Blowing a black hole in budget

We will be paying for the six years of Labor government for the next decade. I hope Abbott has taken note that the "deterioration of transparency and integrity in government" will not be tolerated. Not only must he and Hockey get the economy back on its feet, they must also restore confidence in government. After six years of being lied to at every turn it would be a refreshing change.

Rather good article Henry. I feel labor's problems are caused by too much ideology and not enough practical experience in life. We need the adults back in charge. Hopefully some of them exist in the opposition.

But Labor's propaganda has been excellent, if 32 % still believe a Carbon Tax is good for the country.

Another great article Henry. The key question here is obvious - how to withdraw the benefits already given!

Hilarious. Funniest article I've read and oh so succinct. Of course, the tragedy is that we taxpayers are paying for their ineptitude. If only the World's Greatest Treasurer and his Trusty Patroness would read it and finally see how the rest of the country sees them.

As I said after the 2007 election, " the election of Labor will become Australia's greatest political mystery, for in a few years no-one will admit to having voted for them". Looks like that day is here, but it's a sad day for our country. Hope all those who voted Labor in 07 & 10 are reflecting on the damage they have done.

Poor Henry, so entrenched in his anti labor views that he has lost any sense of cause and effect. If by 2015 the world trading price is say $10 per ton then all australia will need to do is to reduce the amount of "Free' permits which in turn will balance the revenue. It is quite simple if a company has been too lazy to invest in technology to reduce their emmissions, then we should stop their welfare payments.

Lucidly put once again by a commentator that can really crunch the numbers.However there are a few things I disagree with. The "miners "should be condemned for their contrived avoidance but what were they expected to do when the MRRT in its original Ruddite form did not factor in risk. Knives were out for any near variation and thats what happened. Gillard and Swan were taken to the cleaners. I agree with you there. But a super profits tax could work, as long as risk and long term viability are considered and there is no doubt that Australians that own the resources unlike manufacturing Henry should take a large slice of the cake. No one person or corporation owns our resources and they are finite start from that premise and you will reach a fairer judgement. The Chinese don't care a bugger about reputation. So its not about that when you have a scarce resource! Ask the executives of Rio Tinto! How much and how fair the extra taxes should be and how you calculate it is the existential question.

Henry, please forward this report of yours to Swan, Gillard and Combet. A basic understanding of Economics 101, Common Sense and Strategic Thinking for Strategic Planners would be the first three tools you would need dealing with international miners. These three are minnows in the world of finance and common sense, but hey, they saved us from the GFC. It sickens me to the core that Swan and Gillard negotiated this deal and heaven forbid, Combet may one day head the Labor Party.

A damming indictment of absolute incompetence and hubris.

Henry, the tragedy of this deceptive government has been missed opportunity, they had the means to deliver so much with the best economic figures a government has ever enjoyed but then delivered so little. The result being more taxes, more red tape and regulation, higher cost of living, Australia being less competitive on the world stage and so the list goes on. Will Australia ever have this opportunity again, if so it will be a long time coming while a responsible Coalition spend years paying back debt from labors incompetence. The concern now is how many more billions of debt will be added between now and Sept. 14 due to continuing labor follies.

Labor, the great fiscal pretenders. But it points to even more questions of Treaury and the smarts of the Henry Report. . Framing estimates and costings as flaky as the MRRT and carbon tax policies, one could be forgiven for wondering whether Treasury is driven politically or by incompetence.

What an absolute disaster. It is imperative for us to hold an early election to prevent more damage. Ms Gillard - just call it - for the sake of our country. Loss of face is not in the equation any more.

Most valuable Henry Ergas - thankyou yet again. It is now I hope self apparent (am I too optimistic?) that those promising to abolish the carbon and mining tax were right on track and pass the good governance test by resisting the nonsense of "fool's gold" apparent to those who understand sustainable income and expenditure for a nation. As usual unfortunately as is explained there is the small matter of a "$50 billion hole" of expenditure already expended based on the baseless mining and carbon tax. Ho hum nothing new in history and the good old mug taxpayer pays again!

"And left their country to pay the bill" - that is the truly sad part. Labor have left such a big bill for us to pay ($200billion+) that our grandchildren will probably still be for for this 6 years of Labor waste and folly and with very little to show for all those billions.

Laugh-out-loud funny introduction, Henry, but the reader's smile soon freezes. Recently, there has been a bit of talk of "having a Fraser day"; September 14 will be a Pistorius day for Labor.

What a dynamic duo we have leading us. Laurel and hardy look like Rhodes scholars compared to them!

This is what happens when you leave amateur's in charge,labor has no idea thank god their not in charge of my budget.I fear the real truth about how broke we are will come out after we vote them out. God help us.

