#joshfrydenberg

Trillion Dollar Baby?

What will it take to wake the media up to the fact that the way our government is spending it won’t be long before we are a $1 trillion net debt baby?.

Our current federal liabilities (p.121) stand at $1.002 trillion (which is pre COVID19). Have the media bothered to look at the state of the budget accounts? Or are they too busy lavishing praise on rescue packages which have a finite lifespan.

We pointed out yesterday that the “revenue” line could be decimated by the disruption – huge cuts should be anticipated in the collection of GST, income, company and excise taxes. Not to mention huge rebates to be paid to now unemployed workers. On an annualized basis the revenue line could get thumped 30-40% if this continues for 6 months.

So on the back of an envelope, it is not very hard to work out that with a current $511 billion revenue line looking to fall towards the early to mid $300 billion mark against a projected expense bill of $503 billion a deficit of $150bn will open up. Throw on c$150bn of COVID19 stimuli arriving by June 30th and we get a $300 billion budget deficit. Our net financial worth would grow from minus $518 billion to negative $818 billion.

Rolling into next year, it is ludicrous to think that hibernated businesses will have resumed as normal. This means that the following year’s tax revenue line will look as sick as the previous period. The government will be torn shredding the expense line as unemployment shoots higher so assuming minimal budget cuts, it could face another $200 billion deficit taking it north of $1 trillion net liabilities in a jiffy.

Let’s not forget what the states may face. Severely lower handouts from the federal government via GST receipts which will balloon deficits, a trend we’re already seeing.

The states currently rely on around 37-62% of their revenue from the federal government by way of grants. The balance comes through land/property taxes, motor vehicle registration, gambling and betting fees as well as insurance and environmental levies.

All of those revenues lines can dry up pretty quickly. 40% of state budgets are usually spent on staff. Take a look at these eye watering numbers.

NSW spends $34 billion on salaries across 327,000 employees.

Victoria spends $27 billion across 239,000 public servants.

Queensland uses 224,000 staff which costs $25 billion per annum.

WA’s state workforce is 143,000, costing $12.6 billion.

SA has 90,000 FT employees costing $8.5 billion.

Tasmania 27,000 setting taxpayers back $2.7 billion.

Just the states alone employ over 1.05 million people at a cost of $110 billion pa!! The territories will be relative rounding errors.

A lot of the states have healthy asset lines which are usually full of schools, hospitals, roads and land). These are highly illiquid.

Unfortunately, one of the golden rules often forgotten in accounting is that liabilities often remain immovable objects when asset values get crucified in economic downturns. When markets become illiquid, the value of government assets won’t come at prices marked in the books.

How well will flogging a few public hospitals go down politically to financially stressed constituents?? This is why gross debt is important.

The states have a combined $202 billion outstanding gross debt including leases.

Throw on another $150 billion for unfunded superannuation liabilities. Good luck hitting the “zero by 2035” targets some state have amidst imploding asset markets. It simply won’t happen. If only these liabilities were marked to market rather than suppressed by actuarial accounting. The WA budget paper (p.42) notes the 0.4% bump to the discount rate to lower the pension deficit figure. To be fair, they are far less outrageous than US state pension deficits.

How must the State Gov’t of Queensland be praying that Adani keeps plowing ahead? How Greyhound must regret terminating a contract to ferry construction workers to the mine? We doubt the incumbent government will have a climate change bent in the upcoming Oct 31 state election. See ya.

The trillion dollar federal debt ceiling seems like a formality especially as the chain reaction created by the states puts on more pressure for the federal government to inject rescue packages to prop up their reversal of fortune budgets. It is that trillion with a T headline that will get people’s attention.

In short, we ain’t seen nothing yet.

Only one you can’t stop crashing at your place during COVID19 is the economy

Warning Signs Investors Ignored Before the 1929 Stock Market Crash ...

Brace yourself.

COVID19 will be defeated but the cure is turning out to be way worse than the disease.

Unfortunately, the sad reality is that at the rate governments are tightening legislation to keep us in shut down mode, we are day-by-day staring at a great depression.

While some will praise governments for throwing the kitchen sink at the economy with all manner of stimulus packages, the relief will be temporary because all of the ammunition for a sustainable recovery had been depleted years earlier. It is like supplying an alcoholic on rehab with an all-you-can-drink open bar.

Our feckless RBA has just embarked on QE, a mission that has failed every other central bank that has tried it. The velocity of money has been falling for decades. Who will be given access to borrowing at zero interest rates when the economy is in freefall? Which banks will lend against properties that will likely implode in value? 50% down? To think of all the reckless “first home buyer” schemes that loaded young people at the top of the property market. The RBA has been complicit. Not wanting to put pressure on the government to reform, it just kept cutting rates to keep housing afloat. It was totally negligent in its duty even though it will signal its role as a rescuer of last resort.

