wednesday 11 June at Parliament House Canberra, former Liberal Leader, Dr John Hewson will launch a report on ‘What do do about growing inequality in Australia’. The report has been prepared by Australia21, ANU and the Australia Institute. The report can be found by clicking on below. It is embargoed until Wednesday at 11am.

    Final InequalityinAustraliaRepor (1)

    If you would like more information please contact CEO Australia21, c/- Lyn.stephens@australia21.org.

     

    John Menadue

  • Walter Hamilton. Postcard from Poland and Auschwitz

    Poland this month is celebrating the 25th anniversary of its rebirth as a democratic state. It is also marking 10 years since it became a member of the European Union. The country thus provides an interesting vantage point from which to observe Europe’s schizophrenic politics.

    To the west––notably in the UK, France and Germany––so-called Eurosceptic parties took the spoils in recent elections for the Strasbourg Parliament (with every intention, too, of being spoilers); to the east, meanwhile, Ukraine is struggling to attach as much of itself as Vladimir Putin will allow to the EU locomotive. It is the Disenchanted versus the New Believers. While voters in the west have flocked to rightwing parties opposed to sharing their baguette with new arrivals, in the east, where they’re still biting on black bread (to extend the metaphor), and where stateless Africans are scarce, most believe the opportunities flowing from European unity far outweigh the costs.

    Today’s Poland is where Ukraine hopes to be in a decade or two––which is why Kiev is willing to give almost anything––including, tragically, a measure of its people’s blood––to grab on to the EU. Poland, they tell me, is the only country in Europe to have experienced 20 years of uninterrupted growth. Able for the time being to use its own (undervalued) currency, it is experiencing a tourism boom, while the many new manufacturing and distribution plants of international firms erected on the periphery of major cities attest to an investment surge.

    That’s not to say Poland’s EU journey has been all smooth sailing. One might describe the general appearance of the country as one of ‘receding decay’. The downtown precincts of cities like Poznan and Wroclaw are sophisticated, smartly dressed and thriving; the suburbs tend to be graffiti-scarred and grey. The new rich want more, while many others on meagre wages need to work long hours to stay afloat. In a Warsaw supermarket, a woman of 70+ years who served me at the checkout at 8am was still there when I went back 11 hours later. Our host in Warsaw, a retired teacher, also in her 70s and still working part time, bemoaned the 13% national unemployment rate and the much higher joblessness (26%) among the young. As we drove out of the capital she pointed out abandoned industrial plant (Soviet-era and obsolete), which she blamed on the EU experience. And where was the livestock that every family farm once proudly displayed? Disappeared under mass-produced food imports. But if I detected nostalgia for the past, she quickly corrected me: ‘Communism was awful through and through; nobody, except perhaps some party boss, wants to go back to that’. Food queues are no more, inflation is zero and, even if unacceptably high, current unemployment is below the long-term trend, and falling.

    Poland, historically a gateway between East and West, now emphatically faces west. When President Obama was in Warsaw recently, the Polish government repeated its request for NATO to establish new bases on its territory. Sensibly, Obama refused to be drawn.

    If Polish history teaches us one thing, it is that all frontiers lie: they lie to those who believe they can secure the homeland, and they represent lies to those who wish to change them. Heading north out of Krakow, our driver Michael pointed out two buildings on either side of the road ahead. ‘Prepare your passports,’ he joked. ‘We are now leaving Austria and about to enter Prussia.’ The border checkpoints, operational until 1918, stand as reminders of the eighteenth-century partition of Poland when it ceased to exist as a nation (as it did again from 1939). The idea behind European union––distinct nations united by a shared destiny––is an undoubted improvement for Poles after centuries of partition and domination. Affirming this, as they do, they take a wary glance back in the direction of their old nemesis, Russia. Though the fighting in Ukraine seemed far removed from the beer and food-laden tables of Krakow’s teeming Old Square, the ordinary Poles I spoke with believed Moscow’s territorial ambitions extend well beyond Crimea.

    Frontiers are a European obsession these days, much as they are in Australia. With internal borders essentially open, an unauthorized entrant can make his or her way to any of the member nations of the EU. If they survive their journey in a leaky boat across the Mediterranean (Italy has received 40,000 unauthorised arrivals, mainly crossing from Libya, so far this year), theoretically they might end up in Bayeux or Bonn or Birmingham (or so the sloganising goes; the reality is somewhat different). This, more than any other issue, is hardening attitudes and inflaming rhetoric, and threatening the European experiment. New scapegoats have been found to blame for economic dysfunction and social stress, in a pattern that has terrible antecedents.

    In Block 6 at Auschwitz, the main hallway is covered with photographs of former inmates of the notorious concentration camp. Nothing, not all the books and films, can completely prepare you for a visit to Auschwitz-Birkenau. It is fine and warm on the day we are there, and many hundreds of tourists are being guided through the two camps (Birkenau, or Auschwitz II, the purpose-built extermination camp, is many times bigger than the other). Among the images on the wall at Block 6, I come across that of a Polish girl aged about 10. The caption tells me that she survived only a fortnight after being brought to Auschwitz in 1942. My eye alights on the next photograph: her identical twin sister.

    There is something about their expressions I cannot immediately fathom. Bewilderment I see, certainly, and fear; but what is the other thing? It would be grotesque to compare the sufferings of the 1.3 million people, mainly Jews, who perished in Auschwitz to the present-day treatment of asylum seekers in Italy or Australia, and I do not intend to do so; and yet, as I walk past the rows of photographs, taking in the individual faces and reading the individual names, it occurs to me how easy it is to forget that, behind barbed wire somewhere bleak and inhospitable today, and also incarcerated for no crime and provided no date of release, are many nameless, faceless individuals for whom we have a duty of care. It becomes a compelling thought when in Auschwitz, but it should not be necessary to travel here to feel it.

    And now I understand what it is about the portraits of the twin sisters that has so puzzled and disturbed me. In their anguished moment before the camera they ceased to be photographer’s subjects, just two more victims of a distant horror. Rather, they became cameras pointing at us, capturing an image of our souls, interrogating our hearts and consciences. It seems facile to speak of ‘ghosts’ in such a context, but for the first time in my life I truly felt that the mirror had been reversed.

    Walter Hamilton is the author of Children of the Occupation: Japan’s Untold Story.

     

  • Cavan Hogue. The hype of D-Day

    ​

    The hype about the Normandy Landings on D-Day reflect a deep seated prejudice in the Australian press, public and politicians. Tony Abbot wants to use our minimal contribution to milk the occasion so he can be seen amongst the great and powerful and this is understandable but the claim by Abbott and our media that D-Day was the turning point in the European theatre is nonsense.l  The pivotal battles were Kursk and Stalingrad and it was the Russians who took Berlin thus ending the war in Europe – not the Western allies.Most German and allied casualties took place on the Eastern Front and something like two thirds of German forces were committed there.

    The Normandy Landings opened the long awaited second front and relieved to some extent the pressure on the Eastern Front where most of the action had taken place and continued to take place. D-Day did liberate France, Belgium and Holland quicker than they otherwise would have been liberated and enabled the French to play a part in the taking of Paris. No doubt these three countries preferred to be liberated by the Western allies rather than the Eastern ally, However, the Western allies did not face anything like the main German forces. Germany preferred to try to hold the Red Army at bay until they could surrender to the West because they knew how badly they had treated the Russians and what retribution they could expect.

    It seems that Stalin and Hitler were not the only ones to rewrite history to suit themselves.

    Cavan Hogue was formerly Australian Ambassador to USSR and Russia.

  • Hugh Mackay. Immoral acts – that’s one way to stop the boats.

    “No boats have arrived for 36 days!” That was the recent proud claim of our immigration minister, Scott Morrison, delivered in a tone that suggested we should all cheer such a wonderful accomplishment.

    In fact, given the strategies employed to achieve this result, we should hang our heads in shame. We are living through a dark period in our cultural history where politicians like Morrison are actively encouraging a dulling of our moral sense by appealing to that most dangerous moral principle of all: “The end justifies the means”.

    It’s not just this government, of course: the stain on our national conscience has been spreading for years, through the life of several governments from both sides of politics. And an odd things about this situation is that our leaders – normally so timid in the face of the polls – are seriously out of step with the majority of Australians (who, according to two reputable national surveys, favour rapid, onshore processing of asylum-seekers’ claims).

    We can tip-toe around this and speak of “human rights abuses”, or a lack of compassion, or a failure to honour our international treaty obligations. But why mince words in the face of the intentional brutality – psychological and physical – being inflicted on asylum-seekers imprisoned on Christmas Island, Nauru and Manus Island, by an elected Australian government? Why not call our asylum-seeker policy what it is: immoral.

    It’s immoral because it treats people who have committed no crime as if they were criminals. It’s immoral because it fails to honour that most basic of all moral principles: treat others as we ourselves would wish to be treated. Even if we add the caveat “in the circumstances”, the principle doesn’t go away.

    There are many situations in which we are bound to treat people more harshly than we would wish to be treated ourselves: we do it with criminals; we do it with enemies; we do it with people we’re retrenching, or lovers we’re abandoning. But even in situations like those, members of a self-proclaimed civil society are obliged to treat everybody with appropriate dignity and respect – two ingredients glaringly absent from life in an Australian detention centre.

    Our asylum-seeker policy is also immoral because it involves bad behaviour in the pursuit of a “good” goal. Given the vast scale of the world’s refugee crisis, it’s arguable whether stopping the boats is, in fact, a morally praiseworthy goal, but let’s accept, for the moment, that it is (and stopping rapacious people-smugglers is undeniably good). Precisely because it is a good goal, everything done in pursuit of that goal must be good. If not – if we fall for the mad idea that we can behave badly in pursuit of a good goal – then we have compromised our own integrity and tarnished the very values we are claiming to uphold.

    If you embrace the idea that the end justifies the means, then you’ll be stuck with accepting torture as a legitimate way of extracting useful information. You’ll accept that bribery and corruption are justifiable ways of achieving political or commercial goals. You’ll endorse assassination as a legitimate tool of the political struggle.

    Is that us? Is that the moral framework Australians want our governments to adopt when dealing with hapless souls who arrive here, by whatever means, as asylum seekers? Are we so committed to the sloganistic ideal of “stopping the boats” that we think it’s morally okay to incarcerate such people – men, women and children – in conditions deliberately designed to dehumanise them, rob them of hope and destroy their faith in the future (including their faith in Australia as an honourable, civilised, compassionate society). Do we seriously believe this strategy can be justified on the grounds that it might discourage others from trying to come here?

    Do we think it’s morally acceptable to condemn authentic refugees to the crushing uncertainty of temporary protection visas, and to deny them the right to work here? (Economic stupidity, as well: fancy deciding it’s better to support them than to encourage them to support themselves and, in the process, make a useful contribution to our economy.)

    We have become participants in a tragedy that will attract as much opprobrium in the future as the “stolen generations” and White Australia do now. Having chosen to behave immorally, we are setting ourselves up not only for international condemnation, but also for massive compensation claims in the future and, no doubt, yet another hollow apology to the thousands of people we have abused because we adopted that tacky mantra “whatever it takes”.

    If we really want to stop the boats, we should demand that our politicians, diplomats and aid agencies find morally acceptable ways of doing so. To pursue such a difficult goal in a state of moral blindness is hazardous in the extreme.

    There’s an ironic little twist to this tale. Many Australians who support the present brutal policy seem to think they are defending “Christian values” against an invasion of infidels. But isn’t the very essence of those values that we should show kindness to strangers, offer support to the weak and disadvantaged, and succour to the poor, the hungry, the dispossessed who come knocking at our door?

    Hugh Mackay is a social researcher and author.

     

  • John Menadue. The Blame Game in health

    Attempts to resolve the Commonwealth/State blame game have been unsuccessful and expensive. Time and time again federal governments try and buy off state criticism by spending more taxpayer’s money without any real improvements in the delivery of health services.

