Discussing the Australian federal election on July 2 ( Saturday), 2016 - JKHC-NEWS(2)

       Discussing the Australian federal election on July 2

                                     ( Saturday ), 2016

It is again time for Australians to vote in a federal election. It has been a rather frequent affair during the past 5 years. This reflects on the less than ideal political situation in the Australian political scene without a clear majority governing political party. To begin with there is no obvious better choice in terms of a better governing political team on offer.

Nevertheless, voters have to make a pick somehow.

What is a good government ? In my humble opinion, it is one that is fair according to generally accepted standards ( as set out in the United Nations Declaration on Human Rights – see my essay on Universal Standards here :-   http://jkhcforum.blogspot.com.au/2015/12/universal-standards-brief-visit-by-jkhc.html ) and reasonably efficient. In other words, it must not demand from the people more sacrifice than necessary for the achievement of the common goals within a democratic framework. ( See “ Social Contract “ in Wikipedia here :-  https://en.wikipedia.org/wiki/The_Social_Contract )

To allow the reader to assess whether or not my comments are biased in my own favour  I must declare my own background. I am a retiree with no political affiliation and mainly live on interest income from my own savings and investment income from shares in public companies. I am not on any kind of government subsidies or welfare except Medicare benefits. Having said that we can move on to the main discussion.

(A) Principles relating to public finance or government spending

To assess the aptitude or appropriateness of government spending voters need to learn some basic principles relating to public expenditure. The following is extracted from my own economic essay :- “ 2008 Economic & Financial Tsunami – An Overview for the Lay Person “ in chapter (6) at page 29. ( my full essay can be seen at this link :-  https://docs.google.com/viewer?a=v&pid=sites&srcid=ZGVmYXVsdGRvbWFpbnxqa2hjbGlmZXN0eWxlfGd4OjY4MWY3YTM5ZDFmY2NmZTU  )

“  ( 6 ) Basic working principles of public or government finance

Governments spend a lot of taxpayers' money in recurrent expenses as well as capital or infrastructure projects. The government budget is of direct relevance to our financial position and that of society as a whole. Citizens are very often asked to pay their share of these spending through the increase of personal income tax or other indirect taxes such as sales tax or GST ( goods & services tax ). Incorrect ways of spending public funds will both do great damages to the economy and will result in great injustice.

Just as in accounting there are some basic philosophies involved in this specialized branch of economics. Let us have a brief look a few more important ones. Before doing so, however, we need to learn about some special characteristics of public finance. The concepts of external economies and diseconomies very often come up in connection with government spending because the government is responsible for many branches of social services. Here the terms economies and diseconomies refer the conditions and effects and not systems as such. A particular economic activity is said to produce an external economy when it can create benefits for other people who are not the intended target of that activity. Take the radio airwave for example. If the government sets up a radio station for its military service everyone else can also enjoy its programs without extra costs on the government. Again, if the government constructs a freeway to make it more convenient for citizens in the outlying areas to get into the city the freeway will also benefit those living along its route. The improved convenience will also lead to the increase in the value of properties in its vicinity. These are extra benefits to be reaped by society. On the other hand, some economic activities can create external diseconomies. For example, an electric power station that runs on coal will give rise to air pollution and will adversely affect the health of citizens living in its vicinity. Besides the moral issue the costs of the resultant long-term health care problems will be ultimately borne by society while the electric company simply makes the profit without bearing the full social costs. Nowadays, social accounting is becoming popular in some countries to find out the ultimate costs of to society. The fundamental lessons to be learned on these special characteristics of public projects are three fold. First, the decision to go ahead with such projects must be based not just on immediate or direct costs and benefits but on all external economies and diseconomies. Secondly, many projects with such special characteristics are very often more suited to public sector management because profit is not the sole consideration for the government. Thirdly, if it is decided that it is more efficient for private corporations to handle such projects strict control must be in place to ensure that costs of external diseconomies if any must be paid for by the private enterprise undertaking the project. Otherwise, corporate greed will again lead to some social costs being passed on by the private enterprise to the taxpayer. However, it must also be borne in mind that others things being equal first consideration should be given to allowing the private sector to take up the project under a market oriented economy to give priority to economic efficiency. The existing size of the public sector must also be considered so as to keep down government's share in the total economy to a reasonable proportion such as below 20 % of GDP ( gross domestic product ).

