Guy Beres

I tend to agree with Jennifer Hewitt when she suggests that it says something about the Rudd Government’s first budget when perhaps the most publicly contentious issue is an increase in the level of tax on “ready-to-drink” pre-mixed alcoholic beverages - beverages the mainstream media have cutely termed “alcopops”. Brendan Nelson even took the time to target the initiative in his reply speech in parliament:

Labor is giving with one hand and taking back with the other – and not just through kneejerk measures, such as a new Tarago tax on cars or the $1 slug on responsible Australians who happen to enjoy a pre-mixed Bundy and Coke or Scotch and Dry.

…

According to the Government, the principal cause and the source of binge drinking is the so-called ‘alco-pops’ and pre-mixed drinks.

A whopping 70 per cent increase in excise, we have been told, would make significant inroads into binge drinking.

The evidence does not support the Government’s deception.

I am not sure that the government is being deceptive, but what is certainly true is that Federal Labor has not done itself any favours by selling the policy in the way that it has. The government’s own budget overview describes the policy as a “price signal” designed to target binge drinking. While this is no doubt one potential justification, I think realistically speaking we need to consider the two other obvious incentives the government had for proposing this tax increase:

1) Alcohol in ready to drink alcoholic beverages is taxed at a lower rate than alcohol in standard beverages. This represents a tax loophole in anybody’s language.

2) The fiscal environment that the government is operating in has no doubt made it a challenge to fund all its desired spending commitments whilst still attaining the desired level of surplus.

Needless to say the Opposition will be bolstered by the usual blinkered suspects who doggedly oppose any measure that will result in an increase in taxation. However, even if it is true that the evidence suggests that the increase will have no impact on “binge” behaviour, it remains true that a tax loophole is being closed. In a period when constraints on spending are called for and there is a strong incentive to have a sizable surplus, it is in unequivocal terms economically responsible for the government to seek to close any taxation loopholes that exist.

Some may not like it, but the current excise arrangements for “ready to drink” pre-mixed alcoholic beverages represent just such a loophole.

ELSEWHERE: Christian Kerr comes in a very juddering way to the same conclusion, but portrays it all as a piece of spin and a “cover up”. When the realpolitik here is so obvious I am not sure that his breathlessness is warranted.

Even without delving into the details, you can get a reasonable feel for what sort of federal budget Labor has just delivered by considering the published reaction to it. The Federal Opposition has predictably “slammed” the budget, describing it as a “typical Labor high-taxing, high-spending budget, which targets people that it doesn’t like”. I wasn’t aware that budgets could “like” or “dislike” people, but I guess that’s just Doctor Nelson not letting his use of grammar get in the way of his spittle-flying (and self-serving) rage. This budget is not adventurous enough to give Nelson the fillip he needs. Bob Brown has declared that the Federal Government has failed the country on climate change with its budget, without really highlighting why this is so. He does inform us, however, that this budget confirms that Kevin Rudd is no “Robin Hood” and that rather he is actually a “Little John”. What this means precisely is not particularly clear. Perhaps Brown has determined that Rudd is a kindly, overweight bear.

Other commentators are divided, although on balance opinion seems to be positive. Scott Murdoch has described the budget as “laden with common sense”. Business groups are positive about the message of fiscal responsibility that the budget has sent, with the opinion of prominent economists seeming to tend towards begrudging approval. Notorious but generally reliable economics grump Ross Gittins is a bit more negative, rating the budget as merely “ok” and highlighting some areas where he feels the government should have done better. Peter Hartcher in the SMH is quite uncharacteristically critical, questioning whether the budget will really serve to fight inflation, and making this fairly strong accusation about Kevin Rudd’s leadership and his priorities:

Kevin Rudd seems to think the election campaign is still under way. He seems to have trouble realising that the campaign is over. He is now supposed to be governing.

Tonight’s budget set out to please many and to upset few.

Hartcher is being just a little unfair on that last point. I am sure that every former Federal Treasurer in living memory has sought to please many and upset few with their respective budgets; let’s not delude ourselves that this is not the nature of the game. If, in the current troubled economic climate, the government has managed to tick most of the important boxes from a fiscal management perspective and keep most people happy, it has probably achieved something quite worthwhile.

Indeed, from what I can gather from Swan’s speech [PDF], this budget has delivered pretty much everything that has been foreshadowed and promised, with no big surprises or as the Treasurer describes then, rabbits. As much as the media may have become accustomed to budget night rabbits, the character of the new administration and the prevailing economic conditions have served to end the budget night rabbit season bonanza entrenched by the Howard Government over the last decade.

Budget night may be drabber as a result, but the country is better for it.

