Budget '09 Roundup

Every year my best friend (who shall be, from here on, referred to as "C4") and I get together for a special event. One year, as there was no television at my house, he drove a television over to my house, in the car, especially.

No it's not the State Origin, or the World Cup (der, obviously - that's on every 4 years... isn't it?).

It's the budget. That's right, we get together... to watch... the budget.

As the major and most publicly anticipated political event of each year - we both find an embarrassed nerdy pleasure in making the time to watch it.

The main frustration in previous years has been wanting to comment in the middle of the speech - and rewind in order to catch details. This year (along with the beer, wine and cashews) I came to the party armed with note-pad and pen, so I could jot down points of interest without interrupting the flow of the speech. I needn't have bothered, however, as, low and behold, this year C4 brought his DVD recording system to the party so we could pause, discuss and rewind - what a revelation! Someone should tell someone... I don't know... maybe, sports fans, or something, might like this kind of thing too.

Every year I am inspired to write a roundup. So this year...

On top of this, however - C4 was kind enough to point out the discrepancy between the name of my blog and the regularity with which it's updated... perhaps my "ramblings" have not been quite as "incessant" as I would have hoped...

What better time to pick up the pace with my posts again!

So now, for the roundup:


The Roundup


Initial Thoughts

So - once you get past the contemporary need for a "catch phrase" or a sound bite:

"and tonight's budget is brought to you by the expression 'Nation Building for Recovery'"

the first issue with this budget is the fact that it was billed as a "tough budget". In his opening preamble, Wayne Swan says that "economic leadership is about making the tough decisions, no matter what the political consequences might be".

That may be so - but if it is, then this budget does nothing to prove Labor's commitment to economic leadership. Quite the opposite - they have obviously made some less "tough" decisions in order to minimise the political consequences in their most contested constituencies, and other "tough" decisions have been made precisely because there were no political consequences to speak of.

Yes of course - expecting politicians not to be political is like [insert drole comparison of two oxymoronic concepts here]. But still, to claim the actual decisions within this budget as anything approaching "tough" is simply taking the piss. Wayne Swan claimed that "We couldn't raise the pension without hard choices elsewhere" - but apparently... he has.


Pension Payments

• Increase in withdrawal rate
• Increase in qualifying age
• Decrease in super concessions (some temporary)
  

for pensioners; all of these things are savings. But they could hardly be defined as "tough" or "hard choices". All of them are outweighed by increased payments to singles and couples.

Now, don't get me wrong. I support all of these measures. All of them seem fair and right. Or, at least, more fair than the previous system. But none of them should be defined as "tough".


Paid Maternity Leave

All this talk brings me to one of major problems in this budget - the plans for paid maternity leave.

Let's look at some of the big numbers:

• $22 billion - Infrastructure
• $4.7 billion towards a $43 billion PPP Broadband Network
• $5.3 billion - Tertiary Education

Amongst all of this, the government has made one of their "tough" decisions regarding paid maternity leave and postponed it for 18 months.

Now the TOTAL spend over 5 years for the introduction of a Paid Parental Leave system is $731 million - and yet the government sees the need to postpone this until after the next election.

The savings are minimal, and yet the potential cultural benefit so great.

Lets make this clear - we are in a club of 2 (along with the US) as the ONLY OECD countries who have no paid maternity leave. If they were worried about the effect on job security, in a time of economic downturn - they could have found a little extra ($731 million isn't much compared to the rest of the budget) to compensate (small?) businesses for some of the extra costs involved in back-filling staff.

The last thing we want to encourage people to do right now, is to hold off on having more children - and yet that's what this decision does. It's a small price for a great gain - and there's no reason, in my mind, to hold a carrot to the electorate and say "vote for me again - or you might not get paid maternity". In fact I find that insulting.

Does the Rudd government believe in it as a policy or not? Not enough to introduce it - apparently.

You could imagine that this might push some of the Labor faithful towards voting Green... and amazingly enough, this shift is borne out in the latest poles - where Labor have lost 5 or 6 points, and the majority of them have been picked up by the Greens.