When will banks be forced to mark to book the value of mortgages on their balance sheet? Equity is thin as it is. 15-20% equity buffer to mortgages is pretty wafer-thin. They need to do this immediately so we can properly assess risk. Forget stress tests by APRA. They’re meaningless. Our housing market will collapse with higher unemployment. 50% falls from here are possible. Remember there will be hardly any buyers. Prices fell up to 90% in Japan after its property bubble popped.

Worse our regulators have been asleep at the wheel chasing financial institutions on their commitment to climate change, the absolute least relevant metric to save them from here. It shows how complacent they became.

Australia has made some interesting crisis policy choices. For instance, PM Scott Morrison is trying to pass rent moratoriums where landlords suspend payments from tenants until things return to normalcy. It is not enshrined in law yet. In principle that is a nice gesture even if the government is subsidizing the banks for forgone interest due to short term loan repayment moratoriums. Let’s assume this continues for 6 months. Apart from the astronomical size of the subsidy, who will ultimately end up sacrificing the 6 months? Landlords? It won’t be the tenants.

Shouldn’t landlords be free to choose whether they are prepared to forgo rent or not as a purely rational business proposition? Shouldn’t a landlord be free to enforce a rental agreement? Will contracts matter anymore?

At some stage, the free market must be allowed to function and the government will hit a tipping point of weighing stopping economic armageddon by allowing businesses to function and the marginal risk of infections. The people will be crying for this if shutdowns remain.

Landlords may be labelled un-Australian or worse but in 6 months time, if unemployment has surged to nose bleed levels well above the 6% we saw during GFC at what point will disposable income be able to support a daily coffee at a cafe?

A cafe might soldier on for a further 3 months on skeleton staff before realising that they can’t cover costs. A landlord would be well within reason to demand that early cancellation clauses and fees are enforced.

Then what of all the invoices to coffee suppliers, bakeries who provide muffins and croissants and utilities? Who misses out? What about the invoices of the coffee supplier? Will the bakery get called on by its flour supplier to pay upfront for future deliveries when it has no operating cash flow, instead of the long-standing 60-90 day terms? That happens overnight. It isn’t a managed outcome. Cash is king.

The question is why hasn’t the government taken advice from the banks on business lending so it can better assess the risks involved from those that deal every day with small companies?

We can’t just shut an economy down for 6 months and expect a return to normal when it is all over. Unemployment rates are likely to surge well above 10%.

As we wrote in an earlier piece, there are 13.1 million Australians employed as of February 2020. Full-time employment amounted to 8,885,600 persons and part-time employment to 4,124,500 persons. Retail trade jobs come in at a shade over 1.2 million jobs. Construction at 1.15 million. Education 1.1 million. Accommodation/restaurants /bars etc at 900,000. Manufacturing another 900,000. Noticing a trend in our employment gearing?

We can fudge the unemployment figures however we like. We can pay $1,500 a fortnight for 6,000,000 workers to pretend they still have a job. That is $18bn a month. The PM can talk about how this will help us bounce on the other side. If it continues for just over 6-months can the budgeted $130 billion will be spent. This is separate to NewStart payments too.

Yet, will people lavishly spend or pay down debt and economise as best they can? We think the latter unless moral hazard has truly sunk in.

What people need to understand is that our Treasury expects to raise $472.8 billion in taxes for FY2019-20. Throw in sales of services, interest and dividend income and that climbs to a total of $511 billion. Expenses are forecast at $503 billion. In the following three years Treasury anticipates $490.0 billion,  $514.4 billion and $528.9 billion in taxes. Expect those totals to be cut significantly.

So if ScoMo’s JobKeeper rescue package for workers goes beyond 6 months, that is equivalent to 27% of annual tax revenues. That doesn’t take into account the slug to tax collections of lower GST and vastly lower income tax for individuals and corporates. That is just at the federal level.

Note, states such as NSW have recently waived payroll taxes for small businesses in a  $2.3bn stimulus package. We shouldn’t forget that the NSW Government is the largest employer in the Southern Hemisphere at 327,000 staff.

We remind readers that according to the RBA small businesses employ 47% of the workforce. Medium enterprises employ 23%. That is 70% of the entire workforce who are most at risk from a slowdown.

In 2019-20 income tax collections will make up $220 billion. Company tax was forecast to generate $99.8 billion. GST $67.2 billion. Excise taxes (petrol, diesel, tobacco etc) $44.7 billion. This data can be found on page 21 here.

Local cafes are reporting a 60~80% fall in revenue. Pretty much all casuals have been let go. It is a bit hard to survive on coffee when a lot of stores aren’t stocking pastries for fear of spoilage.