As Swan has shown in his preaching to Europe at the G20, he has only two beliefs in his economic ideology. Spend and go into debt, and tax business out of business. In three months Swan delivers his final budget of all time, we sincerely hope.

I completely agree. Also, on a side but related topic, the polls are starting to reflect voter distrust and disapproval of this incompetent government.

And to cap it all off Henry, Swan now advises the G20 to follow in his economical footsteps. OMG. This government is a complete disaster. The next round has just been announced. Same theatre. Same lack of any thought out consequences. Same rob Peter to pay Paul idea, with zero plan B when this new scheme fails. When will this government comprehend that this Country cannot be run by legislating all and everything we do? More and more like socialism everyday this mob stay in power.

And where is the pot of gold which will save Labor from these two ill-conceived taxes? From the same place Bob Hawke discovered, when his social services bill was growing quicker than Income Tax ---- hard working Australians' superannuation funds. Bob Hawke found his pot of gold within Treasury Coffers; Julia and Wayne's Labor Government are drooling over self-managed super funds. AND WE'LL NEVER GET OUR MONEY RETURNED TO US!

Nice work, Henry. You will probably get and angry phone call from swan today.

...it is time. Unwrap the ballot papers.

Don't forget the NBN. And poker machine handouts, school libraries and pink batts. And union empowerment. And the boats. And the national curriculum travesty, or the vanished health system reforms. And the union incorporporation scandal. And the Slipper and Thomas affairs. And the human rights violations against freedom of speech. And the gender war. And the Australia day riot. And so on.

Brilliant summation and analysis.

Thanks, Henry. Very well said, and not before time. Granted, nobody's perfect. Even the most assiduous government will make mistakes now and again. Still, the errors which have wrecked the MMRT and Carbon Tax are no more excusable than drink driving: Swan and Gillard surely must have known better. Failure to involve Treasury during 'redesign' of the MMRT was simply hubris. Assertions that a world Carbon Price would skyrocket, yielding billions, was silly to start with, and proven wrong years back. Worst of all, even when Swan and Gillard knew perfectly well their rosy estimates were dreadfully wrong, they persisted. That's lying -- there's no other way to put it. The Big Business capitalists Labor likes to rail against would be jailed for years if they did what the PM and Treasurer have done. Australia has to send them a very loud message: NOT GOOD ENOUGH!

Interesting, comprehensive and accurate as always, Henry. One has to wonder how Wayne Swan can even run his own household. I guess that these people have such a hatred of big business and such a psychological, almost psychopathic need for power, that they are incapable of thinking rationally. Another good article. Best, John Nicol

Henry Ergas you have made our economic postition all so clear however there are almost half the population still enamoured of this most insane government and its incompetent Prime Minister and Deputy in an election year. It is difficult to fathom why on earth people want to be beholden to the government or owned by them, even big businesses are on welfare.

Great analysis Henry. I would like to see some financial performance metrics imposed on governments, especially Tresurers. Failure to attain at least the basic threshold performance should result in their dismissal, just as it would in the private sector.

Where were the so-called economic experts in Treasury dept? Why did no one tell Swan etc that they were 'dreamin'? If Abbott is elected then he needs to clean out the government's bureaucracy and force them to get a proper job - in the real world.

Swan and Combet should both resign immediately. Both have deceived the country and both continue, like their leader, to just keep telling lies. Never, in the history of this country, have Australians been treated with such contempt. One question remains - how much MORE damage can Julia Gillard do to this country over the coming months? It is all frightening...

Although it is hard to argue with your article, we see little evidence that an Abbott led government would do much better. In Victoria we have a coalition government that has acquiesced to high public service salary increases, laid off public servants and stopped development. I think that they are closer to the Greens than too liberal values, whatever they may be. However the biggest rort (legal theft) in Australia is public superannuation beginning with the politicians. If that were reformed then most of our public finance problems would disappear. In other words all persons employed or ever employed on the public purse should now have a standard super scheme. This may cause some hardship but when compared to the cost, the economic efficiency would be billions, eg the need for a future fund now at about $80Bn would disappear. There would be at least that amount in unfunded liabilities in the States. Extra billions would be available to schools, universities and hospitals if all were to have a standard scheme. Extra super would be at the individuals cost. This would be real public finance reform that must be looked at in the current environment. Government largesse is not infinite

When fiscal management was raised as an issue in the 2010 election, somehow or other the public was deceived into believing that Swan and Gillard actually knew what they were doing. It is now clear they were babes in the wood when it came to dealing with the big mining companies. As with everything else Gillard does, from appointing a speaker to laying charges of misogyny, it is all about politics and survival!

Thank you, Henry Ergas, for another incisive analysis. So unlike the nonsensical view proposed by the Global Mail spokesman and supported by Insiders host Barry Cassidy that 'at least the MRRT gave the government $126 million it wouldn't otherwise have had'!