"But wait", I hear you cry, "didn't you say the problem was the budget isn't tough enough? Isn't that at least a small saving for tough times?"

And this brings me to to my comment for the budget as a whole.


The Big Problem

The problem with this budget is not the fact that it isn't a tough budget.

The problem for this budget is that it was sold as a tough budget.

In trying to come up with some good "tough" measures that the government could have introduced at this budget - I came up with nothing.

The problem is, anything broad-based enough, tough enough and big enough in total value, to actually be defined as "tough" is, at the same time, dangerously deflationary. And deflation isn't a game we want to risk getting into in this climate.

The truth of the matter is, we missed the opportunity to save as much money as we should have, under the last government. They gave it all back in tax cuts, which were an inflationary measure in boom times. Now we're stuck trying to avoid deflationary cuts in bad times.

It's much like the frustration with the first Swan budget.

There wasn't actually enough difference between the Rudd government's position and the Howard government's. While still in boom times, the Rudd government handed back most of the boom time money in personal tax cuts (only slightly less tax cuts than the Liberals wanted to introduce - but let's take a moment to imagine how much worse the current budget would look if we had introduced the Liberals tax cuts).

So... the problem isn't that this budget isn't tough enough - on the contrary... we need to admit that, what we don't need right now is a tough budget. We need to support spending in key areas - in order to avoid deflationary pressures. And we need to (which this budget does) plan to pull back on that accelerator once things are looking good again.

I actually support much of what this budget puts in motion.

After a period of short-term injections, we now need some medium-term plans to increase productivity and support jobs.

There's money for Health and Education and some areas of Social Security (interestingly not Unemployment or Single Parents).

But - in holding off on introducing the Paid Maternity Leave measures until after the next election, the Rudd government has snubbed its nose at its heart-land voters. The argument, presumably, is "well, who else are they going to vote for?".

The Greens? Well, again, Labor may be hoping that all those votes will come back to them in preferences. And they may well be correct.

But - after years of barracking for Kevin Rudd, in response to this (and his last) budget - my current hope for the next election is that we can find dense enough collections of "Left swinging" voters to make a real splash for the Greens.

For some reason (call me naive), I still believe the Greens will push through policies that represent their core constituencies, and not just the people who might be swayed at election time.

This wasn't an "election budget" - that's coming next time. Rudd will have to do a lot more "voter pleasing" next year. This was his opportunity to introduce some real and valuable "Labor style" policies - and, from my perspective, he missed it. I understand that you need to stay in power - but if you don't take the opportunity to introduce some strong policies when the opportunity is there, what's the point in being in power at all?

Unless of course, he thinks this is an election budget? Just how much does he predict we might be heading for a double dissolution...? Hmmmm...


References:

• Transcript of the 2009-10 Federal Budget, second reading

Phony Pope Mobile Fined

It's been a little while since I posted on offbeat news... well, it's been a little while since I posted on anything. I will be back to the political affairs soon - but in the mean time.

A protest Popemobile, built by Sydney activists as a protest against the Pope's visit in July, was issued with a Defect Notice and put off the road. It's driver, Ian Bryce was booked and fined for "having a roof ornament likely to distract motorists".

Details of its adventures, photos, and a video, are linked from the website worldTRUTHday.org.

On top of this, in related news, we now learn that the Government's bill for World Youth Day has come in at more than $100 million over-budget.

Under-funding Public Broadcasters - the problems and pitfalls

In my recent post on under-funding the ABC, I outlined how much the ABC has had its budget cut over the last decade or so... and Kevin Rudd's official reply on the matter.

I have since contacted the minister in question (Senator Conroy) to remind him of the promises made before the election.

But today, Crikey! released their assessment of some of the symptoms of under-funding that are beginning to show themselves.

I can't say it much better than them... so here's the link:

The ABC: outsourcings "R" us

The Wealth Spread Index - The Fairness Bourse

A friend of mine and I went out for drinks recently. While we were speaking about politics, economics and how to solve the future... he gave me a great idea for a use for something I've been messing around with.


