Budget (?) “Wins”, Immigration Policy

Although we had a long election campaign during which Parliament was not sitting, it now has another “break” until 10 October during which Turnbull and two other ministers (including Immigration Minister Dutton) will travel to the US. In this coming week Turnbull is scheduled to attend what his press release describes as “the biggest summit on the international calendar” –  the UN General Assembly Leaders’ Week, which will include “summits on refugees and migration” hosted by Ban Ki-moon and a smaller one arranged by Obama. But, while discussions at UN General Assemblies rarely produce meaningful policies for use back home, the risk is that Turnbull may relax our refugees policy and, as Abbott did, agree to take more refugees. Given the tightening of border controls by European countries, and increasing concern about terrorists being amongst asylum seekers, Australia’s existing policy would seem justifiable.

Turnbull’s press release also states that “the Australia-US alliance is the bedrock of Australian foreign and defence policy” and that  in New York he will set out his vision for the US-Australia relationship.  It will be of interest to see if he improves on his recent comment that Australia does not have to choose between positions taken on the South China sea dispute by China and the US.

This visit is consistent with Turnbull’s use of the three international conferences he attended recently to portray himself as a world leader and appear on TV programs with them. As one commentator put it, “he will be in his element”.

Meantime, both Treasurer Morrison and Turnbull have received praise from the media for “having a win” during the final three days of the session of Parliament just completed. According to Paul Kelly, the win consists of obtaining agreement within the Coalition on a plebiscite on same-sex marriage and a revised superannuation package (which breaks an election pledge), and agreement by Labor to $6.3bn in savings on spending and an increase of $4.6 bn in tobacco excise. Kelly’s view is that the government has “begun to come to grips with the political and parliamentary reality it faces” and may be able to “muddle through”. This seems to considerably overstate the significance of the “win”. (I note that the claim made by some that the budget bottom line has been reduced by $14bn differs from the $11bn which Treasurer Morrison has announced and is referred to in his address to the Australia-Israel Chamber of Commerce in Melbourne  -see Morrison on Econ Reform).

Budget Changes

In fact, Morrison’s announcement of the reduction in expenditure and the increase in excise is hardly touching the surface of the budget problem.  The overall effect of these changes is miniscule when compared with the forward estimates for 2016-17 to 2019-20 as published in the Pre-election Economic and Fiscal Outlook (PEFO) in May. The PEFO and revised estimates below show the totals for the four years from 2016-17 to 2019-20).

Indeed, although Morrison claims that all of these changes actually reduce the budget bottom line (ie the deficit), it may be that some are already included in the PEFO estimates and these may not change by even as much as $11bn. Note also that these estimates are based on the assumption that other cuts will be passed by Parliament in expenditure as well as in company tax rates. Remember too that even if  these budget estimates were achieved, they would still mean an increase in the tax burden (from 23.5% in 2015-16 to 25.1 per cent of GDP in 2019-20) and at 25.2 per cent of GDP the size of government expenditure would still be higher than in the last year of the previous Labor government (24.4 per cent in 2012-13).

It is not surprising, then, that Morrison judged it necessary, on the same day as he announced the $11bn improvement in the budget bottom line, to make a major address on “Staying the course of economic reform – increasing what we earn” (see attached). Yet while this speech indicates that Morrison is against higher taxes and Keynesian stimulus policies, it is rather confusing about aspects of policies required to achieve economic reform.  He seems to suggest that, when nominal national income grows at a slower rate than real (because of falls in our terms of trade), the government needs in some way to adjust policies to lift nominal incomes. But other than by depreciating the exchange rate (which is now predominately determined in the market), the government has no policy capacity to lift such nominal incomes by increasing export prices. Moreover, Morrison has very little to say about how the budget might be “repaired”: his conclusion after nearly eight pages makes no mention of criteria that might be used to justify lowering government expenditures.In Weekend Australian, Judith Sloan  is much more critical of Morrison’s speech than I have been here (see Sloan on Morrison).

Immigration

As indicated by the UN decision to hold a Leader’s Week on the issue, immigration policies are being actively discussed world-wide, with the UK’s decision to Brexit importantly influenced by its inability to determine the number of entrants and, as indicated above, a concern amongst European countries generally about extremist Islamists entering as refugees. Attention has been drawn to one aspect of Australia’s policy by Pauline Hanson’s maiden speech in which she claimed Australia is in danger of being “swamped” by Muslims and called for a stop to further Muslim immigration and intake of Muslim refugees. The policy of One Nation on Islam also includes holding “an inquiry or Royal Commission to determine if Islam is a religion or political ideology” (see Pauline Hanson’s Policy on Islam).

While there have been widespread rejections of Hanson’s presentation and Turnbull is reported as stating (not via a press release) that he believes in a non-discriminatory immigration policy, his claim in a radio interview that “we pay great attention to security considerations and obviously with Islamist terrorism” was challenged by the interviewer (see Turnbull interview on Hanson). He pointed out that National Party backbencher George Christenson has argued for “tighter controls on immigrants from countries where there is a high prevalence of violent extremism and radicalism”. Similar views to those of Christenson would be held by some other Coalition MPs, and indeed throughout the community. That Hanson’s use of “swamped” may have overstated the threat from Islamic extremism, the reality is that it only requires a small percentage of Muslims to hold extremist views to lead to terrorist activity in Australia, which has of course occurred and shows no sign of stopping even with our existing much expanded intelligence activity. The question that might well be asked is why it has taken Hanson and others such as Christenson to draw attention to an aspect of the problem which appears to have been neglected. Australia needs to tighten immigration policy before we get into the kind of problems which exist in European countries. Turnbull should be emphasising the importance of Western values rather than multi-culturalism.