A letter to the people of Western Sydney


Dear people of Western Sydney

It is not clear exactly what issues are fuelling your apparent displeasure with the Gillard Government, but can I point out a couple of issues that you may wish to consider in terms of things that actually matter to you, your family and businesses.

Around 40 per cent of you have a mortgage. Have a look at the interest rate you are paying now versus the rate prevailing 4 or 5 years ago. The average standard mortgage interest rate is around 6.4% at the moment. In 2008, it was 9.6%. On an average Sydney mortgage of around $375,000, that is a saving of around $800 a month or close to $10,000 a year in mortgage repayments. Recall that this is a saving in after tax earnings. This is a quite massive boost to your purchasing power, simply because interest rates are low.

There are similar interest savings for the small to medium business sector borrowers.

According to various surveys, over half of you drive to work, no doubt covering many kilometres along the way. I would note that car prices have actually fallen by around 5% in the last few years and by the look of the recent news on the number of car sales, most of you will be driving nice newish vehicles. That is a good thing. Add to that the fact that the price of petrol is only a fraction (around 5%) higher than 5 years ago, the cost of owning and running a car has been well contained which is no doubt very helpful for the average household budget.

It has also been the case that wages have risen solidly, by a little over 20%, in the last 5 years. This compares favourably with a 14.5% rise in the consumer price index (inflation) over the same time. Real wages therefore have been rising by about 1% per year on average over the past 5 years. While you are paying more for electricity, in small part because of the carbon tax, you are paying less for things like clothes, household appliances, a bunch of electronic goods and overseas holidays.

Relative to wages, the cost of living for the vast bulk of people is falling.

There are a range of other national economic management issues that should be important to consider.

All three major credit rating agencies rate Australia triple-A. This is the highest possible rating. It is like your kids getting A+ in all of their exams. The final upgrade to triple-A occurred in late 2011, from the Fitch agency, under the Gillard government. Never once has a Liberal Government had triple-A rating from all three rating agencies. This matters because a triple-A credit rating helps keep interest rates and borrowing costs low. It also feeds through to the sound functioning of the banking system and whole business sector in Australia. It is a sign that the whole economy is being very well managed and well regarded by international investors.

It is also worth noting that the unemployment rate in NSW is just 5.1%. This is a very low reading when looked at over the last 35 or so years of Australia’s economic history and is certainly low compared to the rest of the world. Low unemployment is of course great news, arguably it is the best thing any government can deliver to its people.

Jobs give people income, security, well-being and an ability to build for the future. Job creation and low unemployment are a vital benchmark of good economic management. Recall that the opposite, high unemployment, leads to social disfunction, poverty and poor self esteem. Note also that the 5.1% unemployment rate in NSW compared with the national average of 5.4%.

On the topic of well-being and planning for the future, can you all have a look at your superannuation statement next time your fund sends it to you? While the extreme volatility in financial markets due to the global economic and financial crisis has seen returns fall sharply and then rebound in recent years, for anyone who has been working for the last 20 years or more, the value of super is likely to be quite high. This is your money for your retirement. Superannuation was one of these long run policy issues implemented some 20 years ago that is now yielding the returns intended for everyone who has had a job. Prime Minister Gillard has legislated for the super contribution to rise from 9% to 12% of gross income in the years ahead, meaning that all workers will be building their retirement savings over the next couple of decades.

In terms of policies that are important for the long run future, think of the education reforms, the NBN and disability insurance scheme. These are critical changes that will in time boost productivity, opportunity and common decency in Australia.

While things are far from perfect and not everyone is benefitting equally in these terrific times for the Australian economy, much of the favourable news outlined above is overlooked in the daily hustle and bustle of life.

Take some time to reflect on the good things. We are all doing pretty well, just take some time to smell the roses.

Kind regards

Stephen Koukoulas


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This is an article that was first published in Crikey on 13 February 2013. Link here:


There’s a perception the Coalition are better at cutting spending than Labor, but the Rudd and Gillard governments have cut spending significantly. John Howard was the big spender, says Stephen Koukoulas.

