There is no doubt that this failure largely reflects the views of Turnbull, who first tried to be head Labor but was rejected there and, despite his leftish views, was accepted as a member of the Liberals. Then, after his second period as leader and then obtaining the PM position since 2015 after defeating Tony Abbott in an internal challenge, Turnbull himself was defeated in a internal contest by Morrison in August which actually arose from a challenge to Turnbull by Dutton. In effect, that challenge indicated that a majority of the party had reached the conclusion that, after a sequence of negative polling throughout his PM-ship, Turnbull’s views would not be accepted by the electorate at the federal election.

I have written in previous Commentary that since taking over Morrison has either not outlined his views on most major policy issues or outlined them only half-heartedly. This has kept the Coalition’s polling at low rates and uncertainty about what the Coalition stands for. Moreover, Turnbull continues to attempt to influence policies and individual MP’s attitudes on particular issues. This has led to suggestions that he should be expelled from the party and there appears to be a basis for doing that  (see Turnbull to be Expelled? and Turnbull v Liberal Party). As Andrew Bolt argues, “It’s not just that Turnbull is angry with the Liberals for doing, in his opinion, the wrong thing in dumping him. Psychologically he badly needs the Liberals to now lose to prove to himself that he was right and good and loved (see Bolt on Liberal Party & Turnbull).

It appears however that Morrison has now realised that, for the Coalition to defeat Labor under Shorten, he must return to emphasising the traditional important elements in an election, such as the budget (see attached Morrison v Shorten).  As David Uren points out, “the Coalition managed to restrain spending under the tight rein of finance minister Mathias Cormann with growth of about 2 per cent above inflation, despite the rollout of the National Disability Insurance Scheme and increased defence spending. The revenue turnaround began in the second half of last year and has gathered pace. Company tax revenue was boosted by a surprise leap in coal and iron ore prices while business profits elsewhere in the economy strengthened. Deloitte Access Economics tips company taxes will reach almost $100bn this year. Capital gains tax revenue is also coming back. Treasury now finds its forecasts are unduly pessimistic” (see Budget Outlook).

However, for Morrison to improve polling and stand a chance at next year’s election he must do two things:

• Make a public statement saying that, while he recognises that Turnbull attempted to attract votes through the policies he pursued, he is no longer PM and those policies need to adjusted to the new political environment;
• Indicate also that an energy policy based on NEG is no longer acceptable (Morrison has already stated this) and that the Morrison government will modify its emissions/renewables polices so as to ensure that it establishes a situation where electricity prices will fall.

But at the moment it looks highly unlikely that he will make the necessary changes to energy policy to allow prices to fall. As pointed out by David Uren the policy apparently being pursued for consideration by party members next week reflects “surely none as bewildering as a Coalition leadership deciding the solution is to give the Treasurer unfettered powers to force the break-up of private corporations, dictate their prices and order them to enter contracts against their will” (see Uren on Energy Policy). This would be a disaster in effecting the de-facto nationalization of the electricity industry and as such would likely lead to lower polling.

One final word. The attempt by some female politicians in Canberra, including one minister, to suggest that the Liberal Party is treating women badly does not stand up to careful consideration. Their failure to nominate any supposed offenders indicates the accusers have allowed themselves to be unduly influenced by the emergence of increased feminism. They also appear to overlook that politics involves exchanges which will, in some cases, cause offence – as it does with exchanges between men (see also Bolt on Liberals Problems on Women)

However, the absence of any “bounce” in the poll after the supposedly well-received tax cuts, shows Turnbull’s improved polling has not been translated into an improvement in Coalition polling. Interestingly, The Australian’s National Affairs Editor offers sound reasons why the improvement may include  that “Turnbull has been less noticeable”, has “avoided a major self-inflicted political crisis”, and  has stayed “on message for more than 48 hours”. In short, he was previously acting in ways, and making decisions, which detracted some support from the Coalition but his passing of greater responsibility to Morrison  may have helped lift support for the Coalition.

There is also the fact that today’s Fairfax/Ipso poll shows Labor’s TPP vote to be even higher at 54/46 per cent and only 38 per cent thinking they are “better off”, with 35 per cent thinking they would be worse off. This 54/46 result is based on how preferences flowed at the last election, which differ from how Newspoll recently decided to take more account of preferences shown in recent State elections, including an indication that more One Nation voters have shifted to increased favouring of preferences for the Coalition.  My inclination is to conclude that the Newspoll result/assessment shows more support for the Coalition than there really is and that vice-versa applies to Fairfax (see Fairfax Poll Shows Coalition’s Reduced TPP).

The surprising aspect of assessments made since the Budget is that few, if any, commentators have offered an accurate account of the budget’s effect and the rubbishy explanations of it by Morrison and Turnbull. My own view is that, on this occasion, the commentators have put too much emphasis on the benefits from the tax cuts and to the changes in the structure of the tax system, and have implied much larger amounts are involved.  I have already published some analyses in my last Commentary  but the key point is that, over the next four years,  total income taxes are estimated to increase by 26 per cent (from $305.4 billion to $383.8 billion) and they would only have increased by $11-12 billion more if there had been no tax cuts.  Looking at total taxes, the increase is 24.7 per cent  (from $ 416 billion to $519.6 billion) and would have increased by only about 2 per cent more in 2021-22 if there had been no tax cuts.

