Unfairotropolis

Since the time of white settlement, Sydney has always looked upon its western outskirts as a place for the unwanted. In the decades after landing, the colonial government established its earliest gaols in Parramatta. In the mid-20th century, Olympic Park was a dumping ground for toxic chemicals, and just about everywhere was a dumping ground for James Hardie asbestos.

The view of the west as undesirable extends to how residents are viewed. At times, the condescension of the rest of the city is unspoken, visible only in the raised eyebrows of peers when you tell them you're from Liverpool, or Blacktown, or Penrith. At other times their derision is voiced in the derogatory term westie.

So pervasive is this attitude that some of the region's own residents take it on board. No example is so clearly recalled to as the disgraced former MP for Lindsay Jackie Kelly denigrating her own constituents on the basis that "nobody in her electorate went to uni" and that the Penrith region was "pram city" on account of the number of younger mothers, and that these were reasons for the local university not to receive additional funding.

Such geographic snobbery may be a long-established phenomenon, but such regressive views have not hitherto been codified in broad government policy. That changed earlier this week with the unveiling of the "Greater Sydney Region Plan," which repackaged it in the indecipherable language of bureaucracy but kept at its heart the goal of keeping the western suburbs as a place for the undesirable.

The Plan

The Plan, revealed this week in a flurry of glossy pamphlets, op-eds and publicity shots, is a 170-page outline of guiding principles for Sydney's development over the next four decades. The central conceit of the Plan is to re-conceptualise Sydney as three giant regions, each taking up around a third of the current metro area. Each of these regions is said to be anchored by a zone of higher economic activity and a natural geographical feature emblematic of the area. Thus the plan carves Sydney into:

• An "Eastern Harbour City," centred on the harbour and with the existing CBD as the main area of economic activity. This is to be boosted by the new CBD metro line and light rail systems, which are currently under construction (as the construction sites along the CBD's main thoroughfare indicate).
• A "Central River City," centred along the Parramatta River and with an arc of economic activity stretching from Olympic Park to Carlingford to Parramatta to Liverpool. This development is to be facilitated by the massive new developments in Parramatta turning it into a second CBD, and a new local light rail system between Westmead and Olympic Park.
• A "Western Parkland City," consisting of "everything else we couldn't be bothered designing for" and centred on the not-yet-existent second airport at Badgerys Creek.

The term "parkland city" would be considered a joke if not for the gravity of the document. There is no great "parkland" in the western suburbs so much as a patchwork of residential acreage, hobby farms, and uncleared land where property values have not sufficiently risen to entice developers to move in. And even this last component has changed, with new estates such as Oran Park, Caddens and Ropes Crossing moving into the wilderness before public infrastructure catches up. Perhaps the term "parkland city" is one of irony, referring not to any green space but the projected number of cars in the region.

Luddenham, in the heart of the "Western Parkland City" - a close rival to the Tuileries Gardens according to the NSW Government.

In the middle of this region is to be placed the great economic driver of the region, the second Sydney airport (which the Plan continually refers to as an "aerotropolis," a word as make-believe as the development it is supposed to underpin). The Plan envisions the fantasy airport-city as a major urban hub in its own right, supplanting the existing suburban centres of Penrith and Campbelltown. In one of the more nonsensical parts of the document, the Plan even goes on to speculate that "over time, the Badgerys Creek aerotropolis [sic] could become a fourth university city."

Apart from what has been dreamt up, there are other clues in the document suggesting that the authors have never visited the place. For example, the Plan identifies certain ADF facilities in the vaguely general facility of the new airport as somehow promoting commercial collaboration. Page 93 of the Plan provides:

"The RAAF Base Richmond Precinct will complement the airport and aerotropolis [sic] activities. Precinct activities include aerospace activities (defence and civilian); a Western Sydney University campus, TAFE NSW Richmond and range of equine activities."

Apart from the somewhat dubious claim that horses will be appreciative of the new airport, the writer obviously doesn't realise that Richmond is some 30km and 45 minutes' drive (without airport traffic) from Badgerys Creek, making any forecasted synergies dubious at best given the travel times involved. What else could be expected though when the relevant State Government ministers with oversight of the Plan are the Member for Double Bay, the Member for Lane Cove and an Upper House representative from the southern suburbs, not to mention that the head of the Commission is currently a resident of Point Piper's most exclusive address.

The occupational divide

The Plan's list of key economic sectors for each region makes plain how little esteem the NSW Government affords to residents of the western suburbs. Key industries for each of the three regions are forecasted to include the following

CBD & surrounds: Finance & professional services, creative industries and tertiary education.
Parramatta region: Medical technology, health, and public administration.
Western suburbs: Agricultural processing, construction, and transport & warehousing.

The NSW Government looks at western suburbs residents and sees only couriers, labourers and baggage handlers.