It is not hard to assume a scenario where government income taxes fall to $160 billion (-28%) due to mass layoffs. One assumes many people will be able to get a tax rebate come June 30th. So this number may end up being conservative on an annualised basis.

Company tax could plunge to $40 billion annualised due to the drastic fall in revenues as customers change the manner of contracts and reign in their own spending. Anyone that thinks that business will resume as normal is crazy. The ripple effects will be huge.

Excise taxes may drift to $35 billion as people cut back on drink (currently $7bn in tax revenue), are limited in places to drive negating the need to fill up (currently $18bn in total tax take). The $17 billion in tobacco excise may weather the storm better than most.

GST could fall to $50 billion. People just aren’t spending much outside of food. Massive retail discounts will not make much difference. GST will be the best indicator of how much the economy has slowed. Even if we start to see a massaging of the GDP numbers, GST won’t lie. It will be the safest indicator.

If our assumed tax revenue sums to $285 billion annualised from the budgeted $472 billion that equates to a 40% haircut.

Trim the ‘other revenue’ column to $30 billion from $39 billion and we have $315bn. Will the government then chop away at the $503 billion in expenses? All of the stimuli doesn’t arrive at once but a lot of it in relatively short order. Surely a $300~400 billion deficit is a fait accompli?

We should also anticipate forward year tax revenues be cut c.30% for several years after. The question is when does the government realise that it must cut the public service and scrap wasteful projects like French submarines and other nice-to-have quangos? We won’t see a budget surplus for decades.

We must careful not to fall into the trap Japan finds itself in. It has a US$1 trillion budget funded by US$600bn in taxes and US$400bn in JGB issuance. Every. Single. Year.

Nothing short of drastic tax and structural reform will do. Instead of behaving more prudently by cutting budgets when we had the chance, instant gratification created by governments desperate to stay in power has only weakened our relative position. Since 2013, the Coalition has been responsible for 46% of the total amount of all debt issued since 1854.

States should quickly realise that the $118 billion in federal grants going forward will also be curtailed. NSW will likely fare the worst because its financial position is by far the best.

If the government had a proper plan, it would be looking to what essential industries have been given up to the likes of China that we need to onshore. Medical equipment, masks or sanitiser. For cricketer Shane Warne to be converting his Seven Zero Eight gin factory to produce hand sanitiser shows how much of a joke our local manufacturing has become.

We must never forget that a Chinese government-owned company displayed the Communist Party’s mercenary credentials by (legally) buying 3,000,000 surgical masks, 500,000 pairs of gloves and bulk supplies of sanitiser and wipes. So not only was it responsible for covering up the truth surrounding the virus in the early stages of the pandemic, we openly let it compromise our ability to combat the virus when it hit our shores.

China has shown it doesn’t give a hoot for ordinary Australians. So why should we continue to fold to its whims and cowardly surrender our industries for fear it’ll stop dealing with us? It is nonsense. We have some of the highest quality mineral resources which it depends on. We can bargain. We have chosen to appease a bully.

Our Foreign Investment Review Board (FIRB) needs to be far more vigilant to prevent takeovers by Chinese businesses. We should openly accept the way China conducts business practices and recognise that it is often incompatible with ours when national security is at stake. Surely this crisis has highlighted the true colours of the political system in Beijing.

That leads us to Japanese companies. Many are seriously cashed up, have a favourable exchange rate and have a long-standing history of partnering with local businesses. We should be prioritising our relationship with Japan and look to have them invest in our inevitable capital works programs – specifically high-speed rail. It is the type of project that has meaning for the future and a long enough timeline to turn an economy around.

People need to be prepared for the reckoning. There is no point softening the blow. The brutal truth will eventually arrive and we will have only put ourselves in an even weaker position with the policy suite enacted so far. Time to be rational about risk/reward. Whether we like it or not, the minimum wage will need to be cut substantially in order to get the jobs market alive again. Don’t worry, unemployment will be so high that people will demand minimum wages are cut because it is far superior to the alternative!

(Time to ditch your industry super and start shovelling your superannuation into gold)

Surely lightning can’t strike twice, RBA?

The video posted here is of then Treasury Secretary Hank Paulson who steered the US financial system through the GFC. He is speaking to the Financial Services Committee in 2009. Perhaps the most important quote was the one that world central banks failed to heed –

Our next task is to address the problems in the financial system through a reform program that fixes our outdated financial regulatory structure and that provides strong measures to address other flaws and excesses.

Central banks across the globe honestly believe in fairytales to think they have learnt the lessons of 2008 or 2000 for that matter. Sadly they continue to use the only tool they possess – a hammer – which would be great if every problem they encountered was actually a nail.