    This futile blame game is not surprising in a federation where there are nine departments of health for a population of 23 million.

    Over many years there has been confusion about the role of the Commonwealth in hospitals. In 2007 John Howard offered to underwrite community organisations prepared to take over State hospitals. (The issue at the time was the Mercy Hospital in Launceston.) In 2009 in his book Battlelines, Tony Abbott said that a Commonwealth withdrawal from hospitals would be a ‘cop out’. It would be “anachronistic and inefficient”.  Kevin Rudd threatened to take over State hospitals if a satisfactory arrangement could not be made with the States but backed down even though opinion polling showed strong support for a Commonwealth takeover of State Hospitals.

    The Abbott Government now seems intent on winding back the commonwealth’s role in health. It is proposing a reduction of $80 billion in school and hospital funding over the decade to 2024-25.As a result the states are into the blame game again

    The budget announcement is a major breach of faith between the Commonwealth and the States.

    • The Commonwealth has unilaterally cut $1 billion from State budgets from 2017.
    • The Commonwealth will no longer honour an agreement to fund some growth in State hospital costs. The Commonwealth had pledged to partly fund this growth in State hospital costs, provided those costs were based on efficient costs determined by The Independent Hospital Pricing Authority. (We know that there are major differences in costs not only between hospitals but also within hospitals.) This increase in funding based on improved performance by State hospitals has now been abandoned.
    • Furthermore, by sharing the costs of hospital growth for the first time, the Commonwealth had a direct interest in containing hospital costs by making primary care work better and reduce hospital admissions.

    Following this threatened withdrawal of $80 million to the states, the Prime Minister went on the front foot in describing the federation as ‘dysfunctional’. He said that we needed to ‘fix the federation’ and to ensure that ‘the states are sovereign in their own sphere’.

    I can understand his frustration with the federation, but his proposal would take us backwards in a quite dangerous way. His comments on federalism are quite contrary to what he was saying several years ago and now derive more from ideology about ‘state rights’ than common sense and a modern view of our economy and society.

    As Michael Keating in his five part series on this blog, pointed out, there are good reasons for the pre-eminence of the national government in many fields.

    • Unlike the 1890s before federation we now have a national market in almost all key aspects .That national market has to respond to growing global pressures and competition.
    • Responsibilities of the federation have grown enormously since federation. In the 1900s for example pensions did not exist.
    • The national government’s dominance of taxation is clear-cut and will not be reversed. That domination is essential for good economic management.

     

    But that still leaves us with the fact that many commonwealth and state functions are inter-related. Those inter-relationships must be sensibly managed.

    Personally, I would favour a Commonwealth takeover of all state health functions and particularly hospitals. We need national leadership and clear responsibility. In an optimal situation I would like to see the states abolished altogether and replaced by a smaller number of consolidated local governments.

    But that is not going to happen, short of a major crisis. That is why I have proposed what I have called a ‘Coalition of the willing’. In such an arrangement the Commonwealth should offer to set up a Joint Commonwealth/State Health Commission in any state that will agree.  That Commission would be jointly funded by the Commonwealth and the State. There would be one pool of money. This joint commission would plan the delivery of health services in the State and so provide more cohesive hospital and non-hospital health services. It would be a small planning and funding commission with little or no net increase in bureaucratic overheads. In any event any small increase in these costs would be minimal compared with the enormous present costs of commonwealth and state systems duplication and the costs arising from lack of integration between commonwealth and state services. For example the Productivity Commission estimated that 750,000 state hospital admissions could be avoided annually if there were effective interventions in the three weeks before hospitalisation. Those interventions are in the hands of the commonwealth that funds general practise

    In such a joint funding and planning arrangement the delivery of health services would continue through existing health agencies, Commonwealth, State and local government. The new Commission would be jointly appointed by the two governments and with agreed and transparent dispute resolution arrangements. In the event of a disagreement, the Commonwealth position should prevail as it would be the chief funder.

    Tasmania and SA should be obvious starters for such a joint commission given their size and difficult financial position. Hopefully success in one State would then encourage other states to swallow their pride and improve their health services by cooperating with the Commonwealth in a joint commonwealth/state health commission.

    In March 2007, I set out this proposal in more detail .

    I still believe that this is the most sensible and practical way to solve the commonwealth/state impasse and blame game in health. This proposal could also be applied in the education field to resolve the disputes and the blame game in education between the commonwealth and the states.

    I think most Australians are sick of the blame game in health. The problem can be resolved but, in the first instance it requires a political agreement between the commonwealth government and any state that wants to cooperate. With such political agreements implementation would be relatively easy. Politics is the hard part.

    A more modest start would be for the Commonwealth and a State to establish joint arrangements on a regional basis.Commonwealth and State funds would be pooled in that region and agreement negotiated for a health plan for the delivery of all health services in that region.

    We need to coordinate Commonwealth and State health services.

     

  • NY Times – Capitalism Eating its Children.

    Yesterday I posted a blog ‘Are our Bankers Listening or Caring’. It referred to speeches by the IMF Chief, Christine Lagarde, and the Governor of the Bank of England, Mark Carney. They were speaking at a ‘Inclusive Capitalism’ conference in London. 

    Today the New York Times has carried an op ed piece by Roger Cohen entitled ‘Capitalism Eating Its Children’. Cohen draws extensively on the speech by Mark Carney. The op ed piece in the New York Times can be found at:

    http://nyti.ms/1owYMKI

    John Menadue

  • Richard Butler. The Invasion of Iraq,the decision and it’s consequences

    It was reported on May 29th, that Sir John Chilcot, the head of the UK inquiry into the decision to invade Iraq in 2003, had reached a “breakthrough” on the issue of how much of the official records of the decision to invade can be published. The publication of the Chilcot report is some two years late. It is now thought that it may be published before the end of 2014.

    Chilcot stated that the contents of the key documents at issue, mainly relating to communications between Prime Minister Blair and President George W Bush (some 25 of Blair’s notes to Bush) are “vital to public understanding of the enquiry’s conclusions”.

    If this is true, then Sir John, and all of us, may yet be disappointed, because UK Cabinet office officials are now insisting that he may only publish the “gist” of such documents and information only “in relation to” relevant cabinet meetings. Hardly a “breakthrough”!

    UK government sources have indicated that this outcome has been the result of negotiations between them and Washington. And, Tony Blair claimed this week, that he has had nothing to do with what has become widely regarded as the insupportable delay in the Chilcot report.

    Oddly in these circumstances, US Secretary of State, John Kerry, in an interview broadcast on Public Television in the US, yesterday, in answer to a criticism voiced by former Vice President Dick Cheney of the handling by the Obama Administration’s of the Iraq intervention, stated: “Dick Cheney was completely wrong about Iraq and we are still struggling with the aftermath of what Dick Cheney and his crew thought was the right policy; to go in and start a war of choice for the wrong reasons and they turned tops turkey the entire region with respect to Sunni and Shia and the relationships there. The fact is they have been deeply, deeply wrong in the policy they pursued.”

    Three points of interest for Australia: While John Howard and Alexander Downer were not directly hired members of Cheney’s “crew”, they offered them and us as willing recruits; there has been no comparable enquiry in Australia to the Chilcot enquiry; has Canberra also made representations to Chilcot or the UK to bury communications between Blair and Howard or any other relevant Australian input? Why did John Howard think,we Australians,as the Americans sometimes,so crisply say.”have a dog in this fight”?

    On John Kerry’s “wrong reasons”, he is clearly referring to the weapons of mass destruction rationale for the invasion. In my final report to the UN Security Council as Head of the UN Special Commission to Disarm Iraq, in 1999, I indicated that we had accounted for virtually all of Saddam’s  WMD. My successor, Hans Blix, four years later, on the eve of the invasion did the same. It was for this reason, among others, that the Security Council refused to authorize the invasion, thus rendering it contrary to international law.

    In an informal submission to the Chilcot enquiry, some three years ago, I called its attention to the fact that the Bush Administration’s claims on Saddam’s alleged WMD involved rejecting these two UN Security Council authorized reports. I have no idea what, if anything, the Chilcot report will make of this fact. What is clear, however, is that no WMD were found after the invasion. That was because there were none.

    For at least the last three years, with increasing intensity and horrific consequences, the region bound by Lebanon in the West, Syria in the center and Iraq to the East has been engaged in war.  And, it has external participants, from the region and beyond.

    Why this is occurring, what is elementally at issue, and when and how it might end, continues to be the subject of much agonized and uncertain analysis.

    Such an analysis, which deserves attention, was given by Borzou Daragahi (Middle East: Three nations, one conflict: Financial Times May 27th). He mentions the possibility that what we are witnessing is nothing less than the revision of the arbitrary boundaries laid down by the British and the French (the Sykes/Picot Accord) following the end of WWI and the defeat of the Ottoman Empire.

    More pertinently, he observes that: “the outlines of the war now raging across the Levant and Mesopotamia became clearer after the 2003 US invasion of Iraq. The election of the Shia-dominated government in Baghdad gave Iran influence, in its former rival, while enraged Sunnis took up arms, first against the American occupiers, then against Baghdad. The largely Sunni 2011 uprising against Mr. Assad’s heterodox Shia Alawite regime and the Damascus government’s harsh response engulfed the region in a still expanding war.”

    He asks whether this is comparable to the 30 years’ war in 17th Century Europe. It can’t be; the weapons being used today are far more devastating, and great power rivalries are more deeply involved than in the battle over the Holy Roman Empire.

    But it is clear that there is no end in sight and the conflict may continue for years.

    A thought for the centenary of Gallipoli!

    Richard Butler a former Australian Ambassador to the United Nations, and Executive Chairman of the UN Special Commission to Disarm Iraq, is a Professor of International Relations at Penn State University.

  • John Menadue. Are our bankers listening or caring?

    On Wednesday in London at a conference on ‘inclusive capitalism’ the Governor of the Bank of England, Mark Carney, and IMF Chief, Christine Lagarde, gave the international banking community the most severe pasting that I can ever recall of a  particular industry, or at least one that  operates “legally”.

    They said that bankers regarded themselves as different and not bound by the need for economic and social inclusion that is essential in a modern society. Both Carney and Lagarde said that the actions of the banks were excluding them from mainstream society. It is true of banks in Australia as much as banks in Europe and the US.

    Mark Carney said

    • “Capitalism is at risk of destroying itself unless bankers realise that they have an obligation to create a fairer society”
    • “Bankers had operated a heads-I-win-tails-you-lose system”. He questioned whether “Traders met ethical standards and that those who failed to meet high professional standards should face ostracism.”
    • “The basic social contract at the heart of capitalism was breaking down with rising inequality.”
    • “The most severe blow to public trust was the revelation that there were scores of too-big-to-fail institutions operating at the heart of finance. Bankers made enormous sums in the run-up to the [GFC] and were often well compensated after it hit. In turn taxpayers picked up the tab for their failures.”
    • “One of the lessons of the GFC was that compensation schemes had delivered large bonuses for short-term returns and encouraged individuals to take on too much long-term risk. In short, the present was over-valued and the future heavily discounted.”

    Christine Lagarde also cut through the bankers’ self-deluding spin.

    • “The financial services industry had not changed fundamentally in a number of dimensions since the crisis”. She reeled off ‘a list of scandals, including money-laundering and the manipulation of bench marks such as Libor.”
    • “Progress on building a safer financial system has been too slow, primarily because of industry attempts to halt the introduction of tougher new laws.”
    • “While some changes in behaviour are taking place, these are not deep or broad enough. The industry still prizes short-term profit over long-term prudence, today’s bonus over tomorrow’s relationship.”