Perhaps the most pernicious aspect of the Plan is its stated goal of "job containment," that people located in each region do not have to travel to a different region for work. So in addition to keeping the lower paid work in the western suburbs, the Plan aims to keep lower paid workers there too, lest the more glamorous harbour or beaches be sullied with their presence.

In contrast to the "university city" fancifully predicted to reside in the invented "aerotropolis," consider the economic zones surrounding major international airports worldwide as a guide to the occupations the NSW Government thinks fit for the western suburbs. When it is built, the second airport will bring the usual array of airport hotels, car rentals, warehouses and convention centres, a perpetual state of urban decay, and a long ride into the city on a choke toll road.

The proof in the pudding

Further evidence of the disdain with which the Plan treats the western suburbs is the confirmation that the second airport, located in the middle of a ring of residential areas, will not have a curfew. From page 67 of the Plan:

"The development of the Western Sydney Airport as a 24/7 airport to complement Sydney Airport will enable Greater Sydney to accommodate significant projected passenger growth."

What possible reason justifies the maintenance of a curfew at the existing airport, bordered largely by the ocean as it is, but having no noise curfew in the middle of some of Sydney's largest residential growth areas? No reason save the desire of the State Government to once again shift undesirable issues out west. And this process is happening right now - consider the proposed development of the world's largest incinerator at Eastern Creek, opposed by residents, local councils and even the EPA for not meeting health and safety standards, but which the NSW Government has failed to rule out. It is clear that the government and its coterie of policy wonks and technocrats intend for the western suburbs to be the repository of the city's refuse and aircraft noise.

A real solution integrate the western suburbs would include more public transport links to the major commercial hubs of Parramatta and the CBD, but also additional networks between secondary centres. Sydney's transport systems are presently designed to funnel people to and from the CBD, but all areas would benefit from viable public transport options which bypass the CBD, especially on a north-south axis.

A well-thought out plan would facilitate growth in places such as Campbelltown, Penrith and Richmond to take advantage of existing infrastructure with the scope for additional work to have immediate benefits. For instance, the Plan as referred to above mentions the benefits of creating a transport link between the second airport and Richmond. Why then does the Plan also advocate a new rail line meeting the Northwest Metro terminal at Marsden Park, some 13km short of Richmond? It is disastrous fibre-to-the-node thinking writ large!

The current Government's plan is ill-conceived, ill-thought-out, and contemptuous of western Sydney.
It must be rejected.

What Just Happened?

2016's final sitting of Federal Parliament was dominated by skirmishes over three pieces of legislation which the public understood virtually nothing about: the so called "backpacker tax", and the Government's double-dissolution-triggering Registered Organisations and ABCC bills. I consider myself reasonably well-informed, and even I didn't know what was going on. I decided to find out what happened so you don't have to.


1. The Backpacker Tax
The discussion about the "backpacker tax" is somewhat misleading because there is no specific tax on backpackers in the Tax Acts you can point to. Unlike the tax on edible chocolate body paint.

Got your refund right here ;)

Previously, people on working holiday visas (a technical term which has been rendered into the shorthand "backpackers") could be treated as residents for tax purposes if they passed one of the standard tests for residency - for example, if they were in Australia for more than six months of the year. This allowed backpackers to access the tax-free threshold and low income tax offset, which significantly reduced the tax paid by people on these visas.

In the 2015 Federal Budget, the Government - the one which is still in power - declared that people on these visas would specifically be treated as non-residents regardless of the length of their stay, removing their access to the tax-free threshold and taxing them at 32.5% of their first dollar as happens with other non-residents. For all of the spin put out by the Government throwing blame for the chaos of last week every which way by themselves, let me just quote then-Treasurer Joe Hockey on Budget Night:

And anyone on a working holiday in Australia will have to pay tax from their first dollar earned, rather than enjoying a tax‑free threshold of nearly $20,000. This will save the Budget $540 million.

The whole messy saga was a problem of the Government's own making with farmers and Nationals MPs concerned that the increased tax rate would discourage backpackers from providing the cheap labour rural Australia relies upon.

Instead we were treated to rolling politics-as-theatre coverage of the standoff which was wholly deficient for the purposes of figuring out which tax rate should be adopted. All of this obscured what actually happened: the Government working with the Greens to repeal its own budgetary measures.

For the record, it appears that the adoption of any of the 19%, 15%, 13% or 10.5% positions advocated for during the debate would have left backpackers better off in Australia for tax purposes compared to similar economies. Coverage of the tax debate completely ignored the systemic exploitation and poor working conditions that backpackers are subjected to in farm-based employment, but we should be used to our intrepid reporters being unable to consider more than one issue at a time.


2. The Registered Organisations Bill
The Registered Organisations Bill, from what I can tell, aims to impose upon union officeholders obligations akin to what the Corporations Act imposes on company directors, as well as attempting to strengthen financial management and disclosure obligations.

It sets out quite significant penalties for conduct such as "recklessly or dishonestly failing to act in the best interests of the organisation," which may incur fines of $360,000 and/or 5 years' imprisonment.