When will people realise that had central banks practised prudent monetary policy over the past 20 years, they would possess the ammunition to be able to effectively steer the economy through Coronavirus? Everything the RBA and government are deploying is too little and too late. They never ran proper crisis scenarios and are now scrambling to cobble together an ill-contrived strategy wasting $10s of billions in the process all at our expense.

Central banks only have one role – to support markets with consistently sound monetary policy that creates confidence in the marketplace. Not run around like headless chooks and make knee-jerk responses and follow other central banks off a cliff like lemmings to disguise their own incompetency. The willful negligence displayed by our monetary authorities needs to be recognised. The RBA has got the economy trapped in a housing bubble of their own creation.

So when the RBA talks about, “Australia’s financial system is resilient and it is well placed to deal with the effects of the coronavirus” it couldn’t be further from the truth.

While it is true to say that Australia is relatively more healthy than other economies in terms of the percentage of GDP in national debt, the problem is we rely on the health of our foreign neighbours. 37.5% of our exports go to China. What is the first thing that will happen when our trading partners suffer economic weakness at home? Nations that exercise common sense will look to push domestic production and supply so as to boost their local economies. It is a natural process.

Sadly the RBA, APRA and ASIC have been too busy convincing us that climate change was a priority rather than getting businesses to focus on sensible commercially viable shareholder-friendly strategies. Some groups like the AMA have been encouraged to parade their climate alarmist virtues on breakfast TV.

Unfortunately, instead of focusing on fireproofing our establishments from ruthless cutthroat overseas competitors, our businesses and commerce chambers waste time on chasing equality and diversity targets instead of striving to just be the “best in class”.

Sure, we may have certain raw materials (that the lunatic Greens and Extinction Rebellion protestors will do their best to shut down) that China or other nations will rely on, our service sector weighted economy will be crushed. Almost $250bn, a fifth of our GDP, derives from exports.

Just look at Australian business investment as a % of GDP dwindle at 1994 lows. Mining, engineering, machinery and even building investment are nowhere.

That means our ridiculously high level of personal debt will become a problem. It stands at 180% of GDP as recorded by the RBA on p.7 of its Chart Pack. Most of this debt is linked to housing. Housing prices should crater should coronavirus not be solved in short order. Delinquencies will surge. Families that are funding a mortgage with two incomes may end up being forced to do in with one. Then we cut our gym memberships, Foxtel and stop buying coffee from our local cafe. It is the chain reaction we need to be wary of.

That will work wonders for banks with 60-70% mortgage exposure and precious little equity to offset any ructions in housing prices. If you thought Japan was bad after its bubble collapsed – you ain’t seen nothing yet. By the time this is over we could well see Australian banks begging for bailouts. Note that cutting interest rates further kills interest rate spreads and smacks the dollar which hikes the cost of wholesale funding which these banks heavily rely on.

Yet our RBA knows that it must choose the lesser of two evils. It needs to keep the bubble inflated at all costs because the blood that would come from bank failure is just not worth contemplating. Maybe if they had listened to Hank Paulson they might have been able to hold their heads high rather than showing off, the fool’s version of glory.

Milton Friedman once said,

The power to determine the quantity of money… is too important, too pervasive, to be exercised by a few people, however public-spirited, if there is any feasible alternative. There is no need for such arbitrary power… Any system which gives so much power and so much discretion to a few men, [so] that mistakes – excusable or not – can have such far-reaching effects, is a bad system. It is a bad system to believers in freedom just because it gives a few men such power without any effective check by the body politic – this is the key political argument against an independent central bank.

How right he was. When the economy tanks, await the RBA and government pointing fingers at each other when both failed to avert the coming crisis which had been so bleeding obvious for so long.

Batten down your hatches.

$14bn shock for Shorten. Not $100m

Image result for bill shorten ev

Let’s face it, pre-election budget boasting is a beauty contest we can do without. Fanciful promises guarantee we will not end up in surplus. Shorten’s speech was loaded with mistakes. Let’s cut through some numbers.

The Coalition put forward the following on Tuesday.

What escaped many in the Frydenberg budget of Tuesday is that to fund the 16.8% jump in tax receipts on 2018/19, individual taxpayers will still see their pockets hit +18.4% in aggregate even after including the ‘generous’ rebates. Superannuation tax collections will jump 43% in 4 years time.

NDIS spending is targeted to be 92% higher by 2022/23 than last year. Medicare +24%, public hospital assistance to the states +21%, aged care services +27%. For all the celebrations of lowering pharmaceutical rebates for one wonder drug from $120,000 to $6.50, the reality is spending in this segment will fall 18.4% in total. The family tax benefit will squeak 4% higher in the next 4 years.