Jim Cairns & Gough Whitlam would be proud. The framed photo of Gough that Gillard has behind her desk says it all. Utterly reckless with the nation's money and not a care in the world....sigh.

It's appalling that when Gillard is forcibly retired on 14 August, she will be able to live very comfortably on her very generous superannuation but she will leave many, many Australians in a much worse financial situation than they were six years ago when John Howard was similarly retired.

We must not confuse the ALP approach to taxation to a proper approach. A super profits tax is of itself quite appropriate. Its definition may cause problems but it is doable and must apply to all taxpaying entities including individuals. Now it seems to me with bank profits in aggregate nearly thirty billion a tax of about ten billion would be quite appropriate under a transparent super profits tax approach. Similarly some of our doctors and lawyers would pay more tax. We, as a nation seem to be frightened of progressive taxation. You have touched on the politicisation of Treasury and again the Liberals will do the same. What we need is inviolate rules that apply efficiently to all. For Australian public finance at all levels to apply international accounting standards to public monies would be a good start, especially with the budget.

Professor Ergas, you state that "Belief in that El dorado was central to the Henry report. But it never examined mining's long-run profitability. Instead, it relied on questionable modelling to claim the resource states were leaving a fortune on the table." We ask ourselves as to why treasury gets so much wrong in recent times, if this is the thinking in treasury its understandable why its constantly incorrect with forecasts. I wonder how much more of Ken Henry's report is based on fantasy and theory rather than cold hard fact?

and now we have the PM going around the country spruiking yet another new scheme... the blue collar scheme??? God help us

The country's financial position has deteriorated inexorably since Labor took over the reins in 2007. This downward momentum looks set to continue. And by delaying expenditures in his failed attempt at reaching a budget surplus, it reasonable to assume that Swan has compounded the problem for forthcoming financial years. The country has already been left to pay a considerable bill; in less than six years federal debt has risen from zero to 10% of GDP. The government appears to be in complete denial; there Swan is at the G20 encouraging severely indebted countries to eschew austerity and borrow even more money to sustain growth. Swannie seems to think that we live in a world of free lunches. Budget repair will inevitably be difficult, and the greater the debt and deficit the more painful the process will be. It's time to do something to reverse the downward trend (robbing Peter to pay Paul, Labor's favourite ploy, will not suffice). This will require a courageous, responsible and competent government, which at the moment we don't have.

The tax is not about the share of ordinary Australians in the mineral wealth in the ground - that is the purpose of Royalities. It is a tax on successful risk and enterprise. It the government wants a greater share of the profits wht does it not just buy shares in the mining companies like ordinary people?

Australia shall weather this perfect storm but Labor shall not. Labor is beside itself with abject horror at what a Costello led Coalition audit will discover and therein shall lay the total destruction of Labor as we know it. And good riddance!

The costly failures don't end with the MRRT and the Carbon Tax. Boat arrivals on the Rudd/Gillard watch are very much a part of the disastrous fiscal legacy of the past six years. Three major policy and fiscal failures entirely of Labor's own making.

Glad you mentioned Combet's BS on the ETS.

It saddens me that the Green/ALP coalition still takes credit for the shape of our economy whilst they bash the very people funding this country (that rare and much derided breed known as the taxpayer). What saddens me further is that Australia seems to have fractured along the lines of those that pay tax and those that exist on the basis of those taxes. We need a significant reform agenda in this country. However, the present Government is incapable of any real reform and the next Government will be inhibited by the scorched Earth being left by the current Government. This story adds to my disappointment for what has been the worst Government in the history of Australia. The short-sightedness of this Government will have significant long-term impacts on our economy and our social fabric. I cannot see the ALP being re-elected for 3-4 terms. However, and perhaps most importantly, I cannot see the ALP as being able to form an opposition of substance to keep the Coalition in check. Good Government needs good opposition. Sad days indeed!

E.g. Rio Tinto has not contributed a cent to the federal government's mining tax and does not know when it will start. The MRRT raised just $126 million in its first six months against a full year forecast of $2 billion. Re mafiosi: how about those full page ads, the capuchin screaming 'toxic tax' for months on end? Creative accountants of foreign owned mining giants writing off every toilet seat in the building - until everything has been dug out, we got nothing left but a few ghost towns, and they will move on and do the same thing somewhere else, just like a virus. Happy now?

I agree Don of Noosa (Comment 39) The mandarins in the Treasury have got it very wrong on several occassions in recent years and as a result their integrity has to be questioned. Abbott should sack the lot of them and start again.

Yep, the dead hand of socialism is alive, well and fully endorsed by our left/green alliance government. Now with political officers in industry to ensure Australian Industry involvement we are well on the way to the utopia of the soviet union in the 1950s. Well done Wayne and Julia.