Again in my view, the standards to which unions will now be held is no greater than what is already widely agreed to be good practice. Some avenues for deeper analysis may include whether union officials sanctioned under the new regime will have access to equivalent defences available to company directors such as reliance on others in good faith (this is available) and the business judgement rule (which may not be). Typically this opportunity was passed up for the much easier to digest narrative surrounding Nationals senators voting against the Government's gun restrictions.


3. The ABCC
The narrative surrounding the Australian Building and Construction Commission is far more complex, in part because it has been around for years and during that time it has remained shrouded in mystery. The most distinguishing feature of the ABCC, or its ALP-introduced successor, the Fair Work Building Commission, is that nobody - not in politics, not in the media, not in the general public - knows what it actually does.

According to its boosters, the ABCC is supposed to be "the tough cop on the beat" for the construction industry. This is a hackneyed phrase devoid of all meaning. Are there police who aren't tough? Is toughness a desirable trait in police over say, competence? Are the ABCC the police? (According to some people they're worse.) Are there tough cops around who aren't on the beat but are on the rhythm instead? The Government says that the ABCC will clean up the construction industry, but they have never to my knowledge said how this will be accomplished.

McNulty will clean things up (right after he cleans himself up)

However, Labor and the unions have done a similarly poor job of explaining what the ABCC does and why its reincarnation is a bad thing. Sure, the CFMEU has been eager to point to the fact that during the first iteration of the ABCC there was an increase in workplace accidents and deaths. Was this due to a covert war  the ABCC was waging on CFMEU officials? Nobody knows because that case was not made. The increase in site accidents implies correlation but no causation.

I decided to find out about the ABCC for myself. To understand what the ABCC actually does I took the bold, intrepid step of visiting their website, something no journalist has apparently ever bothered to do. Within about four minutes it became clear that what the ABCC actually does is try and curb the power of the CFMEU. That is its raison d'être, which it accomplishes by investigating and prosecuting contraventions of the Fair Work Act. It is fair to say that the CFMEU has been involved in a few of these.

Without delving into individual matters, most of the cases brought on by the ABCC/FWBC involve allegations of the CFMEU pressuring principals and contractors to implement union-preferred practices, or incidents where CFMEU officials overstep their boundaries on-site. There is a central theme in many of these cases where the CFMEU is accused of threatening to shut down sites if other parties don't take a union-friendly approach.

The ABCC/FWBC also investigates and brings actions against employers who use sham contracting arrangements to avoid paying their workers (who are actually employees) their legal entitlements. Designating employees as contractor is a ploy to avoid paying things like superannuation and overtime.

Of the 222 cases listed on the ABCC and FWBC websites, 7 were proceedings brought against employers for sham contracting arrangements (3%). In comparison 60 were referred to as "coercion" (abuse of power) cases brought against the CFMEU (27%) and 20 were "right of entry" (officials doing the wrong thing) cases (20%).

If the CFMEU appears to have a particularly troubled relationship with the Fair Work Act, be assured that it is because the current industrial relations regime is designed this way. In the case of United Collieries v CFMEU [2006] FCA 904, Justice Gyles of the Federal Court said in relation to workplace bargaining under the former Workplace Relations Act that

"The Act contemplates that negotiations during the bargaining period will be a power struggle with no holds barred, within limits."

The Fair Work Act is what happens when the limits of that power struggle are defined by a committee of lawyers, academics and economists, the very people who are unlikely to ever find themselves in such a conflict. It reflects the Rudd and Gillard anxieties about being depicted as anti-business, and accordingly is not what you would call a pro-worker piece of legislation.

The point is not to demonise the CFMEU, the ABCC or the Fair Work Act. Nor is the point to condone any of the reprehensible acts committed by some CFMEU officials which need to be condemned, nor to downplay the importance of having a strong union in the least skilled and most dangerous industries.

What I have tried to demonstrate here is that to accurately judge the passage of the ABCC bill, you need more information than what has been made available to you. All that you have is the most superficial tallying of "wins" and "losses", and the passage of the ABCC legislation was widely reported as a "win" for Malcolm Turnbull.

This single-minded focus in the media on whether the Government or Opposition has "won" or "lost" each procedural matter resembles nothing so much as the neurotic Colonel Cathcart from the novel Catch-22:

Colonel Cathcart lived by his wits in an unstable, arithmetical world of black eyes and feathers in his cap, of overwhelming imaginary triumphs and catastrophic imaginary defeats. He oscillated hourly between anguish and exhilaration, multiplying fantastically the grandeur of his victories and exaggerating tragically the seriousness of his defeats. 

One of the notable features of Colonel Cathcart's system of black eyes and feathers-in-cap is that so many things are viewed as victories and defeats simultaneously due to someone else having a different opinion. This was reflected in the reportage of the ABCC bill, so that while those latte lefties at Fairfax duly reported the bill's passage as a feather in the Government's cap, the Murdoch press commentators Judith Sloan and Grace Collier wrote about how it was really a black eye for the Government.