As written on Tuesday, the revenue projections of the government are unrealistic as we stare at a slowing world economy. German industrial production in March cratered to 44.1 and China’s auto sales continued a 7-month double-digit slump in February.

Analyzing the Labor response

Shorten claimed NDIS was cut A$1.6bn to get a surplus. Under Frydenberg’s budget, NDIS for 2019/20 will rise A$4.5bn. Out to 2022/23, it rises to over A$24bn.

The Opposition Leader also made reference to A$14bn in cuts to public schools. Note the funding to public schools on 2013/14 was A$4.8bn. In 2018/19 it was $7.7bn and projected in 2022/23 to be A$10.4bn. 

$200mn to renovate nursing campuses in Australia won’t achieve much. The John Curtin Medical Research School at the ANU cost $130mn alone.

Shorten made reference to bushfires being caused by climate change. Fire & Rescue NSW notes that 90% of fires are either deliberately or accidentally set. A Royal Commission after the horrible Black Saturday bushfires showed that policies which restricted backburning reduction targets were to blame for the larger spread of fires, not climate change. In 2013, Tasmania learned none of the lessons with similar policy restrictions preventing the Tasmanian Parks & Wildlife Service to complete more than 4% of all the 2.6m hectares it manages. The reef is not being damaged by climate change and floods and drought are no more frequent or severe than a century ago.

While climate alarmists will relish the prospect of 50% electric vehicles (EV) and cut emissions 45% by 2030 to save the planet, a few truths need to be considered:

1) our own Chief Scientist, Alan Finkel, has admitted that no matter what Australia does to mitigate global warming our impact will be zero. Naught. Nada. Putting emotion to one side, is there any point in spending $10s of billions to drive electricity prices?

2) South Australia and Victoria have already beta tested what having a higher percentage of renewable energy does or rather doesn’t do for sustainable and reliable baseload power. Both states have not only the highest energy prices in Australia but the world. These stats are backed up in Europe. The EU member states with a higher percentage of renewables have steeper electricity prices than those with less. These are facts.

3) Consumption patterns matterLast year Aussies bought only 2,200 EVs. In 2008, SUVs made up 19% of the new car sales mix. Today they make up 43%.
In 2008, c.50m total passengers were carried on Australian domestic flights to over 61m today. The IATA expects passengers flown will double over the current level by 2030. These are hardly the actions of people panicked about cataclysmic climate change. Or if they are, they expect others to economize on their behalf.

Qantas boasts having the largest carbon offset program in place yet only 2% of miles are paid for, meaning 98% aren’t. 

4) Global EV production capacity is around 2.1m units. While rising, it is still a minor blip on 79 million cars sold worldwide. Add to that, auto parts suppliers and car makers are reluctant to expand capacity too fast in a global auto market that is slowing rapidly.

Car sales in China have fallen for 7 straight months. In Feb 2019, sales fell 13.8% on the back of January’s -15% print.  Dec 2018 (-13%), Nov 2018 (-13.9%) & Oct 2018 (-11.7%) according to the Chinese Association of Automobile Manufacturers (CAAM). The US and Australian car markets are under pressure too. 

5) So haphazard is the drive for EV legislation that there are over 200 cities in Europe with different regulations. In the rush for cities to outdo one another this problem will only get worse. Getting two city councils to compromise is one thing but 200 or more across country lines?

Without consistent regulations, it is hard for makers to build EVs that can accommodate all the variance in laws without sharply boosting production costs. 

6) Fuel excise tax – at the moment, 5% of our tax revenue comes from the bowser. $25bn! Will Mr. Shorten happily give this up or do we expect when we’ve been forced to buy EVs that we will be stung with an electricity tax on our cars?

7) Norway is a poor example to benchmark against. It is 5% of our land mass, 1/5th our population and new car sales around 12% of Australia. According to BITRE, Australia has 877,561km of road network which is 9x larger than Norway.

Norway has around 8,000 chargers countrywide. Installation of fast chargers runs around A$60,000 per unit on top of the $100,000 preparation of each station for the high load 480V transformer setup to cope with the increased loads.

Norway state enterprise, Enova, said it would install fast chargers every 50km of 7,500km worth of main road/highway.

Australia has 234,820km of highways/main roads. Fast chargers at every 50km like the Norwegians would require a minimum of 4,700 charging stations across Australia. Norway commits to a minimum of 2 fast chargers and 2 standard chargers per station.

The problem is our plan for 570,000 cars per annum is 10x the number of EVs sold in Norway, requiring 10x the infrastructure.