    The details of banking behaviour in Australia may be marginally different but the thrust of Carney and Lagarde’s criticism is valid in Australia. The moral centre of gravity of our bankers and their boards of directors is hard to discern. Consider

    • The combined cash profit of the big four Australian banks last year was over $27 billion. They enjoy a government guaranteed oligopoly.  Time and time again the banks refused to pass on reductions in official interest rates in Australia or the reduction of offshore rates. Surely we need a banking supertax and a Tobin tax on international financial transactions. A 0.2% levy on bank assets above $100m would raise an estimated $11 b over four years The super profits of the banks are promoting the “rising inequality” that Mark Carney warned about.
    • The CEOs of the our four banks last year had a combined take-home pay of over $35 million; Cameron Clyne, NAB $7.8 million; Mike Smith, ANZ, $10.4 million; Gail Kelly, Westpac, $9.2 million and Ian Narev, Commonwealth Bank, $7.8 million. There are various share rights on top of this. These salary packages are ethically indefensible. The market is rigged by so called independent remuneration “experts”, board directors and senior executives’. Why should such CEOs expect wage restraint from anyone else? In 2001 CEOs in Australia were paid about 20 times average weekly earnings. It is now over 70 times. I see no reason why anyone should be paid more than the $500,000 salary package of the Prime Minister who works harder and takes more risks than any bank CEO. If shareholders won’t address this corporate greed, the government should do so through the tax system. The banks are working against a “fairer society” that the Governor of the Bank of England referred to.
    • We recently saw on 4-Corners the Commonwealth Bank financial planning scandal which victimised thousands of retirees. Instead of facing up to the moral issues involved, the bank set its spin doctors to work. It is the sort of “scandal” that the IMF Chief would have had in mind
    • The banks have been leading the charge to roll back the Future of Financial Advice (FOFA) which is designed, amongst other things, to protect superannuation contributors from the conflict of interest of financial planners employed by financial institutions. Financial advice has become a honey pot for the banks.  Last year the financial advising industry pulled in $21 billion from the superannuation pool. There are 18,000 financial planners in Australia and four out of five of these are owned by a bank or an insurance company.  In the name of ‘winding back red tape’ the bankers are lobbying hard to protect their oligopoly rents. Their greed must be contained. But as Christine Lagarde put it the banks want to “halt the introduction of tough new laws”
    • We have grown tired of the campaign by the Coalition concerning our public debt of $300 billion. But the serious debt is household debt owed principally to the banks of almost $2 trillion. In proportion to our household disposable income this is one of the highest debts in the world. But where are the business economists, mainly employed by the banks, in warning us of the risks of this level of private debt which has been induced mainly by their employers. The banks are promoting what  Mark Carney warned about  ,”individuals taking on too much long term risk”

    The warnings of Carney and Lagarde are highly relevant to the behaviour of Australian banks. They still regard themselves as a privileged and untouchable elite. They are losing our trust fast. They are eroding our social capital.

  • John Tulloh. Egypt’s new would-be Pharaoh.

    The headline in The Australian was stark and brutal: SISI VOWS TO ERADICATE BROTHERHOOD. Eradicate? This is a word you associate with efforts to get rid of a disease or an agricultural pest. But in this case it was meant as a kind of cleansing of religious adherents and caused barely a ripple of protest outsider Egypt.

    The story, of course, referred to Egypt’s new strongman, Abdel Fattah al-Sisi, who has won this week’s presidential election. He says one of his first tasks will be to suppress the Moslem Brotherhood out of existence. His interim government has already declared it a terrorist group.

    The Moslem Brotherhood has been an organisation long feared by Egypt’s leaders because of its shadowy presence like an underground movement and yet having enough support for effective political influence. It demonstrated that in 2011 when it won almost a majority of seats in parliament and in 2012 when its candidate, Mohamed Morsi, won the presidential election with 51% of the vote. This was a stunning result given that the Moslem Brotherhood had virtual illegal status for six decades.

    All that came to an end last July when al-Sisi staged a military coup and ousted Morsi, who has been under arrest ever since. Huge protests in support of Morsi followed which the military ruthlessly put down. More than 600 people died, said to be the worst mass killing in modern Egyptian history.

    The Moslem Brotherhood was founded in 1928. It favoured Sharia law and wanted Egypt to be governed according to the teachings of the Koran. Within 20 years it had an estimated two million members.

    But it was long regarded as a pest to Egyptian authority. It has been accused over the decades of murders, assassinations, bombings, arson attacks and plots, which is why it has been for so long been treated as a threat from within. Yet it also has been associated with charity work in a country with endemic poverty.

    Al-Sisi in an interview earlier this month said the Moslem Brotherhood was ‘finished’. Asked if it would cease to exist if he were elected president, he was quoted as saying ‘Yes, just like that’. Eradicated! Most of the Brotherhood’s political leadership has been imprisoned or fled the country. Any sign of support, real or imagined, is harshly dealt with as Australian journalist Peter Greste and two Al-Jazeera colleagues have discovered. They have been locked up for five months without a shred of evidence against them.

    Many Egyptians are hoping al-Sisi can provide some welcome stability. Egypt has become a dystopia. The once booming tourist industry has collapsed because of unrest. The enormous bureaucracy still toils in a pre-computer era.  Essential and social services are in disarray. Unemployment is rampant and the outlook is not only grim, but ripe for unrest.

    According to the Egyptian author, Thanassis Cambanis, al-Sisi wants to restore Egypt’s standing as the most powerful country in the Arab world. He (al-Sisi) thinks only one institution can do this: the military. This recalls the 50s and 60s when another former army officer, Gamal Abdel Nasser, ruled the country and was the most powerful of all Arab leaders.

    Cambanis, writing in Time magazine, says: ‘According to advisers who’ve heard his private comments, al-Sisi wants Egypt to project power in the region, rather than be seen as a basket case that can be manipulated by the oil sheikhs in the Gulf’.

    If al-Sisi really does want Egypt to assert its former military muscle, he might have an opportunity beyond the country’s borders. Ethiopia is building a dam on the Blue Nile – part of Egypt’s lifeblood – and, if al-Sisi sees this as a threat to his citizens’ fresh water supply, he may see that as a just cause for military action.

    What of the Moslem Brotherhood? Ashraf Khalil, a Cairo journalist and author, says if it has any hope of playing a future political role, ‘it needs to acknowledge – to itself and the rest of Egypt – that its downfall was partially its own fault. Through a combination of arrogance, incompetence and ham-fisted politics, Morsi and the Brotherhood managed to systematically alienate every potential ally they had’.

    Whatever displeasure the West has felt at a democratically-elected government being overthrown has been muted. Under the Foreign Assistance Act, the U.S. is supposed to reduce or suspend aid to guilty regimes. But little has happened apart from delaying the delivery of some Apache helicopters. No doubt this is because Egypt can be counted on to curb terrorism and has been a steadfast supporter of Western interests, thanks in part to its military and economy relying so much on Washington’s aid.

    In the months and years ahead, you can be sure that Egypt’s formidable security apparatus will be closely monitoring sermons in the mosques for any sign of dissent. As it is even today, the clerics are supposed to follow official government advice of what sermon topics are acceptable.

    John Tulloh had a 40-year career in foreign news.

     

     

     

     

     

     

     

  • Geoff Hiscock. Onus on Abbott to forge closer ties with India

    ​As a young man, Tony Abbott backpacked across India in 1981, and spent six weeks at the Australian Jesuit mission in Bihar state. He was fascinated by the country’s many contrasts, from its bullock carts to its nuclear power stations.

    His Indian exposure since then has been limited, but the Australian Prime Minister says he has always taken India seriously and has made it clear in his speeches and his interaction with the Indian community in Australia that he wants a much closer and deeper relationship.

    With Narendra Modi as India’s new leader, he has chance to do just that. Abbott was quick to call Modi and congratulate him when his Bharatiya Janata Party (BJP) scored a decisive electoral victory earlier this month, saying on May 17 that he looked forward to strengthening ties between the two countries.

    Modi’s priorities, of course, are not the same as Abbott’s. Modi lives in a much more volatile world, where relations with Pakistan, China, Sri Lanka, Bangladesh, Myanmar, Nepal and Afghanistan take precedence, and where domestic terrorism, social stability, food and energy security, job creation, infrastructure development and health issues are of overwhelming importance.

    Still, like Abbott, Modi is conservative, pragmatic and pro-business, with a mandate to get things done. Abbott and Modi may not otherwise be natural soul mates, but Abbott is eager to turn what he calls a “neglected” Australia-India relationship into something much more substantial and balance it against the other Asian heavyweight, China, in the areas of trade, strategic cooperation and people to people ties.

    India’s GDP of $1.8 trillion lags well behind China’s $10 trillion, but with an economic pick-up on the cards and a growing middle class of several hundred million out of a total population of 1.25 billion, India is a target market of considerable size.

    For Australia, there is potentially much more trade in energy and resources (including ultimately, uranium) and agribusiness, and in services such as education, engineering and finance. For India, there are opportunities in manufactures such as medicines, jewellery and motor vehicles and in services such as tourism and information technology. In terms of direct foreign investment, India already has built stakes in Australian coal mines, other metals and food.

    The raw statistics show just how much work remains.  Australia’s total two-way trade in goods and services runs at about $625 billion a year, but India accounts for only about $17 billion of this, or less than 3 per cent. That is roughly the same amount of business Australia does with Malaysia, but is way behind trade with the big four of China ($150 billion), Japan ($70 billion), the United States ($54 billion) and South Korea ($30 billion). Even Singapore ($27 billion), New Zealand ($21 billion) and the UK ($19 billion) rank ahead of India among Australia’s main trading partners.

    In his first major foreign policy speech in Melbourne last year, Abbott ascribed the relatively modest trade flows partly to “India’s long preoccupation with the non-aligned movement and statist economics; and partly because of Australia’s historical amnesia and fascination with China.”

    Certainly Australia’s economic relationship with China has rocketed ahead in the past two decades and it would be fair to say that while Abbott is a little more wary of China than his recent predecessors Julia Gillard and Kevin Rudd were, he has continued the fascination. In April Abbott led a large trade delegation to China, Japan and South Korea; at the Boao Forum on the Chinese island of Hainan, he told his hosts: “Australia is not in China to do a deal, but to be a friend. We don’t just visit because we need to, but because we want to.”

    His avowed goal is to add a China free trade agreement as quickly as possible to those already signed with Australia’s two other big North Asian trade partners. So far, we haven’t seen much sense of urgency about a free trade agreement with India, though in 2011 Australia and India did begin negotiations for an FTA-style “comprehensive economic cooperation agreement.”

    But it’s not an “either-or” thing with China and India. There is ample opportunity for Australia to grow its business ties with India without threatening anything it has with China. The first step is for Abbott to build some personal rapport with Modi and to take any residual heat out of the relationship left by past kerfuffles over perceived discrimination and the attacks on students in Melbourne.

    Unless Abbott can shuffle his packed schedule to squeeze in a visit to India in the next few months, it is likely his first chance to meet Modi as Prime Minister will be at the G20 leaders’ summit in Brisbane in November. Before that, Australia will host the G20 trade ministers’ meeting in Sydney in July, with India’s new Trade Minister likely to attend. At both these events, the focus will be global rather than bilateral.

    In Melbourne last December, Abbott observed that “no one should underestimate India now, nor its potential to be a global superpower in this century.” His challenge – and to a lesser extent that for Modi – is to expand trade, investment and defence ties, and nurture some new areas of mutual interest that go beyond the old staples of democracy, rule of law, the English language, and a love of cricket.

    Geoff Hiscock writes on international business and is the author of several books, including “Earth Wars: The Battle for Global Resources” and “India’s Global Wealth Club,” both published by Wiley

     

  • John Menadue. Australia-Japan – friends should be frank.

    Tony Abbott is shortly to visit Japan. He should be aware of the serious ultra-nationalist trend in Japan. That ultra-nationalism in the past has brought tragedy to the Japanese people and our region. The chief exponent of this ultra-nationalism in Japan is Prime Minister, Shinzo Abe,who will be his host.

    I believe that Japan is at a tipping point in its domestic politics and in its relations particularly with China and the Republic of Korea – countries that it has invaded and colonised in the past. 