4. What is to be done?
In this age of fake news, click-bait and fact-checking, I don't have a prescription for how to fix this kind of thing. While nostalgia may tempt us to believe otherwise, network news and current affairs have always been garbage. There are limits to the resources available to long form and investigative journalism.

But is it getting worse? Consider this puff piece on Minister for Employment Michaelia Cash which completely omits any reference to a recent Senate enquiry condemning the Government's approach to public sector workplace bargaining, which has dragged on for over three years.

Consider whatever the hell this thing on George Christensen is.

*vomit*

Consider that the ALP got tired of the Murdoch press ragging on it so it made its own news site (it isn't great).

Consider the fate of QandA, which has steadily declined since the magic of its 100th episode.

In this post-fact, post-truth world, it seems there is only name you can trust: DEEP BRENDOG.

It's The Economics, Stupid!

While everyone's attention has been diverted to more newsworthy events including the election of an erratic, slightly unhinged misogynist to the top job (no, not Mark Latham) or the appalling state of Australian cricket, the Federal Government has been quietly and consistently making a hash of managing the national economy.

This post has more graphs and denser economic theories than a Greg Jericho column.
Think that's impossible? Just watch!

Two recent revelations are illustrative of the Treasurer's inability to understand high school level economics. First, wages growth in Australia is the now at the lowest level recorded, a miserable 1.9%. Secondly and related to the first point, the Government is shortly expected to announce a worsening of its budget position in the order of some $24 billion in the mid-year budget update due early next month.

The relation between low wages growth and the worsening budget deficit becomes apparent simply by looking at the budget papers.

This table shows that the taxes on individuals are supposed to bring in $196 billion, $69 billion (nice) is to be collected from companies, and $104 billion from the GST and other indirect taxes. Combined with assorted smaller tax receipts and various sources of Commonwealth revenue, the government has budgeted for a total revenue collection of around $416 billion in the current year.

On the flip side, the budget papers include expenditure of around $450 billion, which you will probably notice is larger than the expected revenue figure this year. The difference between expenditure and revenue gives us the 2017 budget deficit figure of around $34 billion.

Now, the intent of this post is not to argue the pros or cons of any particular item of government expenditure. If I did intend to do that, I would be pointing out that the Commonwealth subsidies to private schools this year cost taxpayers $10.5 billion, which is more than the funding provided to universities ($9.5 billion). But nobody is pointing that out right now.

Nor is this post aimed at exposing the wretched hypocrisy of people complaining about young people being are welfare cheats and a drain on society by noting that "income support for seniors" is the largest single-purpose use of funds in the entire budget at $45.3 billion (only GST-funded grants to the states is bigger). But nobody is reminding you about the high number of aged pension recipients structuring their affairs to avoid means testing.

And this isn't a piece on how deficits are bad and how we need to return the budget to surplus yesterday. In theory, a budget surplus means that the government has collected more money from households and businesses than it has returned to the economy via spending. This actually reduces the size of the economy by removing money from circulation. In practice, the budget is likely to return to a surplus position when people have higher disposable incomes because their economic circumstances have improved.

This is what the Treasurer was hoping for. As set out above, just about half of the government's total revenue take is collected from individuals. Because we have a progressive tax system (people earning more pay comparatively more tax), as people's incomes go up, so does the proportion of tax on their income. This is called bracket creep, and it is a mechanism treasurers have relied on for decades to reliably increase their revenue.

Take for example the change to the second-highest bracket threshold in the last budget, from $80,000 to $87,000. If their wage grew by 4.5% per year as may was common during the boom years of the mid-2000s, they could expect to move up to the new $87,000 tax bracket within 2 years. With the current growth rate of 1.9%, the move from $80,000 to $87,000 would now take 5 years. Treasury did not budget for this, and it's hurting their coffers.

This explains the connection between our historically low rate of wage increases and the deteriorating budget position. In order to see the link between these problems and the government's economic policies, we need to understand some fundamental concepts in macroeconomics.

The Marginal Propensity to Consume and the Multiplier
Imagine I put $1000 in your bank account, right now, in addition to your current balance. No questions asked. What do you do with it? If you're reading this, you may use it for your normal living expenses because you have bills to pay. Or you might buy yourself something nice for yourself which you ordinarily wouldn't. You might do your grocery shopping that week at Harris Farm instead of Aldi. Would you save any of it?

CHEESE FOR THE BOURGEOISIE

Now imagine that I put an extra $1000 in Malcolm Turnbull's bank account. Malcolm Turnbull is one of our country's richest men. Does he spend any of it? How much of that $1000 does he save? My guess is that he will save more of that $1000 than you, perhaps keeping it in a Mossack Fonseca bank account for future investment in a speculative Russian mining venture.

