Ken Henry on Budget Problem, Aleppo Highlights US Failures Under Obama, Ban Muslim Migrants?

Australian Economy, Budget, Global Politics, Immigration, Terrorism

27 Sep 2016

Quicker Reduction in the Budget Deficit?

The Weekend Australian ran as the lead report an interview by Paul Kelly with former Treasury Secretary, Ken Henry, who is now Chairman of the National Bank. Henry said that more needs to be done to reduce the budget deficit instead of talking about it (see Ken Henry on Budget Deficit). This provided an opportunity to point out that the “times have changed” since Henry was the TS and advised Rudd to go for broke: indeed the advice to Rudd was, at best, highly questionable if not wrong (see my letter below). The Australian is to be congratulated for continuing its helpful advocacy today partly through publishing a swag of supporting letters and partly by having its Canberra Bureau Chief, Phillip Hudson, pen a separate article (see Everyone to blame for our budget spiral of hopelessness). Hudson points out that one of the problems is that “ Neither Labor or the Coalition, on their current trajectory, promise a surplus before the next election. Morrison hopes for one in 2020-21. Labor went to the last election with a plan that would leave the budget $16bn worse off over the next four years before making everything tickety-boo within a decade. These scenarios are based on Australia continuing on its growth path of the past 25 years. What happens if something goes wrong?”

My view is that it is not only a question of what happens if something goes wrong. Even planning for a surplus five years ahead and after the next election means the current MPs are let off the hook and the Opposition is too. This is illustrated by the Porter proposal to “invest” additional money in welfare before reducing it: everyone knows that too many welfare items are going to those with above-average incomes. Everyone also knows that reduced welfare for such people has the potential to be presented as “just being fair”.

There should be an aim to eliminate the budget deficit (now estimated at 2.2% of GDP this year) much quicker than at present, in fact by no later than 2018-19 (when it is currently estimated at 0.8% of GDP). That could be set out in the half year review before Christmas and there should be no “we haven’t got time to make all the necessary decisions by then”. Treasury and the Finance Department already have a swag of possible reductions in expenditure of 1.2% of GDP by then instead of the present estimated reduction of only 0.6% of GDP. If the Coalition is serious about getting the budget into better shape, there would be ample time to consider options after Parliament rises, given that many would already have been reviewed.

The economics of any new program of reduced spending should not be a concern, particularly if reductions in spending are focussed primarily on those with above-average incomes and spread over the next two years. Think also of the potential addition to electoral confidence from the Coalition being able to argue that it is showing how it can be done without being “unfair”. Relevant too is the fact that over 60% of federal government spending is on transfers to citizens not on direct spending on goods and services and those with separate incomes will not necessarily reduce their spending if their welfare is reduced or even cut out. In fact some even argue that a government spending taxpayers’ money (or accumulating more government debt) doesn’t really add or subtract to economic activity (see article Sloan on Economic Thought).

Such an approach would be a challenge for Malcolm Turnbull but it would put him ahead of world leaders if Australia can boast as aiming for a surplus in short time. It would also provide a serious challenge to the Opposition.

Ken Henry’s comments a clarion call to the nation (Letter published in The Australian, 26 Sept 2016.The phrase in brackets was deleted by Ed. Unfortunately this affects the meaning of the second sentence, where the “his” refers to Paul Kelly, not Ken Henry).

[Paul Kelly reports that former Treasury Secretary,] Ken Henry, rightly warns there are potentially serious consequences unless politicians and the national parliament stop talking about the budget deficit and take serious action to reduce it (“Fix budget before the crunch hits, urges Ken Henry”, 24/9).

However, his reference to the advice Henry gave to then prime minister Kevin Rudd in February 2008 is not relevant to existing circumstances. In early 2008 there was looming concern that the US economy faced a downturn with adverse global implications and this did occur in that year and the next.