If the current Labor government delivered growth in real government spending during its first five years in office at the same pace the Howard government had in the years from 2000-01, government spending would be almost 6% (or around $20 billion) greater in 2012-13 than is the case. If we take these numbers out to eight years, the gap between the big-spending Howard government and the fiscally prudent Labor government gets even wider.

This is exactly the point the International Monetary Fund noted about the Howard government in a recent study; that it needlessly and wastefully boosted spending in the last two-thirds of its term of office.

In terms of government spending growth, the current government is one of fiscal rectitude and prudence in stark contrast to the Howard government, particularly after 2000-01, when it went on a spending spree that has only been exceeded by the Whitlam government.

Had Labor spent at the same pace as the Howard government did from 2000-01, there would be no chance of a budget surplus in any year of the forward estimates out to 2015-16. The level of government debt, to the extent it matters, would be more than 50% larger by 2014-15.

In terms of the facts, the average annual growth in real government spending in five years from 2000-01 under Howard was 4.3%; for Labor in the five years since 2007-08, the average annual increase has been 3.4%, a huge difference given that annual spending is over $360 billion.

Those five years of excessive government spending during the Howard government have not been cherry-picked to make a point. If we look at the final eight years of the Howard government, the average annual increase was 4.0%; for Labor taking the numbers into the three years of the forward estimates to get an eight year comparison, the average annual rise is 3.2%.

The extraordinary facts about government spending take into account the unprecedented fiscal stimulus measures from the Labor government that accompanied the global financial crisis. Indeed, in 2008-09, real government spending rose by a massively strong 12.7% as the government worked to sustain the economy and preserve jobs. That spending boost has now been unwound.

“To many Australians, the perceptions about the major political parties and government spending and fiscal prudence are the reverse of the reality.”

These facts are not widely understood or acknowledged. Indeed, to many Australians, the perceptions about the major political parties and government spending and fiscal prudence are the reverse of the reality.

Just last week, Opposition Leader Tony Abbott in his speech to the Press Club said, uncontested: “The Coalition can keep government spending in check … For this government, though, the solution to every problem is more spending.”

Abbott said in December that “this is a government that is spending too much”. He has also said, “as the Howard government demonstrated, prudent fiscal management is in the Coalition’s DNA”. There are many similar quotes.

The issue is that Abbott is factually incorrect. Secondly, his statements are rarely challenged by journalists. Thirdly, the government seems unable to challenge the orthodoxy, mythical as it is.

In simple terms, the facts show that in the five years from 2000-01, the Howard government increased real government spending by around 23%. In the five years from 2007-08, when Labor has controlled the budget purse strings, growth in real government spending has been a tick over 17%,including the 12.7% increase in 2008-09 when the GFC was bearing down on the Australian economy, threatening a recession.

The interesting aspect of government spending growth over the past few decades, including in the current environment, is that Coalition governments boost aggregate government spending, while Labor governments tend to cut spending at times when the economy is doing well.

This could explain why mortgage interest rates shot up to 9.6% as a result of the excessive government spending of the Howard government while today, they are just above 6%. The RBA was working to offset the inflation pressures being added too by ill-disciplined Howard government spending.

Never once did the Howard government deliver a cut in real spending in any of its 12 budgets. Nor did the Fraser government, for that matter, ever deliver a cut in real spending in its seven budgets. Twenty Coalition budgets and never a fall in real government outlays. This is staggering when put against the perceptions and rhetoric that so often do the rounds.

For the Labor party, which unquestionably spent up big as the GFC hit, there have been two years in the current period of government where real government spending has fallen, in 2010-11 and this year, 2012-13. Indeed the cut in government spending this year is the largest cut ever recorded. It is worth noting at this point that there were three years in the Hawke/Keating era where there were cuts in real government spending, so over the last 40 years, the Coalition have never once cut spending while the Labor Party has delivered real cuts in five of its budgets.