The History

Wealth Distribution - how we compare

Some short time ago I was doing some research on wealth distribution. I wanted to come up with a way of comparing countries directly.

Recently, I heard a talk from Paul Krugman, a Professor of Economics from Princeton University. In fact, I've written on that talk before.

What had stuck in my head from Krugman's talk was the issue of "wealth spread" and "fairness" within an economy - we should have a way of comparing different economies directly.

More specifically - while I "know" from common understanding that the US economy has become much less evenly spread over the last couple of decades, and many of the Scandinavian countries have maintained their even equality of wealth - I wanted to be able to calculate the situation more accurately; to clearly measure and compare the different economies; possibly work out where Australia is on that scale, right now.

I looked around and couldn't find any consensus on the issue - no standard way of measuring what I wanted to measure.

After some hunting around and a little experimenting I came up with with a basic model/system of my own.

Now at that point I had no idea what to do with it. It was interesting to me and I liked to see the results - but I couldn't see what the practical upshot of it could ever be to anyone.

And this is where my drinks with Simon come into it. He gave me the idea of what to do with it while we were talking that night.

Why do we so easily measure a country's health and value by:

• GDP Growth
• Interest Rates
• Inflation
• Unemployment Rates
• Stock market values
  

Why can't we talk about "Spread of Wealth", "Long term vs Short Term Unemployment", "Ease of Basic Living"... the simple reason, I would hypothesise, is because GDP, Interest Rates, Inflation and Unemployment all have single numbers attached to them - and the Stock market has the "bourse" value (e.g. ASX200, FTSE, Nasdaq etc.)

All the other issues (Spread of Wealth etc.) have no single number that can be associated with them - and therefore can't be summarised as easily.

One example in support of this theory is the topic of "housing afford-ability". Until recently, in Australia, the issue had never been discussed widely. In order to have the conversation about it - in order to make it news worthy - we needed a specific housing afford-ability index, so that we could compare States with each other, record whether it's gone up or down and by how much... and generally discuss the issues using simple concepts. That's what we did. We made a "housing afford-ability index".

And so... the idea that came out of my discussion with Simon is this:

If we want to have a discussion about "fairness" and the "spread of wealth" in our economy, then we need a fairness bourse... a wealth spread index; a single number that can be compared between economies and over time within an economy.

So - let's make one.


The overview

The original ideas

Using data easily available, I wanted to find a value that would vary within a known range (say 0 to 100) and that would represent the level of inequality within an economy.

So allowing for the idea that the "worst" possible economy is one in which the bottom 60% of the population own nothing at all and the "best" economy is one in which everyone owns a completely equal share of the wealth - it was fairly simple to come up with a reasonably basic way of scoring economies within the given range.

With a tip of the hat to Ghandi's/Churchill's/Truman's quote (see many confused references to this quote across the internet - Florida Today, Ask MetaFilter, Memorable Quotations, Askville to list a few):

"A nation's greatness is measured by how it treats its weakest members"

the formula I used gives more weight to the fairness imparted on the bottom feeders than the big end of town. So while an economy could improve its rating by decreasing the amount of wealth that is "soaked up" by the richest people, it will improve its index value far more quickly by improving the lot of its worst off inhabitants.

Here are the initial results:

All of the initial results were between the values 57.5 (Turkey) and 77 (Slovakia) (represented by the red bars).

These values can, alternatively, be viewed by stretching them out between 0 and 100 so that the lowest scoring economy always receives a score of 0 and the highest 100 (represented by the blue bars).

Some notable scores amongst the list are:

• America - 23.08
• 2nd worst score
• New Zealand - 38.46
• I was surprised by how low NZ scored
• United Kingdom - 38.46
  
• Australia - 53.85
• France - 64.10
  
• Sweden - 87.18
  
• Japan & The Czech Republic - 94.44
• 2nd highest score
  

On a comparative basis - I think this system of scoring shows some merit and represents a step forward in finding a single value to represent the spread of wealth within an economy.

However both systems show some limitations.

The first version, with values between 57.5 and 77, show little absolute variance and gives the mistaken impression that there isn't much difference between these economies in the terms being measured.