In other words there is a miniscule cut proposed in taxes and, even if all passed in the Senate, that will have a miniscule effect on GDP and employment.

Through letters and my Commentary I have attempted to expose this but only Quadrant has published the Commentary and only the AFR has published my letter (see AFR Letters on Budget), which regrettably understates the estimated increase in the tax burden by 2021-22 at $20 billion when it should be about $100 billion!

The proposed structural tax changes in this budget may, in part, be included to divert attention away from the absence of any significant changes in the levels of taxation and government expenditure included in the budget itself. The large proposed spending on infrastructure, of which Turnbull has sought to portray himself as instigator, does not impinge on the underlying cash result, which is estimated to now be in a miniscule surplus in 2019-20 (previously in 2020-21).

Coalition Federal Budget  Disappoints

In my pre-Budget Commentary I asked whether the budget would meet the Coalition’s “small government” objective and suggested that the widely foreshadowed reductions in taxes would be limited  because of the failure of the Coalition to effect a more substantive reduction in the budget deficit of $48.5 bn which Labor left it in 2013-14 and which was still at $23.6 bn (1.3 per cent of GDP) in the Mid-Year estimates for the current financial year (2017-18). I said that expert analysts predicted that  the reductions would likely be limited to only about $8bn, which would be a reduction of only about 2 per cent of total taxes.

In fact, the budget provides that, even after allowing for the much flaunted income tax cuts, total  individual income tax payments are estimated to increase by no less than 6.0 % in 2018-19. For the four years to 2021 the estimate of the cuts is only $11.6 bn, which means that the tax cuts over those 4 years would only reduce the collection of income taxes by slightly more than 1 per cent from what they would otherwise be (for comparison, the estimate/projection of income taxes for the four years is now $954bn).

The cuts in total taxation over the four years are fractionally more than $11.6bn (see below the Tax Outlook published in Budget Paper No 1 for 2018-19 which shows the small amount of policy decisions).

Overall,  there is an increase in the proportion of national income (GDP) paid in total and income taxes. Total taxes and income taxes as a proportion of GDP are available from the budget papers as follows (income taxes in brackets)

2016-17         21.6% (11.0%)

2017-18         22.7% (11.2%)

2018-19         23.1% (11.4%)

2019-20         23.3% (11.4%)

2020-21         23.6% (11.8%)

2021-22         23.9% (12.1%)

The previous highest rate of total taxation was 24.3 per cent of GDP in each of 2004-05 and 2005-06 when the mining boom lifted incomes. The proposed maximum tax by Morrison is an arbitrary 23.9 per cent of GDP which, strangely, would allow for an increase in total taxes of 0.8% of GDP, or $17bn, between now and 2021-22.

TAX OUTLOOK

Table2 reconciles the 2018-19 Budget estimates of tax receipts with the 2017-18 Budget and the 2017-18 MYEFO estimates. Since the 2017-18 MYEFO, tax receipts, including new policy, have been revised up by $8.2 billion in 2018-19 and $12.0 billion over the four years to 2021-22. Excluding new policy, tax receipts have been revised up by $8.0 billion in 2018-19 and $25.9 billion over the four years to 2021-22.

Table 2: Reconciliation of Australian Government general government taxation receipts estimates from the 2017-18 Budget

Expenditure and Net Debt

The foregoing assessment of the Budget in regard to tax cuts has similarities when the provisions for expenditure are examined. This shows that  expenditures are estimated t o increase by  3.1 per cent in real terms in 2018-19, following an increase of 2.7 per cent real in the current year. In essence, spending under the Coalition government has been increasing at about the same rate as GDP since 2013-14 and hence has not shown any sign of reducing the size of government.

The forward estimates do provide for a slower growth after 2018-19, but the next election is likely to see a return to keeping pace with GDP. With revenues estimated to be higher than spending from 2019-20 on, there is an opportunity to start reducing net debt as the Howard-Costello government did (by 2005-06 net debt was almost zero and the Federal government became a net assets holder).

Net debt increased under the Labor government from 2009-10 to about 13 per cent of GDP in 2013-14 and an estimated 18.4 per cent in 2018-19. It is now estimated to fall to 14.7 per cent in 2021-22 but that depends on lowering spending and/or saving more from collections of taxes.

I suggested yesterday that there has recently been a higher rate of violent activity from Islamic jihadists  and that has been confirmed by reports today of an arrest of a man for supplying a weapon to the now dead Brighton jihadist and police questioning of others possibly involved. Today’s Australian has also published a range of material on jihadism, including the whole of its letters page on critiques of  Islam and suggestions of what should be done about it.

With some “adjustments” by the Ed, my letter below is the lead letter and refers to a welcome statement by Turnbull in a radio interview that Islamist terrorism actually seeks to  destroy from within the Islamic religion. If Turnbull sticks to that sourcing it would be a major improvement in assessing  the real problem. As it happens, the Australian Strategic Policy Institute (of which I was a board member) has an article in similar vein by senior analyst Anthony Bergin drawing attention to the Turnbull quote reiterated in my letter (see Bergin on Islam).  Bergin also praises Turnbull government Assistant Minister for Multi-Cultural Affairs Seselja as being “absolutely right that too many public figures have been walking on eggshells and becoming hostage to political correctness in failing to state publicly the underlying cause and motivation of terrorism”. I have previously urged Bergin to use ASPI  more as a means of drawing attention to the Islamic problem (ASPI was established with the agreement of both major political parties as “an independent, non-partisan think tank that produces expert and timely advice for Australia’s strategic and defence leaders”).