Former London Mayor Ken Livingstone has a compelling column in The Guardian today providing a bit of an overview of the election results, the state of play in London and what it all means for the Labour Party in the UK. Livingstone does of course put something of a positive spin on the results – no mean feat given how fresh the wounds are – but what is perhaps more interesting is his take on what governments in the modern era need to do. Shunting the right/left paradigm to the side for just a moment, it’s worth having a bit of a think about these three objectives:

There are three tasks for a government and a mayor - to ensure the country and London are an economic success; to ensure everyone shares in that success; and to ensure that success is sustainable in the long run through improving the environment.

So in essence, Livingstone is suggesting that wealth, a fair wealth distribution and sustainability are the three objectives that government should strive for. Personally I think that’s a fairly neat conceptualisation of what good government should deliver in the modern era. If a society is prosperous, the prosperity is shared in an equitable manner and it is achieving its prosperity through a sustainable path, then it is probably going to be considered a successful society.

It is of course worth considering these three goals that Livingstone has highlighted in the context of the mayoral election results. With respect to prosperity – there is little doubting that London is one of the most prosperous cities in the world, and has been for what we would consider to be a considerable number of years. It’s difficult to gauge the extent to which Livingstone’s mayoralty on the city’s prosperity, but I would suggest that he has imparted a degree of increased prosperity to the city during his time in the top job. With respect to wealth distribution, the rhetoric has always been there with Ken, but I am not sure that he has achieved the outcomes that he would have liked. As he states himself in his column:

There is not the slightest evidence that “trickle down” - the automatic operation of the market - is a sufficient mechanism to ensure everyone shares in success or to deliver decent services. In London the shattering contrast, within a mile’s distance, of the wealth of the City of London and the poverty of Tower Hamlets shows this brutally.

On sustainability, lastly, Livingstone arguably has a record to be proud of. The introduction of the groundbreaking congestion charge has won worldwide plaudits and made London something of a model city when it comes to environmental considerations.

Ironically of course, despite doing quite well when marked against his own criteria, Livingstone did not manage to win the election. And why? Reading through some of the comments made on his column might give you some idea there. Sadly for the former mayor, I think the impact of the scandals that beset his mayoralty (e.g. the Lee Jasper affair) suggest that transparency or “good governance” is the crucial fourth element omitted from his wish list of societal goals. Boris Johnson of course proved quite the populist candidate, but one would have to think the result could have been different if Livingstone’s mayoralty was not dragged into the gutter in the months leading up to the election.

The Coalition are still in search for a strong position to take to the media and the electorate when it comes to matters of inflation and interest rates. To be honest they have it bloody difficult; the Rudd Government has all the running on this issue, given that the Howard Government can in some respects be judged politically culpable for the current situation. We have not quite reached the point from which the Coalition can implicate the government in the blame for future potential interest rate rises, and any attempts to do so would no doubt draw an immediate and likely quite convincing rebuttal from Messrs Rudd and Swan.

Opposition Leader Brendan Nelson’s latest approach seems to be to beat up on the RBA. He does not seem to be ready to question the economics of the bank’s recent decisions to raise interest rates, but rather to question whether the RBA is taking into consideration the stress being placed on those with home loans:

In an unprecedented swipe at the bank chief, Dr Nelson said he supported the independence of the Reserve, but added: “I don’t believe that independence should be incompatible with sensitivity to and caring for the people that are affected by (monetary) policies.”

I am not particularly convinced this is a wise line of argument to run with, although one can see it starting to resonate with the electorate should the interest rate hikes continue to come thick and fast over the next year or two. If it does resonate, of course, it will only be for somewhat dubious reasons. The reality of course is that the Reserve Bank board does not invite mortgagees with their tales of woe into meetings, and base their decisions on their lamentations. The board bases its decisions in relation to interest rates on what it thinks is most suitable for the national economy, given the prevailing conditions. The measures at the board’s disposal are simplistic and really quite blunt; it does not really have the instruments at hand to treat any wounds it may be inflicting on the faceless thousands with mortgages across the country. If such “treatment” is indeed deemed necessary, it can only be realistically be meted out by the elected government of the nation, not the unelected board of the national bank.

In short, if Nelson wants to speak out on behalf of those Australians who are suffering financial stress as a result of the state of the national economy, he should be encouraging the Rudd Government to do something about it, and not pestering Glenn Stevens.