While it is safe to assume that Norway’s stock of electric cars grows, our cumulative sales on Shorten’s plan would require far greater numbers. So let’s do the maths (note this doesn’t take into account the infrastructure issues of rural areas):

14,700 stations x $100,000 per station to = $1,470,000,000

4,700 stations x 20 fast chargers @ A$60,000 = $5,640,000,000 (rural)

4,700 stations x 20 slow chargers @ A$9,000 = $846,000,000 (rural)

10,000 stations x 5 fast chargers @ A$60,000 = $3,000,000,000 (urban)

570,000 home charging stations @ $5,500 per set = $3,135,000,000 (this is just for 2030)

Grand Total: A$14,091,000,000

Note that Shorten pledged $100m to EV charging stations around Australia to meet his goals. Even if he was to skimp on 2 fast and 2 slow chargers per stand, Aussies taxpayers will need to shell out $6.5bn. At least he could technically cover that with repealing $6bn in franking credits.

Norway’s privately run charging companies bill users at NOK2.50 (A$0.42c) per minute for fast charging. Norway’s electricity prices are around NOK 0.55 (A$0.05c) per kWh to households.  In South Australia, that price is 43c/kWh. So will Shorten subsidize an EV owner charging in Adelaide at the mark up a private retailer might charge? 

What about subsidies to EV buyers? If we go off Shorten’s assumptions of $3,400 per EV at 570,000 EVs per annum, the tax payer will fork out $1.94bn a year.

Will there be a cash-for-clunkers scheme?  If the plan is to drive internal combustion powertrains off the road, existing owners may not be emboldened with the decimation in the value of their existing cars. Let’s assume buyers are irrational and accept $3,000 per car (Gillard offered $2,000 back in 2010) trade-in under the scheme. That would amount to $1.73bn.

8) Making our own batteries! While it is true Australia is home to all of the relevant resources, sadly we do not have enough cobalt to make enough of them.

Australia is home to only 4% (5,100t) of the world’s cobalt. 60% of the world’s cobalt comes from DR Congo which has less than satisfactory labour laws surrounding children. If we want cheap EVs, we have to bear that cross of sacrificing children to save the planet. It can’t be done any other way.

Li-ion batteries consume around 42% of the globe’s cobalt supplies. Cars are 40% of that. The rest being computers, mobile phones, etc.

9) Automakers have set up their own battery capacity to supply internal production. Given our terrible history in automotives, we should not expect them to line up to buy our batteries.

Nissan spent around A$770m on a battery plant in Sunderland. Panasonic plowed $2.8bn into the battery plant that supplies Tesla.

10) Australia has no real homegrown industrial scale EV battery technology. If we bought in a technical license, that will only make our production costs prohibitive on a global scale. Our high wage costs would add to the improbability of it being a sensible venture.

All in, Shorten’s EV plans could cost Australians well over $20bn with c.$4bn in subsidies ongoing.

11) Green jobs – according to the ABS, jobs in the renewable sector have fallen from the peak of 19,000 in 2011/12 to 14,920 in 2016/17. The upshot is that green jobs in the renewable sector are not sustainable.

In short, Mr. Shorten’s budget reply was extremely thin on detail. Especially with respect to climate change. The LNP has plenty of ammunition to prosecute the case on his wild costing inaccuracies (as outlined above) yet will they have the gumption to fight on those lines. Saving the planet is one thing.

Loading a stretched grid with EVs and increasing the proportion of less reliable power sources looks like a recipe for disaster. We need only look at consumption patterns to get a true sense of how ‘woke’ people when it comes to global warming. South Australians and Victorians are already living the nightmare of renewables.

This election is about one thing – individual pocketbooks. The electorate needs working solutions, not electric dreams.

Profligacy paid for by wishful thinking

Lots of promises. Lots of grand assumptions. To be honest, best just ignore the minutiae. It’s a complete waste of time. The biggest question is, if the global economy, by Treasurer Josh Frydenberg’s own admission, is slowing down (just look at government bond yields flattening/gone negative) how on earth is Australia going to grow receipts from $485.2bn in 2018/19 to $566.9b in 2021/22? A 17% growth in tax revenue. Expenses will rise from $487bn to $559.9bn respectively. Give aways +15%. Best hope the world economy doesn’t tank. Expenses are locked in. Tax revenues aren’t.

Worse, these projections have all been massaged higher than the 2018-19 budget. What has changed to our overall net position in the last 12 months to gain such confidence? Climate alarmists would blush at the extent of the upward massaging of numbers. Did Treasury sit down after consuming 3 bottles of Absinthe to come up with these revisions? Think about it. How can we get an extra $5.9bn in tax receipts in 2021-22 when conditions are sure to be worsening?

This is NOT an old school Coalition budget by any measure. This is a crossing fingers, closing the eyes and hoping we muddle through budget. If the proverbial hits the fan, a monster deficit is assured. Take it to the bank.