    I am presently in Japan and my friends express to me increasing concern about the rising trend of ultra-nationalism. The nature of that ultra-nationalism is set out in my earlier post, which is below. My friends grew up in Japan where the majority was clearly influenced by the tragedies of the past and wanted to maintain a pacifist approach to the future. That approach has served Japan well since 1945. There is now concern however that generations of young people in Japan have never experienced the tragedy that war brought to their parents and grandparents. 

    There are encouraging signs that elements within Prime Minister Abe’s government and also Coalition partners, Komeito, are concerned about what Prime Minister Abe proposes. Hopefully they will prevail. Tony Abbott would be wise to urge caution on his host when he visits Japan. But I wonder if he understands what is at stake.      John Menadue

    Tony Abbott has told us that Japan is Australia’s best friend in the region. I don’t think the relationship with Japan should be expressed that way, but if we take what Tony Abbott says literally, a good friend should tell the Prime Minister of Japan Shinzo Abe that there is disquiet in the region and amongst Japan’s many friends about the ultra-nationalist course that Prime Minister Abe is pursuing.  His actions and those of his colleagues including the Foreign Minister are causing particular concern in China and in the Republic of Korea who suffered from Japanese occupation. This is not just a silly cultural war that PM Abe is conducting over words and with few consequences. With Japan’s history this is serious. Germany has gone to great pains to purge so much of its past. But Japan’s past keeps coming to the surface when it is bidden.

    Prime Minister Abe upped the ante in a visit to Yasukuni Shrine, the core of the discredited State Shinto of earlier years that brought tragedy to Japan and the countries of the Pacific. Prime Minister Abe says it was a private visit but it was a public denial of Japan’s wartime atrocities. Yasukuni honours the souls of 2 million war dead but also fourteen Class A war criminals. It features a museum that attempts to whitewash Japan’s war record. The US Embassy in Tokyo objected immediately to Prime Minister Abe’s visit to Yasukuni.  Julie Bishop took a month to respond and in a very lame way. “Such events (as the visit to Yasukuni Shrine) escalate the already tense regional environment”she said.

    Prime Minister Abe has clearly set out to rewrite history and provoke both China and the ROK. His actions also offend the memories of Australian service people who suffered at the hands of the Japanese Imperial Army. It is remarkable that he attacks the ROK which is led by a conservative Korean President. His ultra-nationalism blots out any affinity with a fellow conservative. In his plans to rewrite Japanese history he continues to apply pressure to the Education Ministry and teachers to ensure that their textbooks are rewritten to be more “patriotic”.

    Prime Minister Abe has made it clear that he wants to amend Article 9 of Japan’s war renouncing constitution and develop a significant counter-strike military capability. I have not yet heard any suggestion that he will discuss this with Japan’s neighbours or Australia.

    With his symbolic visit to Yasukini Shrine PM Abe can rely on a coterie of acolytes to carry on his revision of history.  He has appointed five new members out of twelve to NHK, Japan’s public broadcaster which is similar to our ABC. All the five new members are close to the Prime Minister. That is not so surprising, but one of the appointees, Naoki Hyakuta, described the Tokyo War Crimes Trials as designed to ‘fool people’. Hyakuta went on to add that the 1937 Nanjing massacre of possibly 300,000 Chinese by the Japanese Imperial Army was a fiction.

    Katsuto Momii, with the strong backing from Prime Minister Abe, has been appointed Director-General of NHK. At his first press conference Momii said that the recruitment of ‘comfort women’ was not a problem. He has refused to retract that comment. He endorsed Abe’s visit to the Yasukuni Shrine.

    The Asahi Shimbun reported this week that “books and periodicals highly critical of China and South Korea are flying off the bookshelves”. At the Tokyo Municipal election last weekend Toshio Tamogami an ultra-nationalist candidate ran fourth with 611 000 votes or 12% of total votes. He was a former Air Self-Defence chief who said during the election as reported by Asahi Shimbun that “the war of aggression, the 1937 Nanking Massacre and comfort women were all fabricated”. The Secretary General of PM Abe’s LDP party said that “Tamogawa was in complete agreement with LDP policies.” The public mood is moving to the nationalist right.  More and more people including officials will bend with the prevailing wind that PM Abe is generating.

    To show his friendship to Japan, Tony Abbott sided with Japan over the disputed islands in the East China Sea. Australia should stay out of that dispute. In respect of the dispute over the islands with China, Prime Minister Abe has suggested that war between Japan and China is possible as he made clear by likening the situation to 1914.

    One cannot visit the sins of the grandfather on the son or the grandson, but Prime Minister Abe  is pursuing the same hostile and ultra-nationalistic attitudes to the region as shown earlier by his grandfather, former Prime Minister Nobusuki Kishi. In 1935 Kishi became a top official in the industrial development of Manchuko, where he was subsequently accused of exploiting Chinese labour.  He was appointed Minister of Munitions by Prime Minister Hideki Tojo. After the war, Kishi was held at Sugamo prison as a Class A war crimes suspect.  Unlike Tojo, he was released from Sugamo prison in 1948 and was never indicted or tried. Kishi’s relationship with grandson Abe may seem unimportant but they both share similar ultra-nationalist aspirations.

    When Tony Abbott visits Japan in April he should tell Prime Minister Abe that neighbours and many friends of Japan are worried about the course on which he is set. He is the most belligerent leader that we have seen in Japan for decades. He foolishly attempts to conduct diplomacy with the US and Australia over the heads of his neighbours. Their hostile response is not surprising. We have an interest in telling the Japanese Prime Minister and being frank with him that we are concerned.

    Many countries and many people have put great effort into reconciliation with Japan and its people. I have tried to do my part. We must ensure that that reconciliation is not undermined by a reckless Japanese Prime Minister.

    John Menadue was Australian Ambassador to Japan 1977-1980. He was instrumental in the establishment of the Australia Japan Foundation and was subsequently Chair of the Foundation. He was also instrumental in establishment of the Working Holiday Agreement with Japan, the first between Australia and a country in the Asian Region. He was awarded the Grand Cordon of the Order of the Sacred Treasure by the Japanese Emperor in 1997 for services to Australia-Japan relations.

  • John Menadue.The vendetta against the ABC and the cost to Australia

    Tony Abbott’s vendetta against the ABC is prejudicing Australia’s regional diplomacy.

    The ABC is the most trusted media organisation in the country but Tony Abbott wants to bring it to heel. He has grown used to the fawning Murdoch media.

    According to Essential Research, 70% of Australians have a lot of or some trust in ABC TV news and current affairs. For commercial news and current affairs, it is 38%; for news and opinion in daily newspapers it is 48% and for commercial TV news and current affairs it is 41%.

    In his attacks on the ABC, Tony Abbott has become quite brazen, suggesting even that the ABC is unpatriotic.

    In the recent budget ABC funding has been cut by $29 million p.a. But the real attack on the ABC was the decision to axe the $223 million contract which the ABC has to produce and broadcast Australia Network which Australia needs to project itself into the region.

    The cutback to Australia Network will not only damage our projection into the region but it will also prejudice the ABC’s already limited number of correspondents in Asia, even though the ABC’s coverage and performance in Asia is superior to other media.

    The Coalition made it clear in advance that it would axe the Australia Network. It was pay-back for the ABC even though the ABC has seven years to run on the contract.

    Yet this axing came within weeks of the ABC signing a contract with the Shanghai Media Group to broadcast Australia Network throughout China. Only CNN and BBC have been able to negotiate such an arrangement. Rupert Murdoch tried for years to get a foothold in China but not surprisingly he failed ignominiously.

    Malcolm Turnbull, the Minister for Communications, to whom the ABC is responsible, did not effectively defend the ABC. Julia Bishop the Minister for Foreign Affairs won the day.

    It is noteworthy that during Tony Abbott’s recent visit to China we were told by the embedded Canberra Gallery journalists who travelled with him that the ABC had been able to secure this arrangement in China because of the good relations that Tony Abbott had forged with China. There must be some red faces in the Canberra Gallery to now see what’s happened to the ABC in China.

    I have no doubt that the ABC is better equipped than any other media organisation to undertake this soft diplomacy in China and generally in our region. But close observers would conclude that Australia Network’s performance has been quite ordinary. It cannot be compared with the successful projection of the UK through the BBC World Service. The ABC’s performance in Asia reflects the derivative nature of all our media. Our media still perform as is if we are an island parked off London and New York.  Not one member of the eight-person ABC Board has lived or worked in Asia. Only one out of the eleven senior ABC executives has worked in Asia.

    The very ordinary performance of the Australia Network is not surprising. It has not had leadership that understands and knows about our own region. ‘Soft diplomacy’ requires a close knowledge of the nuances and sophistication of the people of our region. The ABC, along with other media in Australia, is not sensitive or seriously interested in our region. Domestic trivia invariably wins the day.

    The botched tender process and the performance of Australia Network have not helped the ABC’s case. But even allowing for that, Australia’s interests would be better served if the government had not pursued its continuing vendetta against the ABC and allowed our national broadcaster to continue and to develop its services into China and into our region.

  • Gavan Hogue. Quo Vadis Thailand?

    Thaksin undoubtedly engaged in some corrupt activities. Whether he was more corrupt than the other mob is hard to say but he did get the numbers by actually doing something for the poor peasants especially in the depressed areas of the north and northeast. His critics accuse him of pork barreling but that is a well established democratic procedure. Whatever his motives, he did actually do something to improve the lives of the poor and they voted for him in droves.

    The Bangkok establishment takes the view that democracy is mob rule and the unwashed masses really need their betters to look after them. No doubt theBangkok elite is better educated and more sophisticated than the rural masses but essentially what they are arguing for is oligarchy. They believe that peasants with dung between their toes should not be allowed to decide who runs the country. So if you want to point the finger, the blame must surely be put squarely on the yellow shirts who refused to accept the election result. Their claim to represent the king is nonsense because the king is just as revered in the countryside by the red shirts.

    The army is a vehicle for the poor to get an education and rise in status so there would be many in the lower ranks who sympathise with the peasants. The top echelons tend to identify with the conservatives but there is at least some potential for differences of opinion within the army. It is probably too early to be sure what the army is going to do. Ideally, they should supervise free elections soon and support whoever wins. This could happen but may not. We just have to wait and see. To be fair, the armed forces did stay out of things for a long time while the civilian politicians and their supporters squabbled.

    The role of the King is unclear. The army says he has given them a mandate but we have only their word for that. It is obvious that the King is sick but it is not clear just how much he is able to exercise control over events as he has done in the past.

    In short, we should not jump to firm conclusions just yet. Coups are nothing new to Thais but there does seem to be more public opposition to this one than in the past. There is the potential for major clashes between the army and demonstrators which could lead to deaths but full scale civil war is unlikely. Compromise is much more in the Thai character.

    There is not much Australia can do except keep our options open and watch developments. Public denunciations and sanctions are not helpful. If we have anything to say it should be done privately. The Government has so far been careful to avoid public comment and this is wise.

    Gavan Hogue is a former Australian Ambassador to Thailand.

  • John Falzon. Time to stand and fight

    There are measures in this Budget that rip the guts out of what remains of a fair and egalitarian Australia. These measures will not help people into jobs but they will force people into poverty.

    You don’t help young people or older people or people with a disability or single mums into jobs by making them poor. You don’t build people up by putting them down.

    This Budget is deeply offensive to the people who wage a daily battle to survive. The content of the Budget is offensive. The lies told to justify the Budget are offensive.

    As philosopher Slavoj Zizek explains:  “…we are told again and again that we live in a critical time of deficit and debts where we all have to share a burden and accept a lower standard of living – all with the exception of the (very) rich. The idea of taxing them more is an absolute taboo: if we do this, so we are told, the rich will lose the incentive to invest and create new jobs, and we will all suffer the consequences. The only way to escape the hard times is for the poor to get poorer and for the rich to get richer.”