Henry’s advice to Rudd in that context that he “go early, go hard and go households” is now widely quoted as an example of the adoption of a mistaken Keynesian type stimulus involving a large increase in budget spending and deficit. This led to the switch from a substantial budget surplus in 2007-08 to a deficit in 2008-09 of over $30 billion, or about 2.5 per cent of GDP. With the forecast deficit in 2016-17 still above 2 per cent of GDP, the advice given in 2008 is clearly the opposite of what is needed today. Government debt has continued to increase since 2008-09 and, as Henry now recognises, that needs to stop.

Des Moore, South Yarra, Vic

Aleppo Highlights US Failures Under Obama

Last night I watched for a while a program on SBS entitled Part 2 of Obama Eight Years of Power. It ran from 8.35 until 10.50 but I turned off about 10.00 because I became tired of what was a contrived story obviously meant to ensure that Obama’s legacy (sic) is not forgotten (Obama himself appeared on the program quite frequently). One part of last night’s program was on the issue of Syria’s acquisition of chemical weapons and it was claimed that Obama had succeeded in persuading Assad to either hand them over or not to use them. My recollection is that, while Assad did get rid of some, he retained some and their use has been confirmed by a UN body.

One of the editorials in today’s Australian (see US Fails in Aleppo) says that “more than 500,000 people have been killed in Syria. Five million have fled and seven million are internally displaced. The escalation of warfare in Aleppo, once Syria’s financial capital, will add to the numbers. Mr Obama should move to enact Mr Kerry’s proposed ban on combat aircraft flying over key areas. But that would involve confronting Mr Putin. And Mr Obama is no Churchill or Eisenhower”.Most recent TV news programs have shown gruesome stories of the fighting. Last night’s SBS program on Obama showed that Kerry had difficulty in persuading him to engage in substantive military action on more than one occasion and drew attention to the problems that have arisen now that the Russians have become heavily involved and are quite prepared to allow extensive civilian deaths from its bombardments.It might be said that Russia is saving Assad while Obama threatened to do so but couldn’t carry it out.

It would be wrong to attribute the Syrian problem to Obama or to suggest how many lives he might have saved. But his failure to follow through after Assad “crossed the redline” which he set has undoubtedly contributed to the loss of lives and the migration of many to Europe, including terrorists. And diminished his credibility. Yet it should have been feasible to have sent US troops, and used US aircraft carriers, to intervene in strategically important areas and to have establish protected separate areas within Syria (France apparently divided what is now Syria into six areas when it had a mandate there from 1923-46). It is probably too late now to make any effective contribution to stopping the fighting in Aleppo but Obama has a black mark on his botched threats.

Ban Muslim Immigrants?

Here is an article by Andrew Bolt on the continuing problems with how Muslims might be “managed” and on the poll suggesting there is 49% support for banning Muslim immigrants. Bolt argues that the 49% support for banning are that“too many Muslims — including the Mufti — have communicated frighteningly well”. He lists the following “communication” problems: “ every terrorist we have jailed is Muslim, almost all born overseas or to parents who were; the last three terrorist attacks here were all by Muslim refugees, and because a jihad-minded son of Bangladeshi migrants has now been charged with stabbing a grandfather walking down his street; two Australian journalists, including cartoonist Bill Leak, have been forced to move home after threats from jihadists; more Muslim Australians have signed up to Islamic State than serve in the Australian Army, and some have posed with severed heads; Australia’s Hizb ut Tahrir warns that “even if a thousand bombs go off in this country, all it will prove is that Muslims are angry and they have every right to be angry”; gun crime by Middle Eastern families in western Sydney and northern Melbourne is shockingly high, and NSW police need a unit to investigate Middle Eastern organised crime gangs; the president of the Australian National Imams Council has called on God to help “destroy the enemies of Islam”, declared the punishment for adulterers “is stoning to death” and accused gays of “spreading all these diseases” through “evil actions that bring evil outcomes to our society”; the Mufti defended him; hundreds of Muslim women here are dressed in identity-obliterating sacks and some girls are sexually mutilated to be “clean”.

I have said in recent Commentaries that Turnbull has improved his attitude to Islam and has recognised that there is a link between extremist Islamism and the Muslim religion. But his next step should be to institute much greater supervision of Muslim communities and of the background of recent immigrants, as well as making it much more difficult to accept Muslims as immigrants.