Thursday, January 27, 2011

The Flood Levy - A Complete Failure of Political Will

Australian Prime Minister, Julia Gillard has almost but not quite fulfilled the expectations of a lot of pundits who were predicting that she would fund the Federal Government's contribution to recovery from the Queensland floods through a special levy. One third of the Federal Government's contribution to Queensland's recovery will be funded through a levy. The other two thirds will come from spending cuts. I think my opinion of this decision is quite clear from the title of this post.

In olden days, before first Bob Hawke & Paul Keating and then John Howard & Peter Costello established and propagated the Cult of the Surplus it would have been quite acceptable for a government to respond to a disaster like the Queensland floods by extending the budget deficit. But that was then, this is now. Now things are different: if Australian governments aren't keeping their budgets in surplus so that the funds obtained by overtaxing the populus can be invested in a "Future Fund" managed by merchant bankers in the United States there's something very obviously wrong. Our national economy must be run at a profit or, at worst, on a break even basis. Borrowing money to get through hard times - something any private business would at least try to do - is no longer an option for Australian governments.

(US governments have it better than ours - they can, and have, cranked up enormous deficits to fund the indulgences of the USA's ruling elites. According to some commentators sooner or later they'll have to face up to things and change their ways. Don't bet on it happening any time soon).

Here's the thing - according to the canons of economics, the justification for governments accumulating surpluses (and then investing them through merchant bankers either here or overseas) is so that when times get tough - and a natural disaster on the scale of the Queensland floods makes for a pretty tough time - the government has funds in hand to cope with the tough times. That's what surpluses are for: not proving that the government can run the country like a well-managed private business which consistently returns high dividends to shareholders but so that, like a prudent householder, it has something set aside for the proverbial rainy day (pun unfortunately unavoidable). The function of a budget surplus is to provide insurance, not profit.

Particularly galling, from a personal point of view, is that the two thirds of the Federal Government's contribution to fixing up the flood damage that comes from program cuts includes cuts to the National Rental Affordability Scheme (NRAS). Coming at the end of a day when I've just come home after being told that I might have to wait for years before I can get housing through the Office of Housing in Victoria this news is really unwelcome - further evidence that this Federal Government won't even try to walk and chew gum at the same time.

None of this would be happening if the Gillard Government were prepared to face up to the facts and say "You know that 2013 budget surplus we promised? Sorry folks, we'll have to plead force majeur on that one. The budget will get back into surplus when it gets back into surplus. But thanks to the Queensland floods all bets are off." But no - they're too scared of what News Limited will say about them to do that.

Not that it's done the ALP any good - I think Andy Bolt's comments on the flood levy are a good indication of the sort of treatment they'll get from that quarter. It's always galling to find myself agreeing with Bolt on anything but I'll just have to console myself with the thought that we're not on the same side - we just happen to be facing in the same direction right now.

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