    The government wanted us to believe that its first Budget was tough but fair. It has since explained that its outright cruelty to people living in poverty is actually good for them because by strengthening the economy everyone, especially the poor, will benefit. Wealth, you see, trickles down, when the wealthy are treated well and their privilege preserved. Thus goes the message it has been trying to dangle before us.

    It is still trying.

    But all we can hear is the sound of the excluded still waiting for the trickle-down to trickle down.

    Budget 2014, you see, has the wealth trickling up! Not that this is all that unusual when market forces are allowed to trample on the lives of people who bear the brunt of inequality.

    Even Pope Francis has something to say about this: “Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralised workings of the prevailing economic system. Meanwhile, the excluded are still waiting.”

    When you’ve got a rich country like ours “unable” to afford to ensure that the more than 100,000 people experiencing homelessness or the more than 200,000 people on the waiting list for social housing have a place to call home, it is not a misfortune or a mistake. It is the sound of the excluded still waiting

    When you’ve got more than 700,000 people unemployed and around 900,000 underemployed, on top of those who are set to lose their jobs due to company closures, the dismembering of the public service and government cuts to social spending, it is also the sound of the excluded still waiting. Let us not forget the woeful inadequacy of the Newstart payment, at only 40% of the minimum wage. Neither let us forget the single mums who were forced onto the Newstart payment at the beginning of last year, and let us not forget the working poor for there are some who would like to squeeze them even more by reducing the minimum wage and taking away what little rights they have.

    When you’ve got David Gonski, not generally seen as representing the vanguard of the working class, working alongside his fellow review panellists to recommend a package of education funding reforms to address the outrageous inequality that besmirches education funding in Australia, and then the government does a triple back-flip and declares it is not committed to seeing this redistribution of resources through, you loudly hear the sound of the excluded still waiting.

    The long, fruitless wait of the excluded for some of the wealth, some of the resources, some of the hope, to trickle down, is one of the most audacious and sadly successful con jobs in modern history. It is not misfortune. It is not a mistake. It is certainly not, as perversely asserted by those who put the boot in, the fault of the excluded themselves! Rather, it is an attack, sometimes by omission as well as by commission, against ordinary people, from the First Peoples to the most recently arrived asylum seekers and everyone in-between who has been residualised and demonised and made to bear the burden of inequality.  That is why there is absolutely nothing unusual about understanding this as an issue of class. And why Warren Buffett was quite correct when he said: “There’s class warfare alright, but it’s my class, the rich class, that’s making war, and we’re winning.”

    The public response to the Budget reflects the deep feeling of injustice in the community. The powerful thing about the Budget response is that people are banding together to defend our egalitarian values of fairness and respect. People are saddened not only because the Budget affects them but because it hurts and humiliates the people they love and care about: young people, older people, people with a disability, single mums, struggling families. As we can see from the strength of the response to it, now is the time not to watch and weep but rather to stand and fight.

     

    Dr John Falzon is Chief Executive of the St Vincent de Paul Society and the author of The language of the Unheard.

  • Héctor Abad Faciolince: An Idea of Europe

    After centuries of war, European unity has been one of the world’s greatest achievements in the second half of the 20th Century. But can it last? The recent European Parliamentary elections have given rise to Euro scepticism and hostility to immigration. It is a testing time for Europe.  John Menadue

     

    El Espectador, Colombia, 4 May 2014,  http://www.elespectador.com/opinion/una-idea-de-europa-columna-490295

    I have just been at Berlin’s “House of the Cultures of the World”, as part of a discussion about Europe, and more specifically, about whether some ideas developed in that part of the word can be considered universally valid. One cannot deny that Europe is a special place. To start with, although it is called a continent, it is not even a continent. When we look at a map of the world in real dimensions, and not one designed from the point of view of the European geographers, we can see that Europe is just a small Asian peninsular. It is a corner of the world, squeezed between the Mediterranean and the Atlantic, and a crossroad in the paths connecting Africa and Asia. This does not detract from Europe, but on the contrary, makes it more extraordinary.

    Tiny Europe was affected by all the plagues (which ensured that its peoples became immune from many diseases), and for millennia, it was basically a killing field: wars and invasions from the north, the east and the south. It was also a centre of commerce, and because the wisdom of the Egyptians, the Arabs, the Indians, Chinese, indigenous Americans etc, circulated and settled throughout its territory. The invaders and the invaded left great technical, artistic and scientific knowledge in Europe. Writing, numbers, algebra and Christianity were not European inventions, but it appropriated these ideas to itself.

    And although Europe is very small in relation to the world, if we look at the map again, we can see that vast regions speak European languages: throughout the Americas, Africa, Asia and Oceania. Obviously, that does not mean that English, French, Portuguese, Dutch or Spanish are better languages than the others. It simply means that those who spoke these Latin or Germanic dialects won more battles and imposed their own languages. They colonized almost the whole world with fire and sword.

    Latin America still has the footprints of the Conquest, the rape and genocide of the indigenous Americans that can be seen in our looks and in our blood; and we bear the traces of a European and African business in slaves that lasted for centuries. Europe produced perhaps an involuntary, but real extermination of tens of millions of people from illnesses from which the indigenous people had no immunity. But the colonies also brought with them the seeds of Enlightenment thought, the scientific method and the cosmopolitan Republic of Letters. It has always been said that the translation of “The Rights of Man and of the Citizen”, a French idea, was the beginning of our liberation.

    After thousands of wars and suffering, Europe appears to have learned a lesson and today is it one of the least uncivilized regions on earth. Europe’s defeats civilized it: Spain lost its pride with the loss of its Armada and the American colonies; France lost its overweening grandeur at Waterloo; and Great Britain’s Empire disappeared into thin air, while Germany learned not to be so arrogant, and not to believe that it was “über alles” when Hitler took it to moral and material ruin. The European Union, the practical disappearance of borders and 70 years without war between the major powers has turned Europe into a reference point for many. For the Ukraine, Turkey, and in part for the Americas. Values like the freedom of the press, of thought, religion, universal education, and rules of hygiene seem almost universally accepted like certain postulates of physics, geometry and mathematics. The beauty of Bach’s music or Velazquez’s painting is almost as unarguable as Pythagoras’s theorem.

    There will be elections on 25 May 2014 in Europe, the same day as Colombia’s elections. And the incredible thing is that in this place that seems to be an example in so many ways, a good percentage of the population will vote against a united Europe, and for nationalism, for racism, for closed borders, and for the call to war. A good part of Europe, it seems, does not believe in Europe.

    Translated from the Spanish by Kieran Tapsell.

    Héctor Abad Faciolince is one of Colombia’s best known authors. His book, El Olvido Que Seremos, about his father, a Professor of Public Health at the University of Antioquia, who was assassinated by the Right wing paramilitaries, became a best seller in Latin America. It has been translated and published under the name, Oblivion: A Memoir. http://www.amazon.com/Oblivion-Memoir-H%C3%A9ctor-Abad/dp/B00D05REJC

  • Michael Keating. Part 5. Federalism

    The Government’s Commission of Audit, which preceded this Budget, recommended that policy and service delivery should as far as practicable be the responsibility of the level of government closest to the people receiving those services, and that each level of government should be sovereign in its own sphere, with minimal duplication between the Commonwealth and the States. The Government for its part has insisted that it does not run schools or hospitals and that the States are ultimately responsible for them and what happens to them.

    This conception of the Australian Federation with its emphasis on States’ rights and separate roles and responsibilities is of course not new. Malcolm Fraser enunciated it before he became Prime Minister, and its supporters insist that it was what the framers of our Constitution intended.

    Furthermore, there is considerable intellectual attraction in separate roles and responsibilities for each sovereign government. It should enhance democratic accountability and help improve efficiency if the buck can no longer be passed backwards and forwards between the two levels of government. But why then has our Federation evolved in favour of greater national involvement in the provision of services that were originally the sole responsibilities of the States? The Commission of Audit seems to believe that centralism can and should be reversed, but I will argue below that there are good reasons why the national government has become more engaged in what were originally the prerogatives of the States.  Consequently, although there is probably some modest scope for redefining governments’ respective roles and responsibilities and reducing duplication, we will be best served by preserving the core features of our national system.

    In my view there are three key reasons for the pre-eminence of the national government. First, a fundamental reason why the States agreed to federate was to remove tariffs as a first step towards the creation of a national market. But now that we have a national market and indeed are facing global competition, businesses want common standards and licensing across a wide variety of fields; for example, everything from rail gauges, regulation of heavy road transport, company law and national competition, to food standards and the recognition of qualifications.

    Second, the responsibilities of government have grown. At the time of Federation pensions did not exist, but the Australian government now has constitutional responsibility for income support, including subsidising critical needs such as medical services, pharmaceuticals, and rental housing. Equally since World War II the Australian government has been expected to manage the macro-economy to ensure full employment and reasonable price stability.  Allied to this the Australian government also has responsibility for population policy, especially through migration, and for the growth in productivity and workforce participation which together determine the overall growth of the economy.

    However, these various national functions and responsibilities are not self contained. Today the various functions of government are heavily inter-related in a way that was much less true one hundred years ago, when we were all much less closely connected. For example, productivity is heavily dependent on the skills of the workforce, but these skills are in turn dependent on the quality of the education and training systems of the States. It is simply not possible for the Australian government to meet its responsibilities while being unconcerned about the effectiveness of various State government services.

    The third and final reason for national government pre-eminence is of course the national government’s domination of taxation, widely described as ‘vertical fiscal imbalance’ or VFI. Paul Keating called VFI the glue that holds our nation together, but for the States and the champions of States’ Rights, VFI is regularly trotted out as the root cause of centraliam. In the past the national government has passed payroll tax back to the States, and more recently they receive all the proceeds of the GST, but it seems unlikely that either of these taxes will ever be changed by so much as to make the States financially self-sufficient.

    In that case the removal of VFI would require that the States have access to the income tax. Legally there is nothing to stop them doing that now, but they have never taken up the opportunity, and indeed there are very important efficiency gains in only one government being responsible for administering any particular tax.  So the alternative is for the Australian government to raise the income tax and then to share the proceeds with the States. But why would sharing a tax result in clearer lines of responsibility than sharing responsibility for other functions of government which require expenditures? There would still be the same arguments about who should get how much and whether the States have adequate revenue. Alternatively if the States were allowed to add a surcharge to the Commonwealth tax, then there is the risk that the Commonwealth’s independent use of taxation policy for macro-economic policy would be compromised.

    In short it is not surprising that proposals to return to the past and increase State rights have got nowhere over a very long time. The truth is that a form of power sharing which we call ‘cooperative federalism’ is the only realistic way of managing inter-governmental relations. In Australia, for good or for ill, we have these two levels of government (plus local government), and power will inevitably need to be shared for a variety of functions where both have a legitimate interest. By contrast one cannot help being suspicious about the Commission of Audit proposals and whether their real intention is to provide a fig-leaf for the Commission’s smaller government agenda, with little or no concern for the impact on the availability and quality of publicly funded services.

    Instead a more productive discussion, than endless repetition of State’s Rights, would be to formulate better arrangements to guide the necessary future power sharing between the Australian Government and the States. To their credit that was what the Hawke, Keating and Rudd Governments were attempting to do with some success through COAG.

     

  • Richard Butler. American Greed trumps the American Dream: With help from the referee.

    During the last two weeks a Professor from the Paris School of Economics, Thomas Piketty, has been touring the US speaking about his book; Capital in the Twenty-First Century. His audiences have been overflowing. Public television described the reception he has received as reminiscent of that given the Beatles, in their first visit to the US, fifty years ago. The book was briefly sold out on Amazon.

    Capital is not an argument, a Manifesto. It is a proof based on research conducted over ten years, analyzing data from twenty countries, in the 18th, 19th and 20th Centuries. It shows that when the returns to capital exceed the rate of growth in the overall economy, extreme inequality results. In the past, this has led to extreme political breakdown. It could do so again.