The percentage spent and the percentage saved of the extra money gives you the fancily named "marginal propensity to consume" and "marginal propensity to save." All it means is that, for each extra dollar of disposable income someone receives, how much of it is spent and how much of it is saved. The trend is that people with lower disposable incomes have a higher marginal propensity to consume, and people with higher incomes have a higher marginal propensity to save, for the simple reason that those on lower incomes need to spend a higher proportion of their income on immediate needs such as food, housing or transport costs.

This sort of leads to the multiplier. If you go and spend some money in the economy (in accordance with your marginal propensity to consume), it doesn't just stop there, the recipient spends in amount in proportion with their marginal propensity to consume. The money that gets spent in the retail sector for example allows shop owners to afford to hire staff, who spend their wages in other shops, who in turn can afford to hire people, who spend their wages, and so on and so forth. At each step the business owner may receive a portion as profit, some of which is taxed, some of which may be spent on capital equipment, some of which may be spent in other shops. The number of times money circulates throughout this system is called the multiplier.

Aggregate demand and the four drivers of economic activity
One of the standard models of how national economies work is the four-sector model. It looks complicated

Okay it's a little complicated

but it can be broken down into showing that there are four drivers of economic activity which determine the size of an economy. These are:

• Consumption (like I just talked about)
• Investment
• Government spending
• The balance of eXports (money we receive for sending goods/service overseas) versus our iMports (money we send away for goods/services produced overseas)

The sum total of these is called our "aggregate demand" which is the economic measurement for everything which is produced in the economy. Economists have a fancy looking equation for this

AD = C + I + G + (X-M)

but all you really need to know for now is that the size of the economy is determined by the sum of the four things I just listed.

Of these four, the most important in the short run is consumption. The most important in the long run is consumption as well. Investment is important in the long run as well because it's how we increase the productive capacity of the economy but John Maynard Keynes said "in the long run we're all dead" so for now we're just dealing with consumption.

J.M.K. lives for the present!

For a practical example of how increasing consumption expenditure benefits the economy in the short term, remember how at the height of the financial crisis in 2009 how Kevin Rudd gave everyone $900?

It also gave us the title of the 2009 Wharf Revue, back when it was still funny

Remember how thousands of people went and spent that money at Harvey Norman, keeping them and their terrible ads in existence for years to come? Remember how we were encouraged to spend up, and most of us did? Do you also remember how Australia avoided a recession during the GFC and emerged in a much stronger fiscal position compared to the rest of the world? That was basically the applied version of these economic concepts: give a bunch of people with higher marginal propensities to consume (the poor outnumber the rich) some money to spend, it circulates throughout the economy a few times and the spending will promote economic growth.

It's not that we should repeat this tactic now. What the Pennies from Kevin illustrated is that an increase in government spending and consumption - the G and the C in our equation - is effective in increasing the size of the economy.

WON'T SOMEBODY PLEASE STOP THE ECONOMICS!!

If policies which increase government spending and consumption also increase the size of the economy, it follows that policies which decrease the government spending and consumption components of the economy have the effect of reducing economic growth.

This is exactly what the current government has done.

The current government has cut the level of support given to low income earners.

It has famously attacked the young by reducing their access to payments, lowering the threshold at which HELP repayments must be made and encouraging the proliferation of predatory poor quality private education providers.

The Government has cut the level of support given to the unemployed and placed more onerous restrictions on the access the unemployed have to this support.

All of these measures make life harder for low income families, young people and the unemployed, precisely the people with the lowest disposable income and the highest propensities to consume. Even if there is a proportion of "waste" in the system, these people spend nearly all of their income! In the economy! On food! And clothes, and study materials, and things to help them prepare for their next job interview. Everything we give to these people is put back into the economy, keeping businesses profitable and increasing the government's tax take. The easiest way to lift our economic growth is to put more dollars into the bank accounts of the poorest either directly or by making it easier for them to find employment.

The easiest way to stifle economic growth is to do precisely what the government has done. It is economic vandalism.

While I'm speaking about employment, it is important to acknowledge that in our current setup, everyone who isn't an *actual* socialist accepts that a certain level of unemployment is a design feature of the system. This may be variously called the "natural" or, if you're a jerk, the "non-accelerating inflation" rate of unemployment, and is considered to be somewhere in the vicinity of 4 - 4.5% at the moment.

The underlying theory as I understand it is something along these lines: imagine if everyone had a job. The only way to entice anyone to move jobs would be to offer them increased wages, But then competing businesses and that person's current employer would have to increase wages to match the new market level. Businesses couldn't afford not to match because there is no spare labour capacity in the economy. The overall increase in wages would be good for people at first, but with everyone having more money the price for everything would go up, leading to an inflationary spiral such that the real value of people's money decreases.