The difficulties faced in confronting the problem of how to deal with Islam is illustrated by the proposal by the Islamic Council of Victoria that “safe spaces”be established where young Muslims could make ”inflammatory”comments  and criticize control orders against terror suspects (see Vic Islamic Council)! It has also indicated that it is withdrawing from a deradicalisation program because it refuses to work alongside Victorian police. Fortunately, Victorian Premier Andrews has immediately rejected the “safe spaces”proposal by saying the“there is no way to rail against the West. There is no safe way to rail against the values we hold dear”.  But note that the Victorian government currently provides funds to the Council – for how much longer?

A similar question arises with regard to State funding of schools largely attended by Muslim children and  where radicalisation appears to occur (see Funding Education of Muslim Students).

COAG should face the Islamist terror challenge (Lead Letter published in The Australian, 9 June 2017. Square brackets show bits deleted by Ed).

[When] Malcolm Turnbull [was interviewed yesterday he told 3AW that] says ““we are facing a global threat, this Islamist terrorism. It is a disease and it is corrupting, seeking to destroy from within the Islamic religion [and of course,] lashing out to destroy and undermine our way of life”. We also learn that Victoria alone has 3000 on a watch list.  On the same day an [expert] Italian analyst wrote there are 66,000 official extremists in four major European countries and “a jihadist takeover of Europe is no longer unthinkable”.

One hopes that tomorrow’s meeting of Australia’s [political] leaders are [, as your editorial says,] “seized with the challenge of the moment” [which is in fact] – a serious challenge to the survival of Western values. But our leaders performance so far is abysmal.

[At a minimum,] COAG should conclude [that the Prime Minister should prioritise the construction of a major] with a statement identifying the characteristics of Islam that are unacceptable (such as sharia) and outlining the  [major] measures to be taken to minimise the threat [which we and other Western countries] we face from Islam. These should include changes to human rights [which, as the British PM promises,] legislation that might otherwise hinder the control of Islamic extremists.

Des Moore, South Yarra, Vic

Climate Change

It is premature to comment on what has emerged on Climate Change Policy at COAG today. But I draw attention to the “Socrates” advertisement in today’s Australian by the Climate Study Group led by Richard Morgan (see Socrates). Not surprisingly, the wise old man convinces “Mr Smith” that CO2 is not the problem.

Note also that Tony Abbott has said that it is important that coal continues to provide an important source of energy in any arrangement. If some form of agreement emerges at COAG on reducing usage of coal but without having electricity price rises, that can only mean that governments will have to provide even more subsidies than the enormous ones already in government budgets. It would also be likely to add to opposition to Turnbull within the Coalition.

Financing Budget Deficits

Attached is an important article by Prof Tony Makin arguing that, when assessing government budgets, regard has to be paid not simply to the financing of any deficit from this year’s result but to the financing of deficits from results in previous years (see Makin on Financing Deficits).  He points out that “Australia’s total budgetary financing need in recent years, ­inclusive of short-term debt falling due for repayment, has significantly exceeded actual budget deficits…. Whereas Australia’s budget deficit in 2017 on a calendar year basis was 2.4 per cent of gross domestic product, IMF estimates show the total government financing need, including maturing debt, was 3.2 per cent. A 3.6 per cent of GDP financing need is predicted for next year, almost three times higher than the budget deficit as a proportion of GDP”.

Makin argues that the additional financing from previous deficits in effect reduces the funding available for private investment and, over time, this will slow down economic growth. It would be interesting to know whether this analysis has been made available to the government and whether Credit Rating Agencies take account of it in determining credit ratings

Turnbull’s further shift to the left (where is the middle now?) didn’t get any substantive support from the latest Newspoll, with the TPP percentages (47/53) unchanged. Some say that there was no budget “bounce” but the fact that it didn’t rise one bit sends a bad message on both the budget and Turnbull’s leadership even though his satisfaction ratio rose very slightly (so did Shorten’s). One commentator said that “the trend is set and it favours Shorten”.

What could the Coalition do now to even get to equal with Labor? The failure of Turnbull to make use (politically) of the Manchester bombing seems to confirm that he is not up to the leadership role. He had a marvellous opportunity to state that Islam is the source of terrorist activity, as Trump did in Saudi Arabia, and to say that the government will develop an assessment of extremist Islam with a view to disqualifying people from receiving citizenship and tightening policy against the preaching and advocacy of behaviour inconsistent with western values. The discussion paper issued recently under the names of Turnbull and Dutton and titled “Strengthening Australian Citizenship” provides a starting point for a policy on measures to protect democracy from terrorism. We also have counter-terrorism legislation which provides a basis for prosecuting foreign fighters returning to Australia. Yet we find that Attorney General Brandis is refusing to say how many such extremists have been prosecuted under that legislation, although the government has introduced a new offence for visiting a declared terrorist zone (article by Sharri Markson today not digitalised). It is timely to expand counter-terrorist policy.