    Amazing though it might seem, that a 685 page book of economic analysis should attract such popular attention, there are comprehensible and very serious reasons for this.

    The global financial crisis of 2008 exposed, among many things, the massive and pervasive greed within the financial system called Wall Street. The standout winners in this system were a handful of financial industry leaders who took home annual pay in the hundreds of millions. The losers were tens of thousands of little mortgage owners who lost their homes.

    The State declared that the Banks were “too big to fail” and rescued them with taxpayer-funded bailouts. Let’s assume that this was a sound macroeconomic judgment, designed to head off a full-blown depression. What should then have followed, is that by state regulation and reformed behaviors by the Banks, this would not happen again.

    Last week it was reported that the “bundling” of mortgages, for trading, is now at a level exceeding that of 2008 and the take home pay of senior Wall street executives is again in the $300-500 million mark. So, it’s happening again.

    The larger picture continues to include these facts: 1% of Americans dispose of 35-40% of the national wealth; 20% live at the official poverty line; the minimum wage continues to be $7.25 per hour; 1%, some 3 million persons, are in goal.

    Americans are aware of these disturbing realities and for this reason as well as their attachment to the idea of scientific proofs, as such, there is great interest in Piketty’s book. Indeed, he does suggest some rational solutions: regulation, taxation policies etc.

    But, there is a deeper problem which must be addressed: the transformation of the original notion of liberty which was an important part of the establishment of the United States, from a political and communal notion, into an individualized, economic and selfish one.

    Simply, today the word and term liberty now means the right to make as much money for yourself as possible. This is dignified by terms such as initiative, enterprise, risk taking. But, its major feature is outright hostility to taxation and government expenditures, and perhaps above all, regulation; for example, financial or environmental regulation. Public goods are to be provided voluntarily by citizens who care. The community is to rely on trickle down.

    In this context, Opposition Leader Bill Shorten, speaking in reply to the Abbot/Hockey Budget, drew an accurate comparison between their approach and that of the Tea Party Republicans in the US.

    The notion of the American Dream, advanced by James Adams in 1931, fired popular imagination. It was quintessentially optimistic and communal. Through hard work and because progress was inherent in the American way, our children could be better off than we were and our community would be too. This simplified picture, Norman Rockwell’s pictures, a dream, was to be disturbed by the coming to terms with the pervasive racism of America.  But, it is relevant that the political leader who did address racism, Lyndon Johnson, accompanied this with the economic egalitarianism of his Great Society programs.

    Today, the term American Dream is recited as a mantra, particularly by conservative politicians, but now unambiguously means the right to be selfish. This is proving to be deeply destructive of America, where it counts: destructive of any acceptable level of belief in the political system; belief in fair reward for effort, or in distributive justice generally; and willingness to forego immediate gratification in favor of longer-term projects. A cursory look at America’s crumbling infrastructure demonstrates this, latter, awful failing.

    Piketty’s possible solutions include regulation. But his means political action within a democratic system and the assent of the Courts in their role as referee. And, this is possibly the bleakest part of the present outlook. Conservatives within the US political spectrum are trenchantly opposed to any active or worse, interventionist role, of Government. They worship at the shrine of liberty defined as the right to personal greed. Indeed, they often say it is God’s way. Lest they falter, they are shored up by financial support of a previously unheard of magnitude from private groups themselves possessing transparently clear personal interests, such as the coal billionaires the Koch brothers, who reject the existence human made climate change.

    And, keeping the most disturbing element to last, the ultimate referee, the US Supreme Court, in two recent judgments has interpreted the Constitution as meaning that Corporations are individuals and the dollars they spend, on political campaigns, are the exercise of free speech; and they have removed almost all limits on such spending. There is widespread alarm that the Court has sold the democracy.

    While, Piketty may have proven that inequality is the inevitable outcome of a system of disparity between rewards to capital and growth in the economy and, as if this needed proof, will destroy any effective polity, the elemental American dilemma is in fact one of grasping reality rather than preferring a dream, a cartoon.

     

     

    Richard Butler was former Australian Ambassador to the United Nations, Governor of Tasmania, now Professor of International Affairs at Penn State University.

  • Michael Keating. Part 4. Long-term Fiscal and Social Sustainability and Taxation

    Fundamentally there is a problem with the rhetoric from the government and its cohorts such as the Commission of Audit. They insist on describing taxation as a ‘burden’ that should be lightened at every opportunity; thus implying that taxation is somehow illegitimate. On the contrary, however, taxation represents our mutual obligation to one another as citizens. Instead of being a ‘burden’, taxation is what we should pay to ensure the sort of society that we want.

    It is only by changing the rhetoric and accepting the legitimacy of taxation that we can hope to match the community’s expectations for publicly funded services and assistance with our willingness to pay for them. This inconsistency between our expectations and willingness to pay is the fundamental budget problem that I highlighted in my initial comment. Furthermore, the longer we delay the worse that problem risks becoming because there are good reasons why the public’s expectations will rise further and even faster over the next decade or more.

    Future Expectations for Expenditure

    The Government itself often refers to the impact on demands for public expenditure as a result of the population ageing; indeed the Treasury has documented these demands in its Intergenerational Reports. But the evidence is that population ageing is relatively unimportant as a source of future expenditure growth.

    More important factors influencing the demand for publicly funded services are

    • rising living standards which tend to translate into a switch in consumer demand in favour of services such as education and health that are largely publicly funded, and
    • technological change that has improved the quality of health care and to some extent education, but at increasing costs.

    Beyond these factors, and more generally, Thomas Picketty has recently provided comprehensive evidence that over the last forty years the distribution of private incomes in capitalist economies, including Australia, has become increasingly unequal and that there are good theoretical reasons to expect that this trend towards greater inequality will continue. On the other hand, the evidence also shows that governments can intervene to maintain equality if they are willing to use the tax-transfer system pro-actively.

    In addition, in Australia’s case over the last three decades we have significantly de-regulated the economy, and while the additional competition did increase productivity and living standards of the “winners’, the quid pro quo should have been a willingness to assist the “losers” to adapt. So those “parrots” calling for more economic reform need to also accept that not everyone will benefit and successful reform may well depend upon a willingness to support and assist those who are disadvantaged to adapt to the changes being imposed upon them.

    Taxation and the risks to economic growth

    Of course, those who are calling for lower taxes always claim that it will be in the public interest because it will lead to higher economic growth. But frankly where is the evidence?

    Internationally the advanced OECD countries with the fastest rate of growth in per capita GDP, like the Scandinavian countries and Germany and the Netherlands, are not the countries with low rates of taxation revenue relative to GDP, while the US with a low ratio of taxation has had very low growth in productivity and participation over the last thirty years. In addition, the econometric evidence regarding individual behaviour does not support much impact from lower taxation on work or saving effort. Indeed some of us can remember when the top marginal rate of income tax in Australia was 60 per cent compared to 46.5 per cent now, but nothing much has changed in the savings or work patterns of the people concerned. In short any objective analysis shows that there is plenty of scope to increase taxation without damaging economic growth.

    Taxation opportunities

    So how should taxation be increased over time to achieve a sustainable budget? Fundamentally there is a choice between:

    • Introducing more effective anti-avoidance measures,
    • broadening a tax base, by removing a variety of concessions, or
    • increasing tax rates.

    It is to the discredit of the Coalition Government that they immediately scrapped the legislation introduced by the previous Labor Government to tighten up on avoidance where in particular many major foreign owned companies pay a ridiculously small amount of tax in Australia. But even strict anti-avoidance measures are unlikely to be sufficient, and more substantial action will be needed over time. In that case, many of the present income tax concessions operate like subsidies on the expenditure side of the budget, but they are subject to far less scrutiny, should be reviewed. So in the same way as expenditure should be closely examined for its effectiveness before resorting to increased taxes, the same is true of taxation concessions. Nevertheless, in the end some increase in tax rates may also be necessary.

    Second, the two biggest sources of revenue are the taxation of incomes (company and personal income taxes) and expenditure (GST).  Given that all the GST revenue goes to the states, the balance between increasing the two may partly depend upon which level of government most needs assistance. But looking ahead both taxes will need to be increased over time.

    This Budget and future revenue needs

    This Budget projects a return to a budget balance in 2018-19, building to a surplus equivalent to at least 1 per cent of GDP by 2023-24, assuming that taxation revenue is capped at an average of 23.9 per cent of GDP. In other words the Government’s future fiscal strategy does not allow for any increase in revenue relative to GDP and expenditure will need to be further reduced relative to GDP despite the future demands identified above. Equally it also means that, like all previous governments, this government envisages that ‘tax reform’ will be revenue neutral, and will instead be limited to changing the tax mix.

    Furthermore, considering what we know so far, this future change in the tax mix is likely to further re-enforce the trend to greater inequality. Already the Government’s first priority has been to cut the rate of company tax which principally favours the rich. The alleged justification is that we have to remain competitive with the rates of company tax in other countries, but this sort of simplistic comparison is not really justified. It takes no account of the fact that Australia is the only country that offers dividend imputation, so that effectively Australian residents pay no company tax on the majority of corporate profits because more than half are typically distributed as dividends. Quite frankly if the foreign shareholders are not benefiting from dividend imputation does that really matter, especially if as I have argued in a previous comment we should be saving more and relying less on foreign investment.

    The two taxes that are actually increased in this Budget are

    • the so-called “temporary Budget repair levy”, but this is temporary and thus provides no help in resolving our longer-term and more fundamental fiscal problems. And most importantly it is far too small an adjustment to income tax rates and consequently raises far too little extra revenue.
    • a long over-due increase in petrol excise, which on scarcity and environmental grounds should never have been de-indexed in the first place. In addition, what revenue it does raise is to be hypothecated for investment in roads, much of which will not provide an economic rate of return, is therefore unproductive, and makes no contribution to ensuring fiscal sustainability.

    Finally, the Government has given every indication in this Budget that it is contemplating increasing the revenue from the GST, but wants the States to wear the blame. Again, whatever, the merits of such an increase, and there are some, the fact is that it will further lead to a redistribution of spending power from the poor in favour of the rich.

    In sum we do need tax reform, but any such reform should start from a consideration of the revenue needed to meet Australia’s long-term fiscal needs. At present we are trying to provide an adequate social safety net and a decent cohesive society with just about the lowest amount of taxation in the OECD – for example, according to the latest OECD statistics, in 2011 total tax revenue in Australia was 26.5 per cent of GDP, compared to an average of 34.1 per cent for the OECD as a whole, and 30.4 per cent in Canada, 31.5 per cent in New Zealand, 35.7 per cent in the UK; all countries with similar traditions to us and with whom we readily identify. And while this ratio of revenue to GDP was only 24.0 per cent in the US, if allowance is made for the much larger Budget deficits in the US, our taxation is effectively lower than there as well. So in effect, and unlike the US, we are trying to maintain a decent social safety net with extremely low levels of taxation. We have been getting away with this because, as I explained in my second comment on Tuesday, we have the most efficient income support system in the world. But there is little more that can be extracted by efficiency of the welfare system, and looking further ahead into the future, it seems pretty certain that unless we increase our revenue we risk finishing up with the sort of inequality and rundown in social infrastructure that is too often experienced in the US.

    It is therefore a matter for considerable regret that this Budget gives us little hope that the Government understands the risks to society that it presents, and the associated doubts about whether this government is capable of delivering the tax reform that we actually need.

  • Geoff Hiscock. Economic time is right in India for Modi and his mandate

    ​Narendra Modi comes to office in India with two big advantages: the economic cycle is starting to turn up at last, and his Bharatiya Janata Party (BJP) has a clear majority in parliament that frees him from the coalition-style shackles that plagued his predecessor, Manmohan Singh.

    The timing is right for Modi. After two years of sub-5 per cent growth, it looks like India’s economy will grow 5.2 per this year and 6.0 per cent in 2015, according to the latest outlook from regional analysis firm IMA Asia.