In our current setup then the Reserve Bank manages the supply of money in the economy to prevent high inflation, and we maintain some level of unemployment to effectively act as spare capacity for businesses to draw upon. This being the case, we can mitigate the harmful effects of this designed unemployment by (a) promoting policies to ensure that this is short-term rather than long-term unemployment and (b) having a decent safety net which ensures that the unemployed can still afford some level of consumption and as shown above, contribute to the economy. (We can also (c) make sure everyone has a decent standard of living because it's the right thing to do, the morally right thing and economically right thing here coincide.)

As an example of just how badly the Government is handling the economy, the Treasurer in an interview with the ABC on 21 November acknowledged that the historically low wage growth of 1.9% was the largest contributor to the increase in the deficit. Why then is the Government offering hundreds of thousands of its employees a barely larger pay increase of 2% which doesn't factor in the 0% wage growth in many public sector agencies since July 2013. Public sector enterprise bargaining has been so poorly conducted that the Senate is holding an inquiry on the matter. The very government which is complaining about low wages turns around and offers people low wages! It makes zero sense, and the multiplier effect means any increase in wages would be largely recouped from increased economic activity and tax collections.

I have already shown how the Government's centrepiece economic policy to generate "jobs and growth" was doomed to fail at the outset and will do nothing except lower the taxes paid by large foreign companies at the expense of individual taxpayers. I have also already shown that the Government's failure to reduce or remove the capital gains tax discount harms both housing affordability for young people and the budget bottom line.

There can be no question now that the Government has forfeited any claim it has to be effective economic managers. At every opportunity presented to them, both the previous and now the current Treasurer have managed to make precisely the wrong decision when it comes to increasing economic growth and living standards in this country. I said some disparaging things about Wayne Swan on this page in 2012 and I stand by that assessment, but he was surely a giant in comparison to the current mob.

Basic economics shows us what we need to do to fix this mess. Pray we get the opportunity soon.

The Big Con (Budget Special)

THE BIG CON

In case you missed it, the centrepiece of the recent election campaign launch Federal Budget was a tax cut package for multinational corporations. Verdict? A stinky budget.

Even he knows it stinks

Now there's a bit more to it than that, and I apologise profusely in advance for what I'm about to do, but nobody has really explained why it is a stinky budget.

So, the tax cut itself. Firstly, businesses receive a tax cut in order of turnover - first $10 million, then $25 million and eventually up to $1 billion. Then, all businesses receive a tax cut as the corporate rate of tax is progressively reduced down to 25%.

This post is going to have more numbers and be denser than a First Dog on the Moon comic.
Sorry not sorry.

The big con is that this is being advertised as a tax cut for small business. Because of something called DIVIDEND IMPUTATION, small business proprietors will end up paying the same rate of tax on their profits.

Imputation, huh?

Before 1987, businesses paid tax on profits and any dividends distributed to shareholders were also taxed at that level as marginal income. In this system, if a rich salary earner such as Malcolm Turnbull also ran a business and made $100 profit, here's how he would be taxed on those profits:

Company
Profits	100
Company Tax	30
Net Profit After Tax	70

A $70 dividend is distributed, on which poor Malcolm would pay thusly:

Shareholder
Dividend	70
Tax payable (45%)	31

Total tax take on that $100 company profit ($30 from company + $31 from shareholder) = $61.

Even a Tax Emperor like myself thinks a 61% tax rate is a bit steep, especially considering that the corporate rate doesn't discriminate between small and large turnover businesses. So Hawkie changed things up.

HAWKIE!

Here's how the previous example would play out under the current system of dividend imputation:

Company
Profits	100
Company Tax	30
Net Profit After Tax	70

Shareholder
Franked dividend	70
Imputation credit	30
Taxable income	100
Tax payable (45%)	45
Credit for tax already paid by company	30
Tax payable	15

Total tax collection ($30 from company + $15 from shareholder) = $45, which just so happens to match the shareholder's marginal rate of tax.

Now let's plug in the proposed budget changes and see how it would play out with the proposed 25% company tax rate:

Company
Profits	100
Company Tax	25
Net Profit After Tax	75

Shareholder
Franked dividend	75
Imputation credit	25
Taxable income	100
Tax payable (45%)	45
Credit for tax already paid by company	25
Tax payable	20

Total tax collection ($25 company + $20 shareholder) = $45

WHOA IT'S THE SAME

Surprised?

Tax Caveat Mumbo Jumbo
The cut in the tax rate does make it more tax-effective for businesses to reinvest their profits in the business (instead of distributing them to owners), but people need to eat and they will access their profits sometime. I also haven't modelled things like trading trust distributions (an opportunity to split income), loans to shareholders and returns of capital because I NEED TO LIVE.

The point is that, as the latter two examples show, any reduction in taxes paid by business will be made up by the corresponding increase in tax paid at the shareholder level.

Unless
Unless you're a foreign shareholder. Foreign residents don't get access to franking credits, and withholding tax at the corporate rate may be taken from their dividends, but they don't pay the top up tax of 15 or 20% shown in the imputation examples.