The second version with values between 0 and 100, tries to deal with that limitation, but suffers from, or emphasises, a few more:

• it stretches out values at the bottom of the range and compresses values at the top
• it could make countries in the lower values appear as if they were improving or slipping faster than they are
• it could mask improvements/drops in countries with higher values by making the changes seem smaller than they are
  
• one country slipping at the bottom or the top could make the others appear as if they were improving when they weren't
• one country improving at the bottom or the top could make all the others appear as if they were slipping when they weren't

The final solution

It soon became clear why these systems each had these particular problems.

They treated "100" as an attainable goal, as if the "perfectly fair" society was something reachable.

In order to make the scale work like a normal bourse, the "perfect" solution needed to remain something unattainable. Something that everyone aims for, but no one can ever reach - stretching into infinity.

Taking this into account allowed me to calculate these values:

The final results varied from 5.0 up to 22.23 and will increase in rate of growth (approaching infinity) as the economies being measured approach "perfect".

Some notable scores amongst the list are:

• America - 6.2
• again, 2nd worst score
• New Zealand - 8.26
• again, surprised
  
• United Kingdom - 8.26
  
• Australia - 8.9
• France - 11.5
  
• Sweden - 17.4
  
• Japan & The Czech Republic - 22.23
  
• Now the highest score

The Details

All calculations were based on details of the relevant economies from this UNICEF web site:

http://www.unicef.org/infobycountry/industrialized.html


The calculations are based on 2 main values:

1. Low = the % of the nations wealth held by the bottom 40% of the population
2. High = the % of the nations wealth held by the top 20% of the population

The accuracy of the figures, and how up-to-date they are are somewhat irrelevant at this point. The point was, and is, to come up with a reliable, convenient and illuminating way of measuring an economies fairness.


The values actually used were as follows:

Country	Low	High
Australia	18	41
Austria	22	38
Belgium	22	41
Canada	20	40
Czech Republic	25	36
Denmark	23	36
Estonia	19	43
Finland	24	37
France	20	40
Germany	22	37
Greece	19	42
Hungary	23	37
Ireland	20	42
Israel	16	45
Italy	19	42
Japan	25	36
Korea, Republic of	22	38
Latvia	18	45
Lithuania	18	43
Netherlands	21	39
New Zealand	18	44
Norway	24	37
Poland	19	42
Portugal	17	46
Slovakia	24	35
Slovenia	23	36
Spain	19	42
Sweden	23	37
Switzerland	20	41
Turkey	15	50
United Kingdom	18	44
United States of America	16	46

The Final Results

The fairness values calculated, in order form "worst" to "best", were as follows:

Turkey	5
United States of America	6.2
Israel	6.3469387755102
Portugal	7
Latvia	8.06382978723404
New Zealand	8.26086956521739
United Kingdom	8.26086956521739
Lithuania	8.46666666666667
Australia	8.90697674418605
Estonia	9.5
Greece	9.74418604651163
Italy	9.74418604651163
Poland	9.74418604651163
Spain	9.74418604651163
Ireland	10.9047619047619
Switzerland	11.1951219512195
Canada	11.5
France	11.5
Netherlands	13.2105263157895
Belgium	13.9230769230769
Austria	15.1666666666667
Korea, Republic of	15.1666666666667
Germany	15.6285714285714
Hungary	17.4117647058824
Sweden	17.4117647058824
Denmark	17.969696969697
Slovenia	17.969696969697
Finland	19.3636363636364
Norway	19.3636363636364
Slovakia	20.6774193548387
Czech Republic	22.2258064516129
Japan	22.2258064516129

The Final Calculation

The calculation used was as follows:

((100 - High) + Low^2)/((High - 20) + (40 - Low))

The Reasoning

The reasoning is as follows:

• The value of "High" varies between 20 -> 100
• The value of "Low" varies between 0 -> 40
• In the "perfect" situation - High = 20, Low = 40
• (High - 20) + (40 - Low) = 0
  
• In the "worst" situation - High = 100, Low = 0
• (High - 20) + (40 - Low) = 120
  
• The inverse of (High - 20) + (40 - Low)
• maximum (infinity) in the "perfect" situation
• minimum (1/120) in the "worst" situation
• To further increase the exponential effect of both "High" and "Low" (but particularly of "Low") multiply the above calculation by ((100 - High) + Low^2)

And you are left with final calculation:

((100 - High) + Low^2)/((High - 20) + (40 - Low))

The Conclusion

After some experimentation and testing with varying values around the current "correct" values, I am convinced that this is a valuable way of calculating the over-all fairness of an economy.