    While that is still a long way from the 8 to 9 per cent boom days of 2010 and 2005-07, it offers hope of better times ahead for India’s 1.25 billion people, particularly for lower income earners who are eager to join the spending class.

    One caveat is that the livelihoods of many of India’s 800 million rural dwellers will depend on how much rain this year’s southwest monsoon brings. The first monsoon rain is expected in Kerala in the south around June 5, but there is also a 60 per cent chance of a strong El Nino this year, according to the Indian Meteorological Department. That could bring drought conditions, which would have a big impact on rural incomes.

    Whatever the weather, the new government’s policy settings will play a big role in how the economy performs.  Indian ratings and research agency CRISIL says the election result has created “the best environment in a long time to bite the bullet on government finances.” It says an agenda that improves India’s competitive stance by tackling inflation, introducing the long-awaited GST, reducing subsidies, recapitalising banks, fostering corporate debt markets and giving a “booster shot” to manufacturing will pave the way for a shot at 6.5 to 7 per cent annual GDP growth.

    More broadly, Modi’s decisive win and pro-business outlook should encourage multinationals and domestic companies alike to dust off their investment expansion plans. The one area where this won’t happen is in the modern retail sector, where Modi and the BJP remain opposed to foreign direct investment in multi-brand retailing.

    That is a pity, because retailing is a job-intensive business of the type India desperately needs. The services sector, along with manufacturing and construction, is where growth must occur if Modi is to make any headway against one of India’s biggest challenges: providing jobs for the 13 to 15 million young people who seek to enter the labour market every year. International retailers such as Tesco want to expand their operations in India and would bring new skills, technology and job opportunities to the table if allowed. But for now, Modi and the BJP are more concerned about protecting the livelihoods of the 13 million “kirana,” or family-owned corner stores, that are the backbone of India’s retail scene.

    Consulting firm McKinsey estimates that India needs to add 115 million new non-farm jobs over the next decade to cater for a growing population and to reduce agriculture’s overall share in employment. Labor market flexibility and more vocational training for the poor and uneducated are among the steps it says are required.

    One of India’s biggest handicaps remains its poor performance in infrastructure development. It has hundreds of road, rail, port and power projects on its books, but they seem forever mired in red tape, corruption and disputes about land zoning, jurisdiction, relocation and environmental factors. Modi brings to the table the model of his home state Gujarat, where the electricity always runs – courtesy of profitable private power stations — and where businesses such as automotive plants have been encouraged to set up. The central government’s role in state-based infrastructure development is limited, but Modi’s mantra of “minimum government, maximum governance,” should at least encourage some movement on the national infrastructure front.

    Internationally, Modi will find the existing policy settings do not require too much fiddling. Pakistan, as always, is the key security challenge, but at least Modi is amenable to a dialogue with his counterpart Nawaz Sharif, who has already invited him to visit Islamabad. Modi talks tough on China over territorial issues, yet is pragmatic enough to want expanded business ties. Likewise, China says it wants to take relations with India to a “new height.” Modi likes Vladimir Putin and got a congratulatory call from Barack Obama, so he may be able to improve India’s energy security outlook in the way he deals with Russia and the United States over oil and gas supplies and nuclear technology, though the nuclear civil liability issue is not fully resolved. He also likes Japan’s assertive leader Shinzo Abe – the pair follow each other on Twitter – with Abe tweeting this week: “Great talking to you, Mr Modi. I look forward to welcoming you in Tokyo and deepening our friendly ties.”

    And what of the man Modi is replacing, the long-serving Manmohan Singh?  Widely regarded as a good and decent man, Singh was brought low by the dynastic politics of the Congress Party, and the sheer complication of heading a fractious agglomeration of self-interested parties. His best legacy goes back to the early 1990s; as finance minister he brought in a series of reforms that allowed India to slough off the Raj-era mindset and embark on a more vigorous growth path. Sadly, too many of his colleagues at the state and federal level still believe in the “pay to play” approach to governing the world’s biggest democracy. Let’s hope Modi’s mandate cuts corruption and gives India the boost it so desperately needs.

    Geoff Hiscock writes on international business and is the author of several books, including “Earth Wars: The Battle for Global Resources,” and “India’s Global Wealth Club,” both published by Wiley.  

     

  • Michael Keating. Part 3. An Alternative and Better Budget Structure

    In two previous blogs I have argued that the Government’s Budget broadly got the economics right, but it failed the test of fairness and it attacks our traditional values. In that case, however, what would the alternative Budget structure look like?

    Fundamentally the Budget should have relied much more on taxation and less on expenditure cutting. As I have already shown it is low revenue that created our fiscal problem and not excessive expenditure.  However, increasing taxation will be easier if it can be shown that expenditure has been properly reviewed and screwed down tightly, and so I will first consider the opportunities for expenditure reduction using a different approach to the Government’s Budget and its Commission of Audit.

    Expenditure reduction choices

    There are three broad strategies for expenditure reduction:

    • Tightening eligibility for payments or services
    • More user pays
    • Improving the cost efficiency and effectiveness of services

    In my view the Budget relies too heavily on the first two strategies and not enough on the third. The difficulty is that the Hawke/Keating governments relied heavily on tighter targeting of welfare payments and increased use of user pays, and that cupboard is now bare or nearly bare.

    Indeed Australia now has by far the most efficient income support system in the world. Along with Denmark, Australia redistributes more than any other country to the poorest 20 per cent of the population, but because the Danish tax-transfer system is much less tightly targeted than ours, Denmark taxes and spends 80 per cent more relative to average household pre-tax income than Australia does to achieve the same amount of redistribution. It is ironic that further tightening in Australia now risks increasing the already very high effective marginal tax payments for those people receiving income support, but this is what is advocated by people who argue for greater targeting and then want to use the savings to further reduce the already much lower marginal tax rates for high income people.

    A similar situation applies for user charging. The present level of university fees supported by the delayed payment arrangements under HECS were carefully calibrated to ensure that there was not much impact on student enrolments. The overall rate of return on a university degree prior to this budget was sufficient to make it worth having. By comparison a recent study of universities across the US found that the life-time return on an Arts/Humanities degree from about  a third of the US universities was insufficient to justify the cost of studying. The students would have been better off if they had started working at age 18 and invested in Treasury Bills. In another instance the salary for a Science graduate teaching in a public high school in the US was similarly insufficient for him to repay his student loan from the bank several years after graduating.

    In the case of health, consumer co-payments already account for 12 per cent of the cost of medical services, 16 per cent of PBS medicines, 56 per cent for dental services, and 69 per cent for aids and appliances. Recent OECD data show that among the rich countries the only countries where consumer co-payments are higher are Switzerland and the US. So given our already high level of co-payments, it might be doubted that the further increases proposed by the Budget will achieve any reduction in unnecessary visits to the doctor; rather the risk is of Australia deteriorating towards a US style standard of access to health care.

    On the other hand, and notwithstanding the familiar bleating from the State Premiers, I consider that there are still opportunities for improving the cost effectiveness of publicly funded services, such as school education, health care, and infrastructure, and achieving significant savings. First, according to the latest available data, the real public funding per student in primary government schools increased by 31 per cent between 1999 and 2011, while there was a 20 per cent increase for government high schools. There is no evidence that this increase in funding (and the further increase since 2011) has led to improved student results. Instead the key objectives of the Gonski reforms should be capable of being realised by redeployment of funding within the education system. Indeed the priority should be to transfer funding from schools to vocational education and training (VET) which experienced a 25 per cent reduction in real funding per annual hour between 1999 and 2011, and has now had its funding further cut in this Budget. It is VET which gives people a second chance, often after the school system has failed them, and despite all the additional funds lavished on schools.

    Second, in the case of the health system there are huge differences between hospitals and even within hospitals in the cost of providing the same forms of care and treatment. The introduction of case-mix funding so that funding is based on the average efficient cost of each service is meant to enable hospitals to realise savings. Beyond hospitals more investment in prevention through better public health measures would help lower the costs in the long run, and new approaches to funding and coordinating the care of chronically ill people would improve their quality of life and help keep them out of hospital and lower costs. The Rudd Labor Government had started these types of reforms, but their future is now most uncertain.

    Third, Australia has a long history of over-investment in infrastructure with the costs exceeding the benefits, and under-charging the beneficiaries so that they demand more and more. It is therefore most reprehensible that this Budget prides itself that new spending decisions will add $58 billion to total infrastructure investment, when none of the projects announced have been ticked off by Infrastructure Australia as having completed proper cost-benefit appraisals; probably because a great deal of this investment never could pass any proper evaluation. And this from a Government that was properly critical of the former government and its approach to the NBN.  Clearly this improper use of the nation’s savings is not an acceptable reason for the other Budget cuts, and the increase in petrol excise should not be tied to an increase in uneconomic road funding.

    Clearly the opportunities for savings in major spending areas such as these should be pursued by the States before they all line up to increase the GST. But in the long run a sustainable fiscal strategy for Australia is bound to require an increase in taxation if we want to preserve those aspects of our society and social system that we value. The scope for increasing taxation is discussed in the next blog.

  • John Menadue. Think tanks, cash for comment and the corruption of public debate.

    In recent months we have been partly appalled and partly amused by the urgers and spivs from both sides of politics that have been paraded in Sydney before the Independent Commission against Corruption. Most recently we have seen developers and others using fronts to launder money to hand on to political parties. Even the Young Liberals have decided to get into the act with their ‘Black Ops’.

    But there are other more serious problems with think-tanks that receive large amounts of money, seldom disclose their sponsors or donors and then conduct overt political campaigns, invariably on behalf of business and the conservative side of politics. These cash for comment think-tanks hawk themselves around as ‘independent’! They are often nothing of the sort. They are propagandist fronts for the laundering of money for special interests. Yet organisations like the ABC give them remarkable free time to espouse the views of their secret funders.

    Consider the Institute of Public Affairs (IPA). In 2010 an IPA Director, Alan Moran, told the Productivity Commission ‘We’ve got about 4,000 funders … there are occasions when we may take decisions which are somewhat different from those of the funders. Obviously that doesn’t happen too often, otherwise they’d stop funding us, but it does happen occasionally.’  I could rest my case there but the IPA has a colourful record in fronting for special interests.

    In his 2007 book on the PR industry ‘Insider Spin’ Bob Burton wrote ‘A little funding routed by a think-tank [like IPA] enables the policy agenda of corporate funders to be projected to a broader audience with more credibility than if it did it for themselves’.

    In 2008 the IPA wrote an article “Big Fat Beat up” questioning the relationship between obesity and junk foods. We were not told whether the junk food industry was a funder of IPA

    In 2010 the Gillard Government announced legislation to force all cigarettes to be sold in plain packages. With the help of the ABC, the IPA attacked the government at every opportunity on this issue. The ABC gave IPA’s Tim Wilson almost unending interviews. He also got a run on seven commercial radio stations. Asked by Media Watch whether the IPA received funding from Big Tobacco, Tim Wilson’s response was ‘The IPA does not disclose its membership list’.

    IPA’s John Roskam argued last year for more investment in dams and roads in the Northern Territory together with special economic zones. What IPA did not mention was that its policy proposals on the Northern Territory followed very closely what Gina Rinehart had been saying. Interestingly she was the guest at IPA’s 70th anniversary dinner last year. Asked if Gina Rinehart was a donor to IPA, James Patterson responded ‘The IPA is funded by voluntary contributions of our 3,256 … members and supporters. We are very grateful for their support and we respect their privacy’.

    IPA’s major successful campaign has been to give a platform to client change sceptics. It funded two full-page advertisements in The Australian, costing about $100,000. The advertisements attacked the government’s climate change policies.  Who funded this campaign?  The IPA did not tell us. Was it the fossil fuel industry? Was it Exxon, Shell, Caltex and BHP Billiton? With a policy of non-disclosure IPA provides a front for powerful rent-seekers.