Recognition of the Source of Terrorism Needed

Never before has there been such an important need for our political leader to make a statement on the source of almost all terrorist activity, Islam.  As mentioned in yesterday’s Commentary we have the outrageous assertion by our head of ASIO, Duncan Lewis, that there is no evidence to suggest there is a connection between refugees and terrorism. Andrew Bolt says today that “if the ASIO chief truly doesn’t know of any links between refugees and terrorism, then he must be sacked, instantly, for being asleep at the wheel” (see Bolt on Lewis). But Lewis has also asserted that “I don’t buy the notion the issue of Islamic ­extremism is in some way fostered or sponsored or supported by the Muslim religion.”  To coin a phrase, in some way this is an even worse statement for the Head of ASIO to make. This situation requires a statement by Turnbull explaining that Lewis’s remarks do not reflect government policy and that he has asked Lewis to stand down.

The need is enhanced by a submission made by the non-government Public Health Association to the Inquiry by the Joint Standing Committee on Foreign Affairs, Defence and Tradeinto The status of the human right to freedom of religion or belief. The PHAA says in its submission that the committee should include a recommendation that disavows the ­notion there is any inherent link between Islam and terror and that any politician who refers divisively … to any ­religious or ethnic group for the purpose of political gain should be disavowed (see Doctors Say No Link). The PHAA submission was co-signed by its president and former politician Michael Moore, Curtin University professor of international health Jaya Duntas, and David Legge, a scholar emeritus in public health at La Trobe University. With almost 2000 members, the association’s aim is to enhance population health results based on prevention, the social determinants of health and equity principles. To date, almost 200 submissions have been made to an Inquiry which is seemingly fruitless and will only serve to cause divisiveness.

Another development relevant to increasing terrorism (although not directly in Australia) and to “big government”, is this article on Islamic Influence Under Macron, the new French President.  This article is by Dr. Guy Millière, a professor at the University of Paris who is the author of 27 books on France and Europe. Milliere claims that:

• Macron’s victory was not decisive, that more than half of those who chose him were apparently voting against Marine Le Pen, and that Macron won by default  because he was the last man standing;
• He is not a centrist, was discreetly supported by most of the Socialist Party’s leaders and by the outgoing Socialist President, François Hollande, and all of Macron’s team-members were socialists or leftists;
• Macron’s entire program is socialist, proposals for additional public expenditures abound, “climate change” is defined as “the key issue for the future of the world”;
• Macron is the pure product of what analysts described as the “French nomenklatura” — an arrogant élite, composed of senior officials, political power-holders and the businessmen working in close collaboration;
• His aim is to consolidate the power of those who placed him where he is; their goal is to create a large, single, center-left, technocratic political party that will crush the old political parties;
• Another goal is to entrust ever more power to the technocratic unaccountable, untransparent and undemocratic institutions of the European Union: it is a goal Emmanuel Macron never stopped emphasizing;
• Macron says the demographic deficit requires more immigration, to encourage mobility between the two shores of the Mediterranean, and to offer asylum to all those who seek its protection;
• With almost all refugees arriving in France being Muslims, Macron wants Islam to have more room in France, a new structure will make it possible to relaunch the work sites of the Muslim religion in France;
• The French branch of the Muslim Brotherhood congratulated Macron on his victory, publishing an official communiqué saying the new President of the Republic will allow the reconciliation of France with itself;
• Macron’s prime minister, Edouard Philippe, has close ties with the Muslim Brotherhood and favoured their installation in the city of which he is the mayor, Le Havre;
• Richard Ferrand, a Socialist MP, now Minister for the Cohesion of Territories, has been financially contributing to the anti-Israel BDS movement and to “pro-Palestinian” organizations for years;
• Gerard Collomb, the Socialist Mayor of Lyon, and now Interior Minister, financed the French Institute of Muslim Civilization that will open its doors in December 2017;
• Macron said he was “dismayed” over the Manchester Arena terror attack, adding that he was “filled with dread”, but did not express the necessity of confronting the danger. The French have every reason to be nervous.

Whether these objectives will be achieved remains to be seen, but they send a warning note of what can happen when a large body of Muslims accumulate in a country (France has the largest proportion of Muslims of any European country).

Climate Change Policy

Developments since the G7 meeting in Sicily suggest that, although our left media have claimed that Trump was “isolated” there on climate policy, a better interpretation is that the other 6 have been put on the defensive, with Merkel reportedly “angry” about Trump refusing to endorse the Paris Agreement and stating publicly that with Brexit and Clexit Europe is now on its own. As such, it will need to stop being angry and adopt some better policies.

The body in the US which has adopted a sceptical view for many years (The Science and Environmental Policy Project or SEPP) points out in its latest newsletter that  “Those advocating the Paris Agreement have never offered physical evidence that CO2 emissions are the primary cause of global warming / climate change. They just assumed it. So did the UN Intergovernmental Panel on Climate Change (IPCC), and other political bodies such as the US Global Change Research Program (USGCRP), with a budget of about $2.5 billion per year”. One might add here that Australia’s supposedly scientific bodies also provided little substantive argument in support of the dangerous warming thesis and that Australian political leaders swallowed the hook.