Which makes Abbott’s promise about cutting spending hard to believe, a point even more non-credible when he refuses to outline the annual cuts of around $15 billion that are needed to cover the loss of revenue from abolishing the carbon price and mining tax and to fund his extra spending commitments.

*Stephen Koukoulas is research fellow at Per Capita, a progressive think tank

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The little blue book

Below is a posting that was published in The Melbourne Review. Link here:


While nothing is certain, it would take a massive change in fortune, polling and betting market pricing for there to be any thing other than a Coalition victory at the September 14 election.

This of course means that on September 15, Mr. Abbott will probably be Prime Minister, Mr. Hockey, Treasurer and Mr. Robb, Finance Minister.

It will be the first time in six years that there will have been a Coalition government and Mr. Abbott will become only the third Liberal Party leader to be Prime Minister in the last 40 years.

On taking office, Mr. Abbott and senior Ministers will be given the so-called Blue Book from Treasury. The Blue Book is a document prepared in the lead up to each election by Treasury for the Opposition of the day in the event of a change in government.

The Blue Book gives the newly elected government an up-to-date assessment of economic conditions and the outlook for the economy; it includes analysis of the various policy announcements made by the Opposition in the lead up to the election and touches on a checklist of big picture themes that Treasury judges to be important short- and medium-term issues that the new government will need to consider as it starts the job of running the country.

It is probably one of the documents most subject to Freedom of Information requests given its sensitive analysis of Opposition economic policies. It has never been released under FOI laws, because, according to Treasury, it sees the information contained therein as “an incomplete draft” of its advice and analysis of Opposition policies.

Treasury continues, “consistent with the Treasury’s long standing policy to protect the confidentiality of advice prepared for a government that is not formed, and consistent with the Treasury’s normal administrative practice, the Blue Book was not finalised,” and after the 2010 election, it noted the strong views of the Leader of the Opposition, Mr. Abbott, “that the release of oncoming government briefs would contravene the Westminster conventions”.

Such is the political dynamite in these documents.

That aside, the importance of the Blue Book has been diluted a little in recent elections because of the requirement for the Secretaries of Treasury and Finance to publish a Pre-Election Economic and Fiscal Outlook (PEFO) within 10 days of the writs for the election being issued. This means that in the upcoming election, the latest economic forecasts, budget projections and estimates of tax and revenue will be available for all to see on or before August 22. They will, of course, be based on the existing policy settings and will take no account of hypothetical scenarios such as a change of government.

The PEFO is a good initiative, introduced by Mr. Costello when he was Treasurer as part of the Charter of Budget Honesty. The PEFO effectively prevents the government of the day fudging budget or economic figures just before the election and it stops a newly elected government from having any excuse to break promises because the prior government was hiding a budget or economic problem from scrutiny.

Which brings us back to the early days and weeks of the likely Abbott Government.

Mr. Abbott’s policy announcements to date involve commitment to reduce government revenue and add to government expenditure. This means a larger deficit unless savings are identified in the seven months until polling day. Abolishing the carbon price and the mining tax are two high profile and revenue-sapping promises offset in part by cutting the school kids bonus, hiking income tax (reducing the tax-free threshold) and cutting other payments.

Mr. Abbott is also committed to increase spending on infrastructure, increase defence spending to 3 percent of GDP, buy new boats to protect Australia’s borders, index the superannuation of defence personnel, give government funded concessional loans for small business indirectly impacted by natural disasters, increase the education tax rebate, establish a “green army” and spend more on roads, to name a few.

In addition, the Direct Action Plan to cut carbon emissions will have significant budgetary implications, all of which points to the need for some policy changes elsewhere in spending or higher taxes to pay for all the commitments. The fiscal outlook for Mr. Abbott is even more challenging given the Coalition is also committed to having a budget surplus of 1 percent of GDP.

It is likely that Treasury and Finance are already working hard on the background for the Blue Book given the range of policy changes that have already been outlined by Mr. Abbott and his economic team.