    In the year to June 30, 2010, the IPA hosted forty events around the country against the carbon tax. I suspect that the polluters paid the cash and the IPA provided the comment.

    The IPA told us in the Drum those pub lockouts and 3 a.m.  closing where a bad idea “because the Australian public consumes a large quantity of alcohol and gets into very few fights” How much does IPA receive from the alcohol industry.

    A few years ago the IPA launched a sustained attack on NGOs as being unaccountable, unrepresentative and not worthy of charitable status. But the IPA enjoys charitable tax status. Has the Tax Commissioner examined the murky financial world of the IPA?

    Why should the ABC which the IPA so desperately wants to get rid of, give the IPA extended coverage to its ‘scholars and fellows’. The ABC does this on a wide range of its programs – The Drum, TV Breakfast, Radio National and more.

    Businesses are attracted to front organisations which will espouse and promote their views. The IPA and others are part of a rigged and prejudicial public debate. They are doing more to damage our democratic life than the shifty developers we see parading before the ICAC.

    The Free Enterprise Foundation of the NSW Liberal Party and Joe Hockey’s North Sydney Forum are small beer compared with the IPA which fronts for rent-seekers who hide behind the scenes.

    Professor Ross Garnaut has spoken of the ‘diabolical problem’ of conducting in Australia a balanced and informed debate on important public policy issues. We had such a debate during the Hawke and Keating periods of the 1980s and the early days of the Howard Government. The IPA and their ilk are a major part of the “diabolical problem” that Ross Garnaut refers to. They are debasing public debate. They will not disclose who funds them and organisations like the ABC give them an armchair ride.

    Surely at the least, the ABC should not put to air anyone from a “think tank” that does not disclose its donors because the assumption must be that they are a cash for comment enterprise.

    Think tanks are important players in the battle of ideas but this battle needs to be conducted honestly and transparently

     

    I was founding Chair and am a Fellow of the Centre for Policy Development. We disclose our major supporters and donors.

     

    I will be writing further about the corruption of public debate; the role of lobbyists, the influence of News Ltd, a rogue organisation and the public influence of “independent” business economists who are employed by vested interests and particularly the banks. Where are the independent and informed public commentators? They seem to have abandoned the field and their public responsibilities.

  • Michael Keating. Part 2. The Budget and our Values

    The Budget is always the clearest guide to a government’s priorities and values. In the present instance, the Coalition Government wants to define this budget as being all about “contribution”.  Their rhetoric is that we should all make a contribution towards restoring the nation’s finances. Spreading the burden would be fair and therefore consistent with Australian values. But nothing could be further from the truth. Disadvantaged and low income people are being asked to make very big sacrifices, while most of us will be little troubled, and a few very rich people will be better off as a result of this Budget.

    In addition, not only is the Budget unfair, but it also represents a deliberate attack on our social capital. Our aspirations for an inclusive society are being trashed, as first the Government demonised refugees, and now has moved on to demonise unemployed people, and tear up the grants to many community based organisations which are critical to maintaining our social capital and an inclusive society.

    As many people recognised immediately, the notion of six months on and six months off unemployment benefit up to the age of 30 is appalling. The Minister for Social Security says that now unemployed people will have to get off their couch and look for work, which shows how little he knows about the circumstances of the people he is meant to be responsible for, and/or just how perverted his values are. Anybody who has worked with long term unemployed people, or who has talked to those who do work with them, would know how much the vast majority of job seekers want a job. The reality is that most often these people are the victims of circumstances beyond their control, and without adequate skills they are simply not suitable for the jobs that are available.

    Furthermore, there is nothing new about a policy of “work or learn”.  It has been the official doctrine for many years, but unemployed people cannot learn or work when their training funds have been slashed by over $1billion in this budget. As a partial offset the Government now proposes a modest increase in job subsidies, but years of experience has shown that such subsidies are relatively ineffective and do not lead to continuing employment.

    The real problem is that many long-term unemployed people lack basic employability skills, so they are not employable in the modern labour market even with a subsidy, or for that matter with a lower minimum wage. They need training to get these skills, preferably training tied to a job, and in addition, they typically need a lot of support services and mentoring; indeed the reason why they are unemployed is because they suffer multiple disadvantages and all their sources of disadvantage need to be addressed in a coordinated manner.   At present this coordination and associated support services are provided most often by community-based organisations, but this Budget has also slashed the funding of many such bodies. In short if this is Joe Hockey’s ladder of opportunity then he has cut the bottom rungs off.

    Other vulnerable groups who will suffer as a result of this budget include some of the world’s poorest people who depend upon the generosity of foreign aid, which was the biggest single cut in the Budget, and indigenous Australians whose funding has also been severely cut. Less tough but still significant is the impost on single income families. An unemployed lone parent will experience a cut in disposable income of 11 per cent. While a single income family living on a near average annual wage of $65,000 will lose almost 10 per cent of their disposable income in 2017-18 because of changes to family benefits and the scrapping of the school kids bonus.

    But if the most disadvantaged people are to be hounded and not supported, what about the rest of us, and what are we contributing under this Budget? The fact is that the majority of Australian households are comprised of healthy people with two incomes, plus a further substantial number of healthy one person households. Essentially this majority could spend a dollar or two more a week on health, another dollar on petrol, and several dollars less on electricity after repeal of the carbon tax. In sum the majority are being asked to contribute next to nothing, and no doubt that was intentional so that this majority of households will not have a financial reason to change their vote.

    And then if you are in the top 4 per cent of income earners you will have to pay the 2 per cent “temporary Budget repair levy”.  But even if you are in the top 1 per cent income bracket, with an annual income of $300,000, this levy will still only cost you around 1 per cent of your income. While if you are a super rich miner you will be laughing with no mining tax, no carbon tax and, despite the call for a ‘contribution’, the diesel fuel rebate continues.

    Other areas of expenditure that have been singled out for cutting are the arts and research other than the always favoured medical research. And of course the War Memorial has had extra funding added to its already very generous base, while all the other national institutions’ funding has been severely cut.

    In short this Budget seems to reflect a very narrow conception of society and our duties to one another as citizens. There is still plenty of ‘entitlement’ for those people and organisations that are favoured by the government, but the basic inequality of sacrifice and the bias in the areas targeted for savings in this budget is deeply disturbing. Indeed this Budget seems to reject;

    1. the traditional Australian notion of a ‘fair go’ where those who suffer from misfortune should be given a helping hand, and be assisted to realise their potential capabilities; and
    2. the state has an obligation to assist community-based organisations and to provide adequately for those things that we enjoy collectively, which enrich our culture, and which are critical elements of our social capital.

     

     

  • Michael Keating. Part 1 The Budget and what it means for Australia’s Future

    Each day this week I will be running a series of blogs by Michael Keating on the Budget and its repercussions. The posts will be 

    • Australia’s Fiscal Challenge
    • The Budget and our Values
    • A Better Alternate Budget Structure
    • Taxation
    • Federalism

    I am sure that these five posts will make a substantial contribution to our understanding of the Budget and its implications for Australia. Mike Keating was formerly Secretary of the Department of Prime Minister and Cabinet. Perhaps more relevant to his comments on the Budget is that he was Secretary of the Department of Finance under the Hawke/Keating governments, during which time real outlays were reduced in three successive Budgets. This has never happened before or since. These reductions in real outlays occurred while still introducing many of Labor’s major reforms of social welfare that led to substantial increases in assistance to the poor. Much of the credit for this of course belongs for the Cabinet, particularly to Paul Keating and Peter Walsh. But I know that quite a few of the ideas that were implemented came from the Department of Finance when Mike Keating was Secretary.  John Menadue

    Mike Keating. Part 1. The Budget and what it means for Australia’s Future

    In the run up to the last election Tony Abbott told us that the nation’s finances were in a mess, but notwithstanding that mess he promised to match all Labour’s new spending initiatives, protect education and health, increase defence spending, and all without any increases in taxation.  Frankly none of us, not even the fawning Murdoch press, should have believed him.

    Understandably Labor is now tempted to harp on about the broken promises. But that would be to miss the real point.  The real point is that for several decades Australia, like many other developed countries, has had a continuing problem of meeting the public’s expectations for publicly funded services and how to pay for them.   Trust in government will not be restored until one or other political party offers a credible way forward that reconciles these conflicting public expectations of government.

    So what is the immediate fiscal challenge that this budget needed to address and how well has it responded to that challenge? In this series of comments I want to consider:

    1. how bad is our fiscal situation and the fiscal strategy required from  here on
    2. the choices before us in terms of the values that we espouse and what the Budget decisions and Audit Commission recommendations imply for the future nature of our society
    3. the consequences and efficacy of many of the specific policy decisions in the Budget

     

    Australia’s fiscal challenge

    Is public debt a problem?

    The Government has talked incessantly about Australia’s debt problem, and government debt is undeniably higher than when the previous Coalition Government lost office in 2007. The Commission of Audit for its part thought that low or even zero debt is such an important objective that the first priority for the fiscal strategy should be the achievement of an arbitrarily chosen debt ceiling.

    Others, however, have noted that Australia has a triple AAA credit rating, whatever that is worth. More pertinently general government net financial liabilities in Australia in 2013 represented only 11.8 per cent of GDP, compared to an average of 69.1 per cent for the OECD as a whole, including 81.2 per cent in the US, 40.4 per cent in Canada, 65.4 per cent in the UK, and as high as 137.5 per cent of GDP in Japan, and all these countries have low interest rates and no particular difficulty in financing their debt. Furthermore, although low debt is properly seen as providing increased scope to intervene in the event of an economic downturn, each of these countries had much higher debt than Australia in 2008 and they were still able to intervene and further increase their debt in response to the Global Financial Crisis (GFC).

    Instead Australia’s problem is not so much the financing of its government debt, but the extent to which we rely on foreign capital to finance total investment in Australia. Essentially our national savings from all sources, both public and private, fall well short of the investment opportunities. In particular, Australian households increased their borrowing very substantially during the Howard Government years up to the onset of the GFC. Consequently by the end of 2013 the amount that Australian households owed was nearly 1.8 times the amount of household disposable income received in that year. Moreover this level of household debt in Australia was not only high by Australian standards, but also by international standards, with household debt in Italy and Germany, for example, being less than a year’s worth of disposable income.

    So on balance the Government’s fiscal target to achieve budget surpluses on average over the course of the economic cycle seems a worthwhile goal, but it is not an absolute imperative and should not be pursued at all costs.

    How quickly should the Budget return to surplus and how?

    The Government acknowledges that at present the economy is soft, although some improvement is expected through the next financial year. Accordingly something close to a neutral budget in terms of its impact on the economy might have been the best strategy, with monetary policy left to fine tune the level of economic activity. By contrast, Treasury project that the structural Budget deficit will decline by about 1 per cent of GDP. On the face of it this is a fairly rapid rate of contraction of government support for the economy, although probably not devastating. Furthermore, the projected rate of fiscal consolidation over the next four years – 0.6 per cent of GDP – is reasonably well paced, so overall in terms of its impact on the economy this Budget seems to have got it broadly right.

    How fair is the fiscal strategy

    In the current financial year, 2012-13, government payments are expected to represent 24.1 per cent of GDP; a bit less than their long term average over the previous twelve years since 2000-01 of 24.5 per cent. By comparison, government revenue represents only 23.1 per cent of GDP compared to an average of 24.3 per cent over the previous twelve years. In other words if we have a fiscal problem it does not seem to have been caused by excessive expenditure, but by a drop in taxation revenue, and the prime cause of that was miscalculations by the Howard/Costello Government when they embarked on their 2001 tax reforms, which have turned out to cost more than expected at the time.

    So in the first instance it might have been expected that restoration of a fiscal surplus would have been sought primarily by way of increases in revenue. But consistent with government rhetoric and the demands of its supporters, 80 per cent of the projected budget consolidation  is from net savings in expenditure, and only 20 per cent from increased taxation. This in itself raises basic questions of fairness, which will be explored in the next comment.