Very often there is some dilemma facing government in connection with the operation of many public services such as health care and social welfare. How much should the government charge citizens for using such services.  If they are completely free then such services may be abused by those who may not really need them. Thus, it will lead to a waste of precious economic resources. On the other hand, if the charges are too expensive it will be unfair to the underprivileged sector of society who may not be able to afford them thus creating a burden on the poor. Due to the special characteristics of such essential services the strict rules of the price system ( or money vote and by supply and demand ) under capitalism cannot work properly. Here again we encounter situations that cannot be satisfactorily handled by a strict application of the price system ( price to be determined freely by supply and demand ) which is considered to be a sacred institution under capitalism. So, economists have come up with two useful principles that are quite handy in such tricky situations. They are called the ability to pay and benefits received principles in public finance. These two principles are not mutually exclusive but can be used in a certain mix to achieve the optimum balance on fairness and efficient use of economic resources.

The “ ability to pay “ principle requires that due consideration must be given to any hardship that may affect the user's ability to pay for the essential services while the “ benefits received “ principles specifies that users have the basic obligation to pay for any services they receive unless special circumstances warrant otherwise. Applying the above principles to use of the emergency ward of public hospitals an appropriate way to

strike a balance between fairness and efficient use of the emergency facilities would be to charge a fee that will deter non-urgent users ( benefits received principle ) but the charge can be waived by the health authority or borne by the social welfare department in case of citizens already on the welfare system ( ability to pay principle ).

The government's budget can be used very effectively to achieve many economic goals such as creating employment ( through fiscal spending ), redistribution of income on a more equitable basis ( through taxation ), keeping down the inflation rate by a surplus budget ( withdrawing more resources from the economy than putting back into it ) and stimulating consumption in the private sector through a deficit budget ( injecting more into the economy than withdrawing from it ). There is usually no serious problem with a surplus budget except public criticism against the government for not taking better care of the underprivileged sector. However, if a surplus budget is called for to dampen an over heated economy by withdrawing resources from it the foregoing criticism will not stand. On the other hand, there can be a lot of controversy over a deficit budget 
( spending more than the amount of revenue raised during a financial year ). This is because a deficit must be properly funded. There are basically three way of funding a budget deficit. First, the government can simply print more money. This is the worst and most irresponsible way because putting more money into the economy without a corresponding increase in the production of goods and services will simply lead to a higher price inflation which is will lead to hardship for the fixed income earners and reduce the competitive edge of the country as compared to other trading partners. Unfortunately, irresponsible and dictatorial governments such as Zimbabwe are doing exactly that. It had led to a hyper-inflation rate of over 231,000,000% in Zimbabwe in July 2008 as compared to the previous year. The same tragic scenario also occurred in Germany after the First World War. The second way is to raise more taxes which will be a direct burden on the taxpayer and will be unpopular. The third way is to borrow from its citizens and outsiders ( other countries and international corporations ) by issuing government bonds ( national debt ).

There are some particularly tricky problems connected with the question of national debts. First and foremost, borrowing too much will subject the government to the influence of the creditors especially if these are foreign countries or international financing giant corporations. There is always the political consideration that these creditors can put undue pressure on the government to carry out policies to the advantage of the creditors. In extreme cases of excessive national debt the sovereignty of the national may be threatened. In the case of excessive national debt owed to its own citizens there will be a problem of adversely affecting a fair distribution of income. Those citizens who are most likely to buy government bonds are the rich people. Interest payment on bonds will ultimately be financed from taxation. This means that the rich will become richer at the expense of the poor. While only the rich receive interest payment on the government bonds they hold as investment every citizen ( even the less well off ) must be bear the tax burden in respect of that portion raised for the purpose of financing government bond interest payments. The rich are getting richer while the poor have less to spend due to a higher tax burden resulting from the need to pay interest on government bonds.

Then there is the problem with the intergeneration transfer of national debt burden. As many types of government bonds have very long maturity periods this will imply that a substantial amount of money raised by government bonds during the period of their issue will not be due for repayment until decades into the future. As mentioned above in section (4) in connection with the working of the financial market some US treasury bonds have up to 99 years before they are due for repayment. This created the situation of the national debt burden being transferred to future generations while the borrowed funds have been used in the current generation. Therefore, to be fair to future taxpayers long-term government bonds should only be issued to finance long-term infrastructure capital projects such as roads and bridges which have enduring benefits that will extend to future generations. This is the accounting principle of matching capital expenditure ( capital assets ) with long term loans ( or long term liability ) which is also applicable in social accounting to ensure fairness to all citizens. This treatment also reflects the benefits received principle in public finance. By the same token, short term government bonds should be issued to cover a short fall in revenue in a deficit budget for the increased current expenses of a revenue nature.