I would be very interested to hear any feedback, comments or findings related to the calculation - how its adoption could be encouraged, and what might improve its usefulness.

ABC funding - the scary statistics

ABC funding. Let's take a second to look at what's really going on there.

I wrote to Kevin Rudd about this, and if you want to see his response click here.

Over the last 12 years, things have gone from OK, to bad, to worse for the ABC in terms of funding. For an idea of just how bad it is... let's look at some figures:

[NB: Some of the details of the requirements for the ABC's funding have changed since these facts were compiled for the original letter, but the bulk of the facts remain true and pertinent to the situation at the ABC]

• The Howard government cut 12%, or $55m from the ABC in the 1997 budget, and it has waited until just this last budget for any increase from that level at all.
• "8c per day per person" was the quoted cost of the running the ABC in the reign of David Hill as MD - over 10 years ago. It was quoted in order to prove how little the ABC actually cost to run. Today that figure is below 5.5c per day. Budget cut backs and population growth have reduced this figure significantly - but that's before inflation is taken into account. 5.5c is worth much less now than it was in the 1990's. In fact 5.5c is worth only 3.9c in 1996's currency, and so funding for the ABC has dropped by more than 51% in real terms since then - yes that's right! More than 51%.
• Over the same period through which its real funding has dropped by more than 51% (1996 - 2007) the ABC has been required to maintain it's output for 4 national and 60 regional radio stations and a TV station, and numerous other pursuits in its charter - while also being required to expand it's output for a whole new TV station, it's hugely popular website and more recently its podcasts and its 40 ABC shops.
• The ABC's broadcasts of internally generated new content has fallen from 103 hours to 13 hours annually in just four years.
• Based on 2003-04 figures, the ABC TV's annual budget of $400m is less than a third of the Nine Network's $1.3bn, 40% of Seven's $1bn and 58% of Ten's $686m.
• A recent report was commissioned by the government from KPMG. They were asked to assess whether the ABC was efficiently run and whether or not any more efficiencies could be found. It was quoted as saying "The ABC provides a high volume of outputs and quality relative to the level of funding it receives... the ABC appears to be a broadly efficient organisation." and "even with indexation we do not believe the ABC could sustain its present range, quantity and mix of outputs at its present level of funding". The report suggested that small efficiency gains could be made by reducing staff by 5% in the legal, archiving, library and Human Resources areas. Reviews of the legal department and HR are presently underway. SO - in other words - YES! The ABC is efficient, NO! the ABC cannot find any real efficiency increases in its current state and NO! The ABC cannot continue the way it is currently being funded.
• To take the ABC up to the minimum amount quoted by KPMG as required to maintain current standards (which are already well below historic standards) would mean increasing the ABC's funding by another $37m on top of the recent increase - to a total of approx. $900m. However this still doesn't take into account the recent requirement for the ABC to spend 25% of its total operating budget on New Media and Digital Services - this would require an extra increase of $300m to a total of $1.2bn - just to maintain output [ED - These details have changed since compilation of these facts for the letter to Kevin Rudd, NG]. And FINALLY, if we are to ever get back to the (apparently cheap) days of "8c per day per person" in today's money it would take an increase of the ABC budget to $1.8bn… not too bad when you consider it is running 2 TV stations, 4 national and 60 regional radio stations, an internationally recognised News service, an enormous and popular web site and podcasting service and a chain of retail stores (and also remember that the Nine Network spends $1.3bn on one TV station alone).

Again - see here, for Kevin's response to these statistics.