What Scott Morrison wants is for large foreign owned businesses and multinationals including NewsCorp, Apple, Chevron and Microsoft to pay less tax (if that's even possible?). Australians, on the other hand, will pay the same amount of tax, and SloMo is banking on you not realising it.

Does it matter?
"Budget tax cut is for foreigners, not you" is a pretty short post, so I thought I would write more about whether the claimed benefits of a lower corporate tax rate are likely to eventuate. Here's a hint: they aren't.

The sole argument that has or indeed can be raised for reducing the corporate tax rate is that it will "encourage foreign investment", yes, this from a government which has restricted foreign ownership of housing and agricultural land.

But there's no actual evidence that reducing the corporate tax rate to 25% would increase foreign investment. Foreign investment is driven by other factors such as demand within and without of the target economy, demography and commodity prices. There is no correlation between the corporate tax rate and foreign investment levels. And further, so many large corporates don't even pay 30% tax at the moment that the same budget mandated for a creatively named ATO taskforce to go after these people.

TAX FORCE ASSEMBLE

30%, 25%, whatever per cent of zero you choose is still zero, so how will lowering the tax rate improve collection?

On the flip side, think about what multinational corporations are paying for with the corporate taxes they do pay. A large, highly wealthy (by global standards) consumer base to sell to which enjoys some of the highest living standards in the world. The infrastructure which makes their products available across a geographically sparse continent. A highly educated workforce which can be tasked to drive innovation and improvements in productivity.

Instead, the 2016 budget prioritises the interests of Delaware, Redmond, Cupertino and Singapore over doing what's best for Australia. There is zero evidence that this is anything less than a con job. It is in every sense a budget worthy of Joe Hockey.
Reject it.

Malcolm Deep-Sixed

Malcolm Turnbull is right. It is an exciting time to be alive. Tony Abbott has been white-anting Malcolm's tenuous grip on power, then he likely leaked some classified documents, so Turnbull's people have hit back with the Abbott-Credlin affair claim, which is now being vehemently denied. Meanwhile, the LNP backbench is supporting the bullying of gay students as a way to astroturf against the marriage equality plebiscite that the High Court said we do not need. All of this swirling before our very eyes in the most public of matters. The Coalition is in chaos.

Surprisingly, the catalyst for the current chaos is that most captivating and inspiring human endeavours: taxation policy, an area in which I clearly have no particular skills or interests.

You see, back when the government was riding high in the polls, some of the Coalition bright sparks decided that raising the GST rate might be a good idea because... I don't know. I don't really have an explanation why the same people who profess a love for smaller government and who ran the 2013 election on a platform of repealing a "great big new tax on everything" decided that trying to impose an even greater, bigger new tax on everything was a good idea.

There was an expectedly little amount of support for raising the GST while other fairer and more targeted measures of revenue raising went unexplored. With their single idea shot down however, the Coalition threw its hands up and looked into further tax reform the same way Ned Flanders' parents looked into discipline - they tried nothing and were all out of ideas.

It is at this time that the Coalition's policy of being "sitting ducks" led to them being blindsided and broadsided by that famous admiral of good politicking... Bill Shorten?

While Malcolm Turnbull was twiddling is thumbs like Homer Simpson waiting for a meteorite, the ALP surprised everyone with a coherent and rational policy restricting negative gearing to new houses and reducing the CGT discount.

What does this mean? In a nutshell, negative gearing involves borrowing to invest in property such that the rental income received is less than your rental expenses. This creates a tax loss which can be used to reduce tax paid on other sources of income such as wages.

In Australia, individuals making a capital gain on the sale of an investment property are only taxed on 50% of the capital gain they make. This is the "CGT discount."

It is presently a viable investment strategy in Australia to negatively gear your investment in property (ie make a rental loss) to take advantage of that property's capital growth which is taxed at a reduced rate upon sale. You're effectively betting that the profit you make on the sale of the property at a future point is enough to offset the rental losses you make in the interim (which have the present benefit of reducing your tax bill).

TAX MAN

This tax policy setting encourages speculative investment in property, creating the kind of capital growth necessary for the investment strategy to be viable. It also artificially inflates the value of housing and supports some absurd levels of price increases in places like Sydney.

The proposed change to negative gearing applies restricts it to new properties from 2017 and raises $32 billion over ten years. This is a great policy which will make it easier for young people to eventually purchase their own houses. It's going to take a good deal speculative investment out of the housing market. It's such a good policy that I didn't believe the ALP came up with it.

(Compare the tax policy to Labor's education policy, titled "Your Child, Our Future." I don't know what the policy means. I don't know what it accomplishes. I think it means restoring the planned Gonski funding, but I'm not entirely sure. All the hallmarks of a policy the ALP came up with itself.)