The real failure of the tax was that large recurrent expenditures were committed on the basis that revenue from it would be stable. The current defence by Swan that the tax was designed to vary with changes in profitability is obviously a political afterthought. Consequently, it adds to the Commonwealth's growing unfunded debt. Together with the unfunded debt created by previous State Labor Governmentd, total Government debt is about the same as total Governments' tax and charges revenue. Our very high prime interest rates, flowing from the RBA's anti inflationary approach, and the consequent high exchange rates, inflated by the rest of the first world's "beggar thy neighbour" policy of manipulating exchange rates, are a direct and disastrous result of Labor's complete disregard of the proper policy to face off against the GFC using public debt reduction when our economy was strong and unemployment low. We have followed Europe's Japan's and America's long and failed use of unfunded Government to paper over the defects of unavoidably failed public finance policy. Australia still a chance, albeit decling, to return to sustainable public finance policy a la Qld, NSW, Victoria, WA.

One of the greatest of the many failings of this government is that it does not recognise that our well-being is dependent on the success of private enterprise firms exposed to fierce competition, often global in nature, and of the flow of investment funds to such firms. It is private initiative, innovation and trade which has led to the huge improvement in well-being for billions in the last sixty years. Undermining this process to subsidise non-viable firms and increase spending to welfare recipients leads to lower well-being for all in the longer term.

Sheer, utter, incompetence.

Looking at some financial data for BHP/RIO, over the last 22 years both have NOT returned over their cost of capital some 35% of the time, let alone achieved a significant beat, until the so called boom accelerated in 2004, and even then during boom there have been a few quite poor years. There is a total lack of perception over the long term returns of mining (ie they are not that great)

No sign of my earlier post, so here's one on "super" profits. A "normal profit" is that which can be sustained without attracting new entrants to an industry. A "super profit" is an abnormal rate of return which will generally attract greater competition and be competed away. Andrew Burrell (Aus 16/2) makes two mistakes: he define's RioTinto's earnings as "super profits" because of their size; and he fails to recognise that the volatility of the mining industry and the long-term nature of their investments will mean occasionally very high profits amongst lower profits or losses in spite of the intense global competition in the industry. Rio's $US4.5 bn profit is not grounds for further taxing our most successful industry. Removing car industry subsidies would be more sensible and have a greater yield.

Lack of adequate consultation, lack of fiscal insight, insightless obsession with ego needs and future personal pollie pension stability generated current behaviour is part of the incessant collective shots in the feet of Labor proliteriat. Externalisation of all responsibility ensures that the voting public will pay the bill for many years to come. The revelations to come post election will explain these current behaviours.

Any party that promised to reform public superannuation and properly tax bank profits would romp home in the next election and save us real billions in real cash. How could the ALP get it so wrong? Was it self interest looking after themselves and their mates? Henry is a NAB director, working from Gillard's office. Working class party...BS. They would not know a working family if they ran over one in their government supplied cars. The rulers must never use their position to screw the ruled. Will Abbott treat us better?

Trade unionists masquerading as government ministers has not worked in the past and is not working now. I just heard Paul Howes speech to the AWU delegates. He is still spruiking class warfare. When will they ever learn? Prime Minister Gillard will reinforce that mistaken belief again tonight and will claim that her new blue collar jobs policy is what "Labor" is all about. It will not cross their minds that it will cost millions and produce hardly any jobs. That's what Labor is all about. Just GO AWAY! Gerry Byrne New Gisborne Vic

And the destruction of the live cattle trade and relations with Indonesia. And the destruction of the fishing industry. And loser-picking the undead car industry.

It was a very black day for Australia and our futures when Gillard & Swan gained control of the levers.

'Papertiger of Mt Martha' if you want benefits from the resources (which are owned by the states) its easy. BUY shares or is that too difficult for Labor socialists? Too much handout and rent-seeking culture here. We increase wealth by investing capital not by taxing capital.

The government is not broke because of its low income. It is broke because it is a shopaholic, a problem gambler and is paying off a house far bigger than it can afford the mortgage for

Even Swan and Gillard claim they know the MRRT is a volatile tax that will suffer the peaks and troughs of the market. It is the main excuse that is used to explain away the massive short fall in revenue. Ask anyone in business if they would tie huge and permanent expenditures off of such an unpredictable income stream, and I am quite sure the answer would be "not if I wanted to keep my job" Anyone that silly does not deserve to be in the job!

To be more accurate, only about 20% of so called taxpayers will pay for it. Neally 80% of Australians get back more in welfare than they pay in taxes each year, meaning they dont really pay tax. Its the other 20% that are not a burdon on the country that will continue to pay more and more tax while the 80% get a free ride thru life til they are into their 40's and 50's. Not something the majority would want us to hear, but unfortunatly under this pathetic Labor/Union government, thats the way it is. We are about 20 years behind Europe, so we only have to look their for our future...more and more debt.