It will be recalled that there are four major economic goals for the government to achieve. To refresh the readers' memory, these are full employment, low inflation, healthy economic growth ( i.e. increase in living standards over time ) and a fair distribution of national income ( a major proportion of the population being in the average income and wealth bracket ). There is now an urgent fifth goal of environmental protection. The most ideal conditions for the the economy is full employment with an acceptably low rate of inflation together with a healthy rate of growth, little disparity between the rich and poor plus a good and sustainable environment. Unfortunately, some of these economic objectives are not totally compatible. For example, an increase in fiscal spending can create more employment but it will also lead to a higher rate of inflation. Similarly, to achieve a higher rate of growth in a shorter period of time involves higher levels of spending ( both in the public and private sectors ) that will lead to a higher rate of inflation. Of course, the ideal way to achieve a higher rate of economic growth without too much additional spending is to increase personal productivity ( working more efficiently ). Then, a more progressive rate of taxation will lead to a more equitable distribution of national income but it may sometimes reduce the incentive for more personal efforts. Political considerations will also come into play. For example, the best way for the world as a whole to achieve the most efficient use of resources is total free trade to promote competition and higher productivity or efficiency. However, trade unions in many countries where a democratic political system is at work will dictate minimum wage levels and working conditions which can make the work force of that country less competitive. The result is that trade unions in that country will call for more protection ( such as quotas or import tariff ) against cheap labour producer countries. The conflict arises because of different working and remuneration standards between the advanced and developing countries. This is a major problem confronting members of the WTO ( World Trade Organisation ) which was formed to promote free trade on a global basis ( or more popularly known as Globalisation ). A skilful and fine balance must be struck by a capable government to achieve reasonable progress in all five economic goals the latest one of which is environmental protection. ( The 5 objectives for economic policies are (1) Economic growth or betterment of living standards. (2) A fair and equitable distribution of national income and resources. (3) Full employment to give a fair go for everyone (4) Price stability with a tolerable rate of inflation to protect against erosion of spending power for the majority working ( fixed income ) class as well as retirees and the underprivileged class. (5) Environmental protection to ensure the sustainability for our environment which we must protect for our future generations. These economic goals very often works against one another so that a healthy balance must be maintained in the course of achieving them. )

Just one word of reminder regarding government spending in relation to the capitalistic rationale of “ big economy, small government “. In case it is necessary to support a declining economy this can be done fiscally by either increasing public spending or a reduction in taxes. Everything being equal the above capitalistic rationale warrants that cutting taxes should be given priority because the private section is supposed to be more efficient in deciding what to do with the extra money resulting from a tax cut. The public sector, on the other hand, is usually more wasteful because the government does not need to make a profit on its operations. Furthermore, a freedom of choice for the citizens to spend the extra cash from the tax cut in their own chosen way is consistent with the democratic principle.

Having acquainted themselves with the basic working principles of public finance the readers will now be more confident in assessing government policies proposed or taken to combat the E&F T 2008. Hopefully, everyone will become an informed citizen to have a say in these public policies through the vote which all citizens of a democratic country posses to make a difference towards the recovery process. “

Armed with the above basic knowledge to assess the proposals put forward by various candidates of the upcoming election let us try to be an informed voter and hopefully, not to follow the chaotic path of the Brexit referendum.

(B) General characteristics of the political parties running for government in this election

(a)        The incumbent Coalition government between the Liberal Party and the National Party  

Their historical political philosophy is mainly market oriented or capitalistic generally following the former UK iron lady Prime Minister - Margaret Thatcher ( Thatcherism ) way of thinking. She was former Australian PM, John Howard’s idol.

This philosophy is generally pro-business and pro middle class. It holds a conservative attitude towards public spending and tries to shy away from welfare as far as possible. The individual is supposed to work hard to take care of his or her own problems as far as possible. Of course, they not as yet dare to challenge the existing welfare arrangements though constant reviews are in place to tighten them. For example, they have declared a new policy of auditing pensioners’ assets to see if benefits have been over paid previously.

Their election campaign centres on :- (1) A viable economic plan to get out of the huge budget deficit (2) A safe border against illegal immigrants (3) A stable government (4) No changes to Medicare and education policy.

(b)        The Labour Party

Traditionally, its policy is to protect rights and welfare of the working class often willing to go into deficit spending to achieve their goals. It is socialistic in political philosophy meaning that resources should be fairly or evenly distributed even though the policies they adopt to achieve this end may discourage investment in turn adversely affect employment.

As the party needs the strong support from trade unions ( organized working class ) the party very often give favourable treatment to and sometimes even submit to questionable trade union demands. For example, in the latest Victorian fire fighters trade dispute the Victorian Labour government forced through pay and other reforms that favoured the trade union. So much so that State government’s minister resigned in protest of the manifestly unfair reforms. Although the unfair reforms had though passed through State government but verbal and even physical threats are still being dished out by various parties involved in the dispute.