One question we will perhaps never truly know the answer to is how much Federal Labor really believes that the tax cut package it took the last election is truly the right way forward in a policy sense. Most readers will likely recall that Labor more or less just “stole” the lion’s share of the Howard Government’s proposed tax cuts for their own package, reducing the cuts slightly for those on high incomes to claim the “economic conservatism” high ground, and proposing some actual reform of the tax brackets for the nebulous future. The rationale for Labor’s approach would seem (at least for cynics like me) to have been born out of three brutally pragmatic political principles:

1) Beat or at least draw level with Howard in a contest of tax cuts. Despite the inflationary risk, people over the last decade have shown a keen desire to vote with their hip pocket.

2) Win the economic conservatism high ground. The Coalition’s merciless pursuit of Labor over the interest rates experienced during the Keating years was intellectually dubious but incredibly effective, so this was a must.

3) Don’t stuff it up - minimise risk. Going into the campaign proper, the Opposition had a sizable lead in the polls. The danger with proposing to do something daring and bold from Opposition on tax was that the Coalition would take the opportunity to do even better, or else find a flaw with Labor’s proposals. It’s hard for the Coalition to attack Labor’s tax policy if it is 90% theirs as well.

Thus far the Prime Minister and Treasurer Wayne Swan have repeated ad nauseam in the media that the tax package that they took to the election was the tax package they were going to deliver. This ensures that the government does not suffer the inevitable backlash should they deliver something different to what was promised, and also provides a degree of political cover should inflation continue to escalate. Sure, Labor may well be delivering an inflationary package of tax cuts to the electorate, but the majority of the electorate voted for it, so the average punter has some piecemeal responsibility for the state of the economy.

George Megalogenis takes a different critical tack in today’s The Australian, having a go at Wayne Swan over the Treasurer’s fairly muddled attempts to explain away why Labor thinks that its promised tax cuts amount to tax reform. The point he makes is technically correct, although in truth I think this column is somewhat on the pointless side, coming as it does after the government has already committed to the electorate that it will deliver the particular package of tax cuts that have already been outlined. Make no mistake, I don’t think Wayne Swan, Lindsay Tanner or indeed Kevin Rudd truly believe that the tax package they are planning to deliver to the electorate in May really amounts to tax reform; but when it comes to reform in the short-term, they are stuck between a rock and hard place. Their commitment to the tax cuts laid out during the election campaign has been mercilessly re-iterated. The implications of backing down now are all too clear and would give an almighty free kick to the Federal Opposition.

In short, Federal Labor is politically bound to the package that it proposed during the election campaign, and I don’t think Megalogenis or anyone else should be particularly surprised that the likes of Swan and Rudd talk up the package in the media. For the short-term, Labor have promised window dressing. That is what they are now politically obliged to deliver, regardless of the innumerable structural reforms that will go begging in the interim.

It has been quite interesting to observe the way the mainstream media has portrayed the ructions in financial markets that are being felt across the world. Over here in the UK, I swear I have seen the same German stock trader splashed on the front page of two different newspapers today, with a slightly different pained grimace on his face in each instance. Each photograph featured, of course, a conveniently placed graph on a screen in the background, showing a jagged line thrusting frighteningly downwards towards a sub-zero abyss (in reality, a drop of 5-10%). Some of the newspapers have gone positively apocalyptic with their treatment of the crisis. Witness The Independent’s front page today: 

Of course, for sheer hysteria, you can’t really go past this Google Ad hosted by Fairfax, predicting the demise of the United States in 2008: 

While it is a slightly disturbing and concerning time to be a shareholder (e.g. probably most of us in Australia with some form of superannuation), it goes without saying that some of the mainstream media outlets are engaging in irresponsible hyperbole, and unnecessarily whipping up fear about the global economy. As Paul Xiradis from Ausbil Dexia comments in this article, what is primarily driving the purges of stocks is fear. Animal instincts have well and truly kicked in. The average trader/punter is not in the position to make a truly learned assessment of whether the global economy is about to tank in a big way, or whether this is just a phase. Quite to the contrary, what we are seeing with the global markets is arguably a mass of instinctual reactions to what is being reported and regurgitated in the media, rather than a considered assessment about how the global economy is trending in the long-term.

One thing, of course, is guaranteed; when the price of the world’s stocks has dropped just low enough, money will return to the markets in a rampaging flood. The FTSE is already showing signs of this reactive trend back up, with a late rally today. It is pretty much certain that if fear is the primary force responsible for the market results over the last few days, than greed will be the force that fuels a restoration of relative stability. Once the smoke has cleared from the cinema that seemed at one stage to be burning to the ground, we’ll all notice a few (charred) fat bastards sitting up the back and waiting for the movie to resume, just so they can get their money’s worth out of the exercise.It’s quite frankly strange and disturbing that the world should rely so much on greed to ensure that global financial markets are stable in short-term timeframes, but I suppose that is modern day, loosely regulated capitalism for you.