If Trump now arranges for the EPA under his newly appointed leader Scott Pruitt to publish  a meaningful document on what SEPP describes as the “physical evidence”, it will expose how these assumptions were  foolishly accepted by politicians  and scientists, including those in Australia. SEPP also refers to the latest economic forecasts by the OECD for G7 countries as being  for Canada (2.34%), France (1.59%), Germany (1.74%), Italy (1.03%), Japan (0.83%), the United Kingdom (0.96%) and the United States (3.00%). It argues that, from this, one can conclude that there is no other country on the list whose economic policies are desirable for the US to imitate and concludes that “Mr. Trump has a powerful economic reason to abandon the Paris Agreement and no scientific justification for staying in the agreement”. Of course, the differences in growth rates cannot all be attributed to climate change policy differences. But Europe has been more global warmish than elsewhere and  SEPP points out that “the economies of countries such as the UK, Germany, and Italy are stagnating in part due to government policies that did not appropriately account for the increases in electricity costs that occur in shifting from reliable fossil fuel generation to unreliable solar and wind generation. Germany is compounding its problem by shifting from reliable nuclear generation and is being forced to expand power plants burning brown coal, which produces more CO2 than black coal (a higher thermal content)”. Here too Australia is on the same economically wasteful track.

In recent Commentaries I have referred to a number of deficiencies in the Budget which have either not been referred to in the main media, including even in The Australian, or have only been given limited attention. Despite this even The Australian has not published four letters I submitted on what I believe are serious analytical deficiencies, and the AFR often couldn’t decide whether to have a letters page. The Age almost automatically refuses to publish anyone deemed to be right of centre.

I mention here only that, after dropping pursuit of the $14.7 bn proposed cuts blocked by the Senate, the government itself has now added $5bn from policy decisions to expenditure in 2017-18 and 2018-19; the real increase in estimated expenditure in each of those years is 2.3% compared with Treasurer Morrison’s claim that a 2.0 per cent real growth had been achieved; and by contrast with the underlying cash balance of a deficit of $29.4bn, I drew attention to John Stone’s article in Spectator pointing out that the more comprehensive headline cash balance of a deficit of $48.4bn is almost $20bn higher.

Latest reports about the debate on the budget suggest that significantly higher deficits are likely to emerge either from opposition in the Senate (see More Senate Opposition to Budget) or because economic forecasts fall short (see attached Sloan on Treasury & Forecasts). One wonders what effect this might have on polling, but it seems unlikely to be favourable. Yet Turnbull is unlikely to be in a position to threaten an early election if the Senate refuses to pass major measures in this budget.

Trump in Saudi Arabia

Trump’s phrasing, and the wide concern about the accuracy of his statements and the changes of his mind, make it difficult to assess his public statements.  But account also needs to be taken of the exaggerated criticisms of him in  Washington DC, where a very high proportion of the population (91%) of the District of Columbia voted for Clinton (beats Canberra!), as well as evidence that his political opponents are trying to create a situation in which an impeachment would be attempted. This helps undermine his credibility as President, which is also adversely affected by widespread media antagonism to him, including in Australia.

It will take some considerable time, and a much improved handling of the Presidency by Trump himself, to overcome this. But as Andrew Bolt’s article on the sacking of FBI head Comey (see Bolt on Comey) suggests, there are signs that more complete and favourable situations will emerge. Bolt points out that “Deputy Attorney-General Rod Rosenstein, who worked for Democratic president Bill Clinton and is so respected by both sides of politics that the Senate confirmed his nomination by 94 votes to 6” … “cited a long list of former attorneys-general and deputy attorneys-general from both sides of politics, as far back as the Ford administration, who had condemned Comey”. Even  Eric Holder, Obama’s deputy attorney-general, agreed Comey had “violated longstanding Justice Department policies and traditions”. Bolt concludes that “as fake news goes, this one’s on steroids”.

Trump’s decision to make his first overseas visit to the Middle East rather than Europe can be seen as simply reflecting his view that previous approaches to the handling of policy should be radically changed. But it also suggests a view that the Middle East problem is the most important facing the US and the Western World. His 7 page address in SA to the Arabic Islamic American Summit (see Trump Speech to Arab Summit) is totally different to the texts he had been sending out in Washington – and totally different to the one which Obama gave in Cairo soon after he became President. What’s more it seriously addressed the  Islamist problem in front of leaders of countries who are Muslims, but with one important exception viz Iran.

Important points made in the address include

• There is “one goal that transcends every other consideration. That goal is to meet history’s great test –to conquer extremism and vanquish the forces of terrorism”.
• The deadliest toll from terrorism “has been exacted on the innocent people of Arab, Muslim and Middle Eastern nations”.
• ”The true toll of ISIS, Al Qaeda, Hezbollah, Hamas, and so many other, must be counted not only in the number of dead”.
• ”This is a battle between barbaric criminals who seek to obliterate human life, and decent people of all religions who seek to protect it”.
• “A better future is only possible if your nations drive out the terrorists and extremists. Drive. Them. Out. DRIVE THEM OUT of your places of worship. DRIVE THEM OUT of your communities. DRIVE THEM OUT of your holy land, and DRIVE THEM OUT OF THIS EARTH”.

Some will see the address as overly optimistic and unlikely to result in meaningful cooperation. But whether realised or not it signals a fundamental change in US foreign policy compared with Obama. This was reflected on his arrival in Israel, when Netanyahu said to Trump during a joint press conference “I want to tell you how much we appreciate the reassertion of American leadership in the Middle East.” Netanyahu added that for once it gave him hope for the future. This is a totally different attitude to the one Trump is receiving in Washington but will have work to do when he returns.