We are technically at full employment. Unless we embark on mass migration (which we’re looking to cut) how will flat wage enduring Aussies and corporates contribute to a 17% rise in the Canberra coffers? Wishful thinking. The government targets around 23.9% of GDP for tax receipts and pats itself on the back for “the government’s average real spending growth is expected to be the lowest of any Commonwealth government in over 50 years.” Although that claim is dispelled by their own tables contained here.

Cutting taxes can create more tax revenue. Poland sliced its corporate taxes in half in 2004 and doubled revenue. However that was more a grey money grab than pure unadulterated tax policy spurring public revenue growth.

Giving away more money to the middle class through tax cuts and hand outs in the hope they spend more seems wishful thinking. The problem is if global growth hits a wall, we don’t have a Howard/Costello surplus to buffer the storm. No $38bn backstop in the war chest.

China, the US and EU are struggling. Things are so bad in the US that the Federal Reserve had to chicken out of any more rate rises because it would tank the economy. Our growth will stall if the world slows. Forget 28 straight years of continuous growth in Australia. The knock on effects will see unemployment surge, consumption fall off a cliff, housing prices crash and tax revenues slump. Forget a $7.1bn surplus. Think $20bn deficit because the promises are too grand and the tax receipts blindingly optimistic.

Of note in the 2019-20 budget is the expansion of the ATO’s tax grab from evil multinationals and HNW individuals who’ve avoided paying their fair share. That will result in a $3.612bn extr over the next 4 years. That against the $5.74bn tax cut for middle class Aussies over the same period. Spending up everywhere. Just not sure why the Treasury hasn’t pointed to where the extra revenue is coming from.

Take the assumptions of 2.75% GDP growth flat to 2020/21. Unrealistic. Treasury assumes the same labour force participation rate with unemployment remaining to 5% and wage growth of 3.25% in 2020/21, up from 2.1%. All looks so simple. Yet inflation is expected to grow to 2.5% meaning real wages will be flat.

Aussies, saddled under 180% debt to GDP, shouldn’t take any sense of comfort from this budget. What Frydenberg presented tonight was nothing more than a hope that the most rosy scenarios play out when thunder clouds are so obviously rolling in. It’s utterly irresponsible. Yet that’s today’s political class – spineless. They’re unprepared to tell Aussies that they have to be prepared to live with much less. Instead of asking us to tighten our belts, a whole load of freebies that can’t be paid for end in our laps so they can hold on to power for a bit longer.

ABC Staff Engagement Survey – less than 50% engaged

The Morrison government is promising $44m in extra funding for the ABC for “enhanced news gathering” over 3 years. When will the Coalition realize that this treat will not make the ABC show any leniency in the lead up to the federal election? Did they even bother reading the ABC Staff Engagement Survey buried on page 94 of the 2017/18 Annual Report? Less than half are engaged.

The ABC conducted its second Corporation-wide employee engagement survey in late 2017. The previous survey was conducted in November 2015, with outcomes reported in the 2016 Annual Report.

The overall employee engagement score from the 2017 survey was 46%, down six points from the 2015 results. 6% down!!!!

This moved the ABC from the median to the bottom quartile when benchmarked with other Australian and New Zealand organisations. Bottom quartile!!!

Employees expressed the need for improvement in several areas, including:

• that the ABC Leadership Team needs to be more visible, accessible and communicate more openly.

that the ABC needs to do a better job of managing poor performance. Even the staff want to move duds on. A commercial spirit among the staff?

• that employees want to know what action is being taken to address feedback received in the survey.

The ABC management (no longer with us) conducted sessions on the back of the survey.

Three key priorities were identified from these sessions:

1. The way in which the ABC recruits, contracts, inducts, develops and manages its people needs a huge amount of work. Inefficiency!!!

2. More communication is needed between teams – employees want to know what other teams are doing, and want less top-down, hierarchical communication. Bureaucracy!!!

3. Many of the ABC’s processes, tools and technology don’t work effectively for its people. Obsolescence!!!

So instead of giving the ABC more money, perhaps an efficiency drive driven by a change manager could achieve the same outcomes desired by the market for far less cost. This reads like an organization that has too much fat.

To that effect, the annual report also noted:

Bureaucracy Stop was launched in March 2018 with the aim of creating a working environment with less bureaucracy and red tape. The program wrapped three months later with 147 ideas on simplification of processes, 55 of which were resolved by the end of the financial year. Where a simplification solution wasn’t available in response to an idea, an explanation was provided as to why that process needed to remain.

What were the dollar savings for these 55 improvements?

Maybe the government should say to ABC management for every dollar saved, the ABC keeps 50c? For a broadcaster with over $1.1bn in funding, 10% of savings would mean they keep c.$60m. Morrison’s $44mn is easily covered.

