The incredible vanishing budget emergency

Budget emergency, M.I.A 

Anyone who’s been paying attention will know that The Australia Institute is not a supporter of the budget. It is unfair, inequitable and harshest to the most vulnerable in our community. The whole premise for this approach is the ‘budget emergency,’ first mentioned by Tony Abbott in his budget reply speech on 16th May last year. But what if the ‘budget emergency’ was a lie?

TAI never bought the line of the ‘budget emergency.’ We were first to come out and challenge that rhetoric, and we had hard, economic evidence on our side. We have consistently challenged the “emergency” line whenever it has been used, which it has been often, as a justification for a budget based on ideology rather than fairness

The type of language deployed so well by the Coalition in opposition has changed since Budget 2014. Where an illusion of crisis was central to justifying the overwhelmingly unpopular Commission of Audit (which TAI also challenged in Auditing the Auditors), and allowed Abbott to give the Gillard Government a kicking, the ‘crisis’ seems to have petered out. 

TAI ensured that respected organisations and journalists have long been questioning the justifications behind Budget 2014, and its impacts on our community. Those who supported the excuse behind it have either stopped referring to it, or acknowledged that it never really existed. 

We changed the dialogue on the ‘budget emergency’ and did proper analyses of the nation’s finances, how to improve them, and where the real issues where. 

We want to thank you for supporting the Australia Institute to get out on the front foot on this issue. Not only were we first in line to cast doubt on the ‘budget emergency’ we were able to back up our assumptions with research-based evidence. We could only do that thanks to the generous support of our donors. 

Your support of The Australia Institute meant that our response to the ‘budget emergency’ was heard all over the country. The veracity of the Government’s claims about the economy are now being widely questioned. It is your support of the Institute to do the ‘research that matters’ that made that happen. Our lead on the ‘budget emergency’ allowed us to set the debate around the Commission of Audit, even before it was released, and ensured that it was seen for what it was; an ideological position supported by a misleading claim about the state of the nation’s finances. Thank you. 

If you’re not already a donor, please consider supporting our work. We can only do what we do because of our independence, and what we do is increasingly important. Next time we celebrate a victory, you could be a part of it. After all, even Treasurer Joe Hockey has had to agree with us in the end.

Donations are tax-deductible, and mean real change in how issues important to you are reported, and even legislated.

Climate change taxing on coal?

The International Monetary Fund (IMF) released an interesting report this week calling for a 60 per cent tax on coal. According to the IMF, the tax is to reflect the environmental damage caused by burning coal, including the major environmental effects of climate change and air pollution.

The tax is actually levelled on the energy content of the coal, with the IMF suggesting $US3.30 per gigajoule of energy. By using Bureau of Resource and Energy Economics figures we can calculate how much such a tax would collect if it was implemented in Australia. If we include both the coal we consume in Australia and the coal we export, the government would collect just over $40 billion per year.

$40 billion per year would be enough to move the budget from deficit to surplus in just one year. In fact the budget deficit is projected to be $17 billion next financial year, so such a tax would mean a projected surplus of $23 billion.

If like almost all economists you understand that there is no budget emergency that requires a rapid move to surplus, the $40 billion could be used in other ways.

The IMF suggests that taxing activities considered negative to the community allows countries to reduce tax on activities they want to encourage.

For example Australia could use the $40 billion in new coal tax revenue to decrease income taxes. A $40 billion cut in income tax would lead to an average cut of just over $4,000 a year.

Is the IMF’s coal tax likely in Australia? While a tax on coal makes environmental, health and economic sense, it would run afoul of the politically powerful minerals lobby. To see how powerful they are you only need to look at this year’s federal budget. Against a backdrop of government rhetoric at fever pitch about making savings and pushing the budget back to surplus, the mining industry got a tax cut.

Even if the Government decided to inquire into such a tax, with its recent record of putting billionaires in charge of enquiries it’s not altogether unlikely to assign Gina Rinehart the job of reviewing a coal tax.

Dodgy modelling won’t mean more jobs

The Australia Institute has had some traction lately exposing dodgy economic modelling – what it means, how it’s done, and why we need to be very wary of it.

TAI’s had some great wins, but there’s still a way to go before we can let it too far out of our sights.

Many companies still use input-output modelling, which basically means that they can put in whatever they want to get out. These economic assessments are based on subjective assumptions such as what you think the price of coal might be in twenty years’ time, and how you value the forest you have to dig up to get that coal. 

The ABS and Productivity Commission have described such analyses as “biased” and “abused”, however industry relies on it appearing to increase the benefits of their proposals, and also to play down the costs.The Carmichael mine proposal in Queensland recently gained approval, in part at least, due to claims their mine would create 10000 jobs.  

Industry is notorious for talking up benefits of their projects, particularly about the number of jobs they will provide. To get these numbers, they include all sorts of additional employment. An example of the gas industry’s extraordinary jobs claims comes from an APPEA campaign called ‘our natural advantage’ in which they claim that the gas industry created 100,000 jobs in 2012. 

For this claim to be true the gas industry would be responsible for 58 per cent of all jobs growth in that year. According to the ABS the oil and gas industry only created an additional 9,372 jobs in 2012. This is significantly less than the industry’s claim of 100,000.

TAI will continue to expose dodgy modelling where we can. As always, if you’d like to see more work in any area, donate so we can do more!

The Institute is holding a workshop in Sydney on Monday detailing how to argue back against the dodgy economic claims of industry. TAI has pioneered research into the impacts of the mining expansion on Australia’s non-mining businesses and industries, consistently challenging misleading economic and jobs claims used by the industry. It will be a practical and interactive 2 hours with Richard Denniss, looking at the key economic concepts, facts and statistics relating to coal and gas mining in NSW. Get along if you can, bookings here.

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