Both main sides continue to debate the second budget of the Turnbull government, with the most interesting development being the view expressed by Albanese that Labor should welcome the Coalition’s budget measures! But there is no indication from most Commentators that initial views have changed and that an improvement in the Coalition’s polling is likely to occur. In fact, doubts about the achievement of estimated budget outcomes have increased following the publication of a much lower growth in wages than assumed in the 2017-18 Budget estimates (1.9% cf 2.5%), a further fall in consumer confidence (the sixth successive occasion when pessimists have outweighed optimists), and a warning from credit agency S&P that while it kept Australia’s credit rating at AAA it also warned that it is at risk of a downside over the next two years. The improvement in the latest employment survey may help if it is sustained. But doubts continue about the survey’s reliability.

Debate also continues over whether the budget has provided adequate grants to the States for (in particular) education and health because no detailed agreement with the States was effected before the budget. Debate has also occurred over the bank levy following the revelation that Treasurer Morrison has indicated that details of the enforcement legislation are not to be revealed before the legislation is presented to Parliament.

Former Treasury Secretary, John Stone, has also had a highly critical article published in this week’s Spectator Australia (see Stone on Budget). His conclusion is

More fundamentally, the consequences of this massive philosophical U-turn for the Liberal Party (and also for the Nationals) are incalculable. Most observers expected a ‘sugar hit’ for the Coalition in the polls. Since that was clearly the aim to which this travesty of everything Menzies’ party was supposed to stand for was directed, they needed at least to be right about that. But as Monday’s Newspoll showed, they weren’t, with the Coalition primary vote unchanged on 36 per cent and its two-party preferred vote actually falling a point. Even if future polls were to improve somewhat (which they won’t), that wouldn’t ward off this budget’s destabilising effects.  Anyone for the Australian Conservatives Party?

Importantly, Stone also draws attention to the little recognised “Headline Cash Balance”, which is much larger than the “Underlying Cash Balance” normally treated as the deficit (or surplus). The difference between the two is that the former covers all Commonwealth spending including by off-budget entities, such as the NBN Co, and the purchase/sale of financial assets for policy purposes. As such, when in deficit the Headline Cash Balance has to be financed by borrowings or sale of assets. In 2017-18, for example, the estimated Headline Cash Balance is – $48,4bn (only $2.6bn less than this year) while the estimated Underlying Cash Balance is – $29.4bn ($8.3bn less). In short, the budget presentation suggesting that the Coalition made a substantial reduction in the deficit is grossly misleading: the “real” deficit is much higher than is being debated and the estimated reduction is much less.

My last Commentary (16 May) also questioned the Coalition’s claim that tax increases are needed because the Senate blocked proposed spending cuts. Yet the budget provides for substantial increases in spending in the next two years including policy decisions costing about $5 billion each year. If those decisions had not been made, there would have been no need for the tax increases. In short, the Turnbull government has also “blocked” spending cuts. This seems to have been largely overlooked by commentators.

Threats to Trump

It is apparent that attempts are being made in Washington to create an environment aimed at reducing Trump’s credibility or even allow action to consider his impeachment. Reflecting the importance of US policies and behaviour, Turnbull has made a very brief comment effectively rejecting security concerns for Australia. The Australian has editorialised on this more than once, including in yesterday’s edition (see More Media Attacks on Trump), and has been broadly sympathetic to Trump.  The ABC and SBS have also given Trump’s statements and the criticisms of him extensive coverage. On Wednesday the ABC’s 7.30 report conducted an interview with Dennis Richardson who retired just recently after many years involvement in security and foreign relations with the US (see transcript Dennis Richardson). While he was being diplomatic, perhaps his most pertinent remark was “I think we can certainly trust and rely on the United States, regardless of the personality who happens to be President at any one time.  That’s been the case since 1951 and I see no reason why it would change and when you look at some of the people President Trump has appointed, we have… we have great cause to be confident.” Another 7.30 report interview last night with a former adviser to President Bush produced a similar response, with the person interviewed pointing out that, while Trump’s popularity is down to around 40%, most who voted for him seem to continue to support him.

It is difficult to assess the situation in Washington from here. But from what has emerged so far it does seem that the concerns expressed about Trump’s statements and actions are overblown and largely come from political opponents rather than those genuinely concerned about possible adverse security implications. For example, it is difficult to see that there can be serious concern about Trump giving securitised information obtained from Israel to the Russian Foreign Minister to the effect that IS was planning to use computers as sources for bombs inside planes. Equally, although his reasons for dismissing the head of FBI have not been adequately explained, the behaviour of the head on more than one issue could be said to have warranted such action. More importantly, while Trump’s request to the FBI head to “go easy” on handling Flynn’s connections with Russia have been seen as an attempt to cover  alleged pre-election contacts with Russia, it is difficult to see that even  if such contacts did occur they amounted to an attempt to “obstruct justice” and as such a basis for action to consider legal action for impeachment. The appointment of a Special Prosecutor to investigate the extent of such contacts and their implications, which is likely to take some time, may clarify the situation.

Putting all this aside, there is no doubt that Trump is not observing what some see as the normal practices of a leader in a democracy and is failing to properly explain his policies. The former director of the CIA, Micahel Hayden, has described Trump as a “useful fool” and many will agree. But that characteristic was apparent before he was elected President as a challenger to traditional processes . The election of leaders is often followed by a period of regrets by voters who elected the person. We are experiencing that in Australia right now.  Trump will be further tested on his handling of his first current overseas trip.