Their election campaign centres on :- (1) Opposing tax reduction for businesses and cuts to medical and family benefits and university fees (2) protect workers’ right and benefits such as retaining weekend wage rates (3) No privatisation of Medicare (4) No reduction in family benefits or increases to university tuition fees.

(c) Green Party

The main party goal is to protect the environment. It also emphasises Australia’s moral obligation towards refugees and  champions the basic rights of the LGBT community. For example, it supports same sex marriage. They are also against globalisation which inevitably harms the environment.

Their campaign centres on :- (1) Protecting the environment such as conservation of the Great Barrier Reef (2) Supports same sex marriage (3) Abolition of all off-shore refugee detention camps.

(d) The independents

These cannot form a government in their own right but are very important because of the very close election resulting in a hung parliament ( no clear majority votes won by any single political party ). The independents and once the Green Party were invited to form a coalition government after a hung parliament was in place due to a very close election.

These independents have their own political calls particular to their constituents. Sometimes, they were able to trade their unique power balancing position to bargain for the realisation of their political goals. They were dubbed the “ king makers “ because of their unique power balancing position. This is clearly unhealthy but it happens at a close election.

(C) What influences my choice in this election

(a)        To start with I do not like the way the LiberaL/National Party Coalition forced this election by a double dissolution motion ( the double rejection by the Senate of their  proposed legislation for the establishment of the ABCC – Australian Building & Construction Commission which is not even in their election campaign anymore ). This is a dirty trip meant to force the law makers into accepting the Coalition’s proposal. The Coalition worked within the law in using the Double Dissolution mechanism but this cannot disguise the blackmail nature of the move. Blackmailing the people’s representatives is an insult to the people and democracy. It is too high handed and so causing the Coalition to lose their moral foothold. Having said that the reality of the huge budget deficit leaves me no choice but to opt for a more prudent fiscal management approach of the ruling Coalition. I will definitely settle the score with Liberal not only on the Double Dissolution but other issues such as the refugee policy as well in the next election. As regards the choice of the Coalition’s cut in spending I do agree that it reflects on the fact that Malcolm Turnbull and his team is slightly out of touch with the common people.

(b)        Under the current adverse world economic climate of China’s recession and now the Brexit turmoil the economy is of top priority. I am not saying that the Coalition is proposing a brilliant economic plan. It is nevertheless a more prudent or conservative one though at the expense of some slight socially undesirable measures on welfare. Labour on the other hand is running 4 years of higher deficits followed by the return to budget balance in the fifth year. To me, this will not be possible unless with increase in taxation or borrowing. We must not forget that the huge black hole in our budget deficit is mainly due to Labour’s imprudent spending. In particular, Kevin Rudd ‘s crazy spending spree set a very bad example on fiscal prudence. I can still vividly remember Rudd’s failed national heating insulation scheme of insulating one million homes in a year which could never be achieved. That led to the death of 4 apprentices who were not well trained enough to handle the job plus billions of dollars down the drain. The scheme was just a wild shot by an ambitious Rudd to become the only government in the free world to be saved from economic recession. To me, some slight recession is not intolerable during the 2008 GFC and there was no need to spend money for spending’s own sake).

(c)         With the Green Party which is on moral high ground most of the time their goals are not really that practical for Australia as a whole especially under the current economic climate.  However, they could be decisive should there be a hung parliament. In my humble opinion they may serve the country better while in opposition as a safe guard against excesses in the incumbent government with regard to the government’s policies.

(d)        The most important external issues that will influence my vote in this election are :- (1) China’s recession leading to another possible world economic down turn (2) Brexit leading to another world financial turmoil (3) General world movement of political opinions to the far right leading to anti-establishment protest votes in many countries.

(D) My predictions of the election results

Originally, I predicted a hung parliament with either the ruling Coalition with some independent forming a government. Less likely, a hung parliament with Labour and the Greens forming a ruling government but now with the Brexit, the Victorian fire fights dispute and the more recently conviction of the former NSW Labour member of parliament Obeid in his corruption case the Ruling Coalition may win out right though with a narrow majority. This is my bold prediction with all the available facts and my own gut feeling. We will get our answer in 3 to 4 days.

Please make your own informed choice in your voting. You must exercise your democratic right to vote and do your duty as an Australian citizen. If you hesitate to exercise your voting right just think of the thousands of freedom loving citizens worldwide who have suffered and even died to try to get the right to vote. Do not waste your precious vote. Just stand up and be counted as a proud Australian citizen.

JKHC

June 29 ( Wednesday ), 2016.