Digging a bit deeper into the stats of the ABC reveals a big need for overhaul. Comparing 2017/18 and 2015/16 we see that TV audience reach for metro fell from 55.2% to 49.7% and regional slumped from 60.3% to 54.0%. If we go back to 2007/8 the figures were 60.1% and 62.4% respectively. For the 2017/18 period, the ABC targets a 50% reach. Hardly a stretch.

Since 2008, the average salary of ABC’s staff has risen 18% from $86,908 to $105,219. Total staff numbers have risen from 4499 to 4939. Therefore salaries as a percentage of the ABC revenues have risen from 37.1% of the budget to 50%. The ABC’s ability to generate sales from content has fallen from A$140mn in 2015/16 to A$46mn last fiscal year.

The multicultural SBS has seen its budget grow from A$259mn in 2008 to A$412mn in 2017. SBS staff numbers have grown from 844 to 1,466 over the same period with average salaries rising from A$82,689 to A$88,267 or 7.2%. Which begs the question why is the SBS able to operate at 31% of the budget in salaries while the ABC is at 50%? Surely the ABC’s economies of scale should work in its favour? Clearly not.

Australia’s largest commercial terrestrial station, Nine Network, has 3,100 employees against revenues of $1.237bn. So to put that into context, Nine can generate c. A$400,000 per employee whereas the ABC generates A$238,168 in tax dollars per employee. In a sense the ABC could be shut down, and each employee paid $108,000 in redundancy costs annually for two years simply by selling off the land, buildings and infrastructure. The SBS generates A$281,000 in tax dollars per employee. The ABC will argue it deserves $400,000/employee revenues rather than a 46% headcount reduction to be on equal terms with the efficiency in the private sector.

Stop throwing more money at the problem and get an aggressive MD who will make a real difference. Pay him/her millions to save $100s of millions. The taxpayer deserves no less. So do over half the 5,000 employees at the ABC who are dissatisfied with the very organization which is so terribly run.

Australia can learn from Ontario’s Doug Ford on energy policy

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Ontario Premier Doug Ford Jr’s Progressive Conservatives are pulling the plug on 758 renewables projects costing $790mn. The plan is to cut hydro rates by 12% which had been inflated by Wynne’s Liberals for 15 years to subsidize these green projects. Energy Minister Greg Rickford announced that none of the cancelled projects have reached “development milestones,” so believes it should be cheaper to scrap them now.

Three things stand out:

A senior Liberal spokesperson said, “Why would firms do business in Ontario if they see this kind of government meddling?

Well 12% lower electricity prices could be a start. The Liberals should look at how higher electricity prices in South Australia are driving businesses out of the state. The Independent Electricity System Operator said yesterday that “there are other means of meeting future energy supply and capacity needs at materially lower costs than long-term contracts that lock in the prices paid for these resources.

The German contractor needs better lawyers if this is a problem:

The CEO of wind turbine contractor WPD in Germany said in an open letter that it stands to lose up to $100mn on the cancellation of the White Pines project (which residents strongly opposed) for 9 wind turbines which commenced in 2009 yet is still not completed. A turbine a year? That’s a jobs creation scheme…stretch it out for as long as possible to fudge the employment numbers (at taxpayers expense). Did WPD just expect that Wynne would win another term hence not needing to lock down contract terms that covered risk of this sort. Where is the “based on clause 7, section 3 we will seek full compensation for your action.”? Why not mention that in the letter?

Fears of renewable job losses:

All this nonsense about green jobs creation is farcical. The Australian Bureau of Statistics (ABS) renewable employment figures which showed all states seeing declines. By state, South Australia has seen a 65% fall in green jobs since the peak in 2011/12. Victoria down 46%, Queensland down 49%, NSW down 32% & WA down 55%. The problem with green jobs is they are not sustainable.

Premier Doug Ford sacked Hydro One CEO Mayo Schmidt (whom he promised to fire at the June 7 election), a man he dubbed “the $6 million dollar man”without the expected $10.7 million severance payment (reduced to $400,000) and is replacing the company’s board of directors.

Let’s not forget Ford annihilated Liberal Kathy Wynne so badly her party can’t even serve in parliament. While liberals were complaining Ford won it for being a white heterosexual male they overlooked that most constituents which gave Liberals 15 years to show something were sick of being taken for mugs. High electricity prices were a major campaign issue.

An IPSOS poll taken before the poll showed that the Liberals polled “zero” for leading on any issues with respect to economy, energy costs, healthcare, taxes, education, minorities or any other issue…The Ontario Progressive Conservatives were polled as having the best policies for economy, energy and taxes. Just goes to show when you listen to the electorate and actually enact on promises they amazingly like it and can win office.

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