Budget Paper No 1 contains a Statement 6 which provides details of spending and in particular the addition to spending resulting from policy decisions by the government. Table 2 from that Statement, which is included below, has so far attracted little if any attention from commentators. But the increase in spending of 3.0% in 2017-18 and 4.9% in 2018-19 is importantly due to policy decisions of about $5 bn for each year. The following table shows the published increase in spending in each of those years and (in brackets) the increase without any policy adding decisions. In short, even if no policy decisions had been made to increase spending the Budget would still show a substantial increase in total spending.

Total Budget Expenditures

The reality is that it is not only the Senate which is blocking spending cuts: the Turnbull government is blocking them too. What’s more it is blocking reductions in the deficit.

Another way of looking at it is that, if there had been no additional spending policy decisions of about $5bn in each of those years, there would have been no need for tax increases in either 2017-18  or 2018-19. Budget Paper No 1 Statement 5 shows that policy decisions are estimated to add $1.8bn to revenue in 2017-18 and $3.1bn in 2018-19.  In short, the government’s own spending decisions could be said to have forced the tax increases.

Today’s Australian editorial refers to the “forgotten people” to whom Menzies referred many years ago (see The Aus on Budget). He argued that “big business interests tended to look after themselves, as did organised labour, but the middle class often was forgotten. He primed his party to represent and serve the interests of “salary earners, shopkeepers, skilled artisans, professional men and women, farmers” and the like. “They are envied by those whose benefits are largely obtained by taxing them. They are not rich enough to have individual power. They are taken for granted by each political party in turn … and yet … they are the backbone of the nation.” Perhaps the main change since then is that the middle class has expanded and it is now awakening as the expansion in government is being seen as unnecessary and (to use the current phrase) as unfair. Think of what is happening in the US and the UK.

I also draw attention to Terry McCrann’s article in today’s Herald Sun (see McCrann on Budget). Apart from pointing out that almost all taxes end up being paid by individuals, Terry concludes that “this Budget was framed for the next Newspoll. Well, that poll has come and gone, badly. It’s not going to get any better. The Budget is going to be — was always going to be — diced and sliced, exactly like the 2014 Budget it was supposed precisely not to be. The popular bits will be endorsed — the bigger spending, the bank tax; but not the nasties like the Medicare levy, as Shorten has already made clear. You will see slippage on the bottom line. And voters will still feel badly done by. So the government is likely to end up with the worst possible combination: a Budget that looks (and is) irresponsible and loses votes, or certainly doesn’t attract them”.

Will the Liberal members of Parliament wait until the next Newspoll?

• Both Newspoll and the Fairfax/Ipso poll show Labor the same distance ahead of the Coalition with Labor holding a lead of 6 percentage points on a TPP basis (53/47) in each poll;
• Neither leader has a favourable net satisfaction ratio in Newspoll, with Turnbull on 33/53 and Shorten on a 32/54 satisfied to dissatisfied ratios;
• The total who feel worse off after the budget (45%) is less than after the 2014 budget under Abbott (69%) in Newspoll. But more feel worse off than after each of the last three years of Labor’s budgets. Note that only 19% feel better off and 36% are uncommitted after this year’s budget. The age group which feels worst off after this year’s budget is the 35-49ers, with over 50s feeling least worse off ;

The media treatment of the implications  of the two polls differs, with Fairfax arguing that the reduction in the Coalition’s TPP from 45/55 since the last Fairfax poll  should be treated as a “boost in support and voters have applauded its big tax increases and spending measures” (see Coorey on Fairfax Poll). However, the reduction in the TPP under Newspoll (from 48/52) is interpreted by The Australian’s political editor Shanahan as a failure of the Coalition’s attempt to make “the 2017 budget unashamedly as a political document”. He also points out that  “with barely a nod to real economic issues, the Prime Minister and Treasurer ditched decades of Liberal precepts and principles with the aim of lifting Coalition two-party-­preferred support in today’s Newspoll”. He adds that Turnbull has now “delivered his 12th consecutive loss to Labor — almost halfway to the death sentence of “30 losing Newspolls” he delivered Tony Abbott” (see Shanahan on Newspoll). Crowe says the poll is “a blow to Malcolm Turnbull’s plan for a political recovery, voters have shifted to Labor and the Greens while voicing concern about budget tax increases, with 45 per cent saying they will be worse off from the budget” (see Crowe on Newspoll).

All in all, there is no way that even the Fairfax poll’s improvement can be regarded as a boost in support for the Coalition. Rather, the opposite. On either poll the Coalition remains well behind Labor following the Budget and The Australian’s editorial identifies some of the problem’s which now emerge viz Treasurer Morrison’s pre-budget remark that he “regarded the budget as make-or-break for his own career and the government” and that ”within the Coalition the Newspoll strengthen the hand of Turnbull critics who resent the government’s leftward shift on to Labor turf and its divergence from conservative principles of smaller government and lower taxation” (see Aus Editorial on Budget).

Both leaders are now trying to “sell the Budget” (or not). In reality, as the polling of net satisfaction ratios indicate, voters dislike both and it is difficult to see how either can turn those ratios around. Of course, Labor will not make any changes while Shorten continues to be in front. And on the Coalition side nobody seems willing to put their hand up. We certainly don’t seem to be set for “exciting times”.