There is no doubt that for there to be policy credibility and consistency and no broken promises, Mr. Abbott will need to have the Coalition’s policy proposals articulated and costed so that when he walks into the Treasury building with Mr. Hockey and Mr. Robb a few days after the election, he is not confronted with a Blue Book that shows that his policy agenda cannot be delivered.


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Election betting: Coalition – better than bank interest?

The betting markets are in full swing for the 14 September 2013.

I will be posting on this issue from time to time and here is the first take.

There are seven betting agencies offering odds for the election. The best I can see for the Coalition is $1.17; best for Labor $4.85. A week or so ago, Coalition were $1.28 and Labor $3.65. But Craig Thomson, Newspoll, Essential poll and a few dollars of wagers saw the blow out.

Seven months from election day, and betting markets offer little guide to outcomes. That said, $1.17 would be a nice 17% tax free return for those who reckon the race is all but over and Mr Abbott will be in the Lodge in September.

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An open letter to Joe Hockey, the Treasurer in waiting

An open letter to Joe Hockey, the Treasurer in waiting

Dear Mr Hockey

If the opinion polls are right, you will be Australia’s 37th Treasurer on 15 September 2013.

All the very best to you if in fact that is the case because economic policy, economic growth, job creation and rising living standards are key aspects of macroeconomic management. I hope you can extend the current era of 21 years of growth for at least another three.

I must say that when I see your leader, Mr Abbott, talking economics I am worried you will not be able to deliver some of the promises you are starting to articulate. Budget surpluses and lower debt are the means to an end, not the end themselves. Your focus on the surplus and debt is unnerving, a point all the more evident when we look to the fiscal austerity being delivered in much of Europe, the UK and even in the US.

If I am wrong and you are right, I assume you would expect the Australian economy to be “doing better” in the years after you move to the Treasury benches.

To that end, can I offer a very simple and professional challenge  – that you will not do any better than the current economic indicators show on GDP growth, inflation, unemployment, wages and interest rates.

By way of background and as things stand, annual GDP growth is 3.1 per cent, the annual inflation rate is 2.2 per cent, the unemployment rate is 5.4 per cent, annual growth in the wage price index is 3.7 per cent and the standard variable mortgage rate is 6.45 per cent. These numbers can be verified from the ABS and RBA websites. They are correct.

If the economy will be better run under your stewardship, as you claim, I would assume you will be achieving better outcomes than these results, otherwise your claim does not stand up to scrutiny.

The crux of the challenge is that, on 30 June and 31 December in each of 2014, 2015 and into 2016, we take a snapshot of the latest available data for GDP, inflation, the unemployment rate, wages and interest rates.

If as Treasurer you claim these results to be of your making, as you should, you will rightly claim success if GDP growth is above 3.1 per cent, inflation is below 2.2 per cent, the unemployment rate is below 5.4 per cent, wages growth is above 3.7 per cent and the mortgage rate is below 6.45 per cent.

If the majority of these indicators are in your favour at each benchmark period, you will be a winner (so will the Australian economy!) and I will happily donate $500 to Canteen, the children’s cancer support group. If a minority of these indicators are in your favour, I do not expect you to donate anything, but I think you would agree that you will have under-performed. That said, it would be nice if you could give something to Canteen.

I hope you consider this challenge in the good spirit with which it is intended. Perhaps you will convince me to come around to your thinking in the months ahead as you reveal more details of your policy agenda. If you do happen to be Treasurer on 15 September 2013, I hope you can deliver the same sorts of macroeconomic outcomes that have been seen in recent years and not get too hung up about surpluses and debt.

I look forward to hearing from you.

Kind regards

Stephen  Koukoulas

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Recent media

Over the weekend, I was delighted to appear on Inside Business and on RN Saturday extra.

Here are some links to those sessions.

Inside Business with Alan Kohler here:


Radio National with Geraldine Doogue here:



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