The fact is that The Greens actually came up with the negative gearing reforms before the 2015 budget (the CGT discount appears to be an ALP original concept, albeit one that I've talked about for years, but I repeat myself). But no matter, good policy is good policy. The smart move for the government was to itself copy what is widely regarded as a sound policy proposal. Alternatively, they could have attacked the plan by saying that the policy doesn't go too far enough, and proposing to legislate a more forceful solution. After all, the Coalition has spent years talking up how much repair the federal finances need.

This in fact was the initial response from Turnbull and Scott Morrison to Labor's policy announcement. It was said that Labor's proposal didn't raise enough money, and maybe that's true. After all, government net debt has increased from $161.1 billion in 2013 (under the Rudd government) to $254.8 billion as of a couple of months ago. Indeed, the Mid Year Economic and Fiscal Outlook projects that government net debt will increase to $300 billion in 3 years. In such circumstances, maybe the CGT discount should be lower, and maybe negative gearing should be removed from all houses.

Alas, the housing industry made known its displeasure, and Malcolm decided against coming up with a more effective policy than the ALP. Instead, the Coalition came up with a series of increasingly desperate and farfetched reasons to pour cold water on what is widely regarded as a sound proposal. In the process, Turnbull and Morrison have absolutely shattered whatever was left of their credibility handling economic matters.

• Scare Campaign No. 1: "The housing market will crash" WRONG

The housing market won't crash because there is strong underlying demand in major population centres. The proposed reforms discourage speculative investment, but the continued availability of cheap credit, growing population and infrastructure in major urban centres will support prices for some time. Prices are unlikely to rise at the insane rate of the last five years, which is good for young prospective buyers, but the market won't crash, which is good for owners and the building industry.

• Scare Campaign No. 2: "House prices will go up" WRONG-ISH

This is what Kelly O'Dwyer said after completely misreading the LNP talking points. It is indeed possible that in the run up to say July 2017, speculators cause a short-term rise in the price of existing dwellings to take advantage of the grandfathering provisions. But then they fall. Suffice to say, this strategy was quickly swept under the rug.

• Scare Campaign No. 3: "Businesses will stop investing" SO WRONG IT HURTS

The last, desperate ploy tried on by Malcolm was to try and link the removal of negative gearing of housing to businesses no longer negatively gearing their business assets. This is a ridiculously dumb argument because companies don't negatively gear as an investment strategy because they can't take advantage of the CGT discount. When Malcolm is talking about businesses "negatively gearing," he actually means "making a fucking loss." That's an insane business strategy and a testament to what kind of a shambles the government is in.

Remember why this issue became prominent in the first place. The proposed reforms are a means of addressing the housing market, which many young people feel locked out of. It's also a means of addressing a structural problem in the budget.

But what would the Coalition know about economic management? Since taking power, the Liberal government has added $90 billion to government net debt. This is a debt-and-deficit disaster of their own making.

This is a government which wanted to charge for doctor appointments, but didn't want to fix negative gearing or other tax lurks for the wealthy.

This is a government which, stealing a policy idea directly from the Simpsons, introduced a "temporary budget repair levy" which remains in effect for two years. Yet they won't fix negative gearing.

The Simpsons called it a "temporary refund adjustment."

This is a government which wanted to have a greater, bigger new 15% GST rate on everything, but won't cut subsidies to multinational fossil fuel producers.

Even when the government was contemplating measures to raise revenue, it was simultaneously looking to fritter that money away. Scott Morrison, a man who somehow makes Joe Hockey look like Ross Gittins, proposed that the extra revenue from an increased GST be handed back to wealthier Australians by making higher income tax brackets kick in later. This would be done ostensibly to reduce "bracket creep."

The problem with this proposal is that bracket creep is absolutely not a problem right now. Inflation has stalled, wages have stalled, people's incomes are growing at one of the slowest rates in history. Bracket creep isn't the problem, the government having zero clue and zero credibility on economic management is the problem.

The policies the government wants to enact are garbage and won't be tolerated by the public. The policies they should enact would make the economy fairer and won't be tolerated by LNP donors. Malcolm Turnbull has this painted himself into a corner. It has nothing to offer except empty platitudes which sound "exciting" or "agile," while the government remains the complete opposite.

AGILE

In fields such economics, health, infrastructure, industry, communications - the government lacks any kind of accomplishment.

I guess we're getting some submarines we probably don't need, but even the government's own members can't agree on how these should be acquired.

Surely Malcolm is the right man to steer the government through this maelstrom. After all, so many people on the left professed to like Malcolm despite the party he belongs to.

Your trust is misplaced. Malcolm Turnbull is a loser. He has a long history of losing. He lost the republic debate. He lost as opposition leader. He lost the ability to improve the NBN. He lost the argument to legislate marriage equality in his own party room. He has lost all claim to being a good economic manager.

The L is for Loser

For reasons which include more luck than skill, he may yet hold on at the coming election. But he has lost the fig-leaf of competence and his veneer of authority. All that remains is a run-of-the-mill conman, a smooth talker in a leather jacket.