In his budget reply Shorten rightly claimed that the Turnbull government did not present a Labor budget: he said this because his presentation in fact took the Turnbull budget further down the socialist road (see Shorten’s Budget Reply). Although no estimates were given of Shorten’s Labor budget, there can be no doubt that it would mean higher spending and taxes. Those taxes would moreover be concentrated on alleged “high” income groups and would extend to emissions of CO2. In a sense, Turnbull provided Shorten with an opportunity to take a step further.

The Australian has savagely attacked Shorten’s presentation by calling it “a socialist nightmare, exacerbating the deficit, our rising debt, the risk of losing the AAA credit rating and the looming costs from an ageing population as the ratio of workers to retirees declines. Labor has taken the race to the bottom on economic policy down several notches. Its policies would make the path to fiscal responsibility, when finally undertaken by braver politicians than we have at present, far more painful” (see attached Editorial on Shorten). It also ranas a lead opinion piece an excellent article by IPA policy director Simon Breheny (see Breheny on Budget). Amongst other things,Breheny rightly draws attention to the contrast between the dominance of unions in the Labor party and the smallness of their role in the community, an important differential which the Coalition under Turnbull has failed to utilise.

The question is whether Shorten can get away with it, given the move to the left by Turnbull with the apparent heightened support of Treasurer Morrison, whose attack on banks made him resemble a delegate at a Labor party conference.Former Labor Minister Graham Richardson (who says hespent a couple of hours with the Treasurer just a couple of weeks ago) points to the importance Morrison attached to the government’s poll position and his claim that it is “definitely not irredeemable. He knew the budget he was about to bring down was make-or-break for his own career, let alone that of the government of which he is a key member”. Richardson concludes that Morrison’s budget “went well enough to get the government back in the game. Don’t worry about the next few Newspolls because the government will no doubt get a sugar hit from the budget” But, he wonders, “ The question yet to be answered is: can that boost in the polls be sustained?” (see Richardson on Liberals).

I wonder, however, if Richardson is right in thinking there will even be a “sugar hit”. We shall see next week in what could be a more than usually  important poll. If the Turnbull government cannot get a favourable result from its second budget, what would it need to do to get one?

One potential source of trouble from the conservative side is the reaction by John Howard, who yesterday described “the looming energy crisis as a scandalous policy failure of the first order” and questioned why that looming energy crisis was barely mentioned in the budget”. He said that the renewable energy target should never have been lifted above the 2 per cent he set when in office and according to the attached article (see Howard on Renewables), he “reignited calls for a national overhaul of climate policy”. While one can blame Howard for not having a proper examination of climate policy when he initiated it, the so-called energy crisis certainly justifies one now and that is missing from the Turnbull government’s agenda. The renewable target of 23.5% is of course much higher than the 2% set by Howard.

This reaction follows Howard’s previous expression of “unease about the bank tax and I do not walk away from that”. In short, a highly successful former Liberal PM has sent a post-budget message to Turnbull that his earlier encouragement to Turnbull to stay in the political game may not have been correct.

As to the bank tax (which is to be accompanied by greatly increased regulatory arrangements), there are serious reservations about the proposed new banking “system”, which comes close to a return to nationalisation. As The Australian points out “ Scott Morrison pinched the idea for a banking tax coupled with more regulation from Britain, but the financial history there was quite different. During the 2008-09 banking crisis, the British government nationalised Northern Rock bank and bailed out Lloyds Banking Group and Royal Bank of Scotland. RBS was about to run out of cash for its ATMs. A winding back of executive bonuses and new controls on risky borrowings were demanded as a quid pro quo for the taxpayer-funded rescue package.  Australia, by contrast, came through the global financial crisis in good shape, thanks to a government guarantee of deposits and the strength of our banking sector. If the Treasurer feels capital levels should be higher to protect taxpayers from future bailouts, that is a separate issue. As for customer complaints, any bank will generate those but there is no evidence of systematic abuses across the sector” (see Editorial on Banks). Notwithstanding apparent reservations in some quarters about the operations of the current banking system, the proposed changes seem an unwarranted “grab for cash”.

Trump’s Dismissal of FBI Head

Considerable attention is being given both here and in the US to Trump’s decision to dismiss the James Comey, the head of the FBI. It appears that such action has only been done once before by a President and most of the media commentators are questioning the rationale. Trump’s unpopularity with most of the media are leading to the widely held view that this is basically an attempt by Trump to avoid an investigation into whether he and his associates had arranged for the Russians to hack the Democratic Party emails and thereby prevent Hilary Clinton from becoming President.

This attached article by the Manhattan Institute, a think-tank in New York which I visited some time ago, suggests that “no evidence has been presented to demonstrate that any state or organization, least of all Russia, had anything to do with tricking John Podesta into revealing his email password, which is what led to the exposure of the DNC emails—the episode now considered synonymous with “hacking the election.” The article  argues that Comey’s record, including his apparent critique of Clinton, “was peppered with bizarre statements and errors of judgment” and that Trump should have dismissed Comey in January.

It seems likely that, although Russian Foreign Minister Lavrov told the media that at his meeting with Trump yesterday there was no discussion of Russian meddling in the election. a Congressional committee will examine the possibility of some attempt by  Russian to influence the Presidential election. While anything Labrov said must be taken with a grain of salt, it is interesting that he reported as criticising Obama for the poisoning of US- Russia ties and as speaking more favourably about Trump.