Australia’s Economic Future: RBA Changes, Budget & Taxation Challenges

Australia is on the precipice of new and financially testing times. Australia’s economic future: RBA changes, budget and taxation challenges lie ahead. The decisions made by the Albanese government and Treasurer Dr Jim Chalmers in the upcoming budget will determine how we begin to navigate these difficult years. Already, we are in the midst of a high inflation peak and steeply rising CPI. The RBA, under the aegis of Governor Philip Lowe, has raised interest rates on the cash rate 10 times in a bid to quell demand within the domestic economy. Recession beckons in the boom and bust cyclical dance of the capitalist economy.?Many Australians are now asking, is there a better way?

Reserve Bank of Australia Review Changes

“A Platypus is a duck designed by a committee.”

-???Aussie saying

The federal government has just completed a review of the RBA, which is the largest of its kind ever done on this august body. The findings of the Review of the Reserve Bank of Australia recommend strengthening its ability to make monetary policy decisions in an increasingly complex environment. Therefore, we are going to get a second board tasked with this role specifically – the Monetary Policy Board. A cynical response to this could be, not more bureaucracy and more mouths to feed in the upper echelons of the public service. The Review’s reasons for this new board is that the composition of the existing board is not blessed with enough economic expertise. However, wouldn’t a more prudent and economical measure be just to replace the existing board with the new one? It speaks to me of timidity and this promotes wastefulness. The RBA has been a sacred cow since 1949 and its inception under Dr Harry Coombs. So, we will have a new board directly responsible for the setting of interest rates as of July 2024.

“Treasurer Jim Chalmers indicated in-principle agreement to all 51 of the recommendations made by the review which he set up last July with an eye to making the RBA "fit for the future". “

-???Reuters

Review Criticisms of the RBA’s Performance

“For the low inflation period between 2016 and 2019 there were divergent views among stakeholders on why monetary policy decisions were taken and whether the approach was consistent with the inflation-targeting framework. This highlights that some aspects of the framework and the RBA’s regular communication have not always been clear or detailed enough.

The RBA was initially slow to respond to rising inflation in 2022, along with many other central banks. An overemphasis on wages as a driver of persistent inflation, reliance on forecasting and modelling tools that offered limited insights on the supply side of the economy, and the way forward guidance and the yield target had been designed and used all contributed. Deeper consideration of monetary policy strategy, risks and opposing views, and use of a richer suite of models and data, may have reduced the risk of misjudging inflation.”

-???RBA Review

Philip Lowe has worked at the RBA for 40 years and there have been arguments and views put forward regarding a complacency of perspective. Perhaps, an inability and/or unwillingness to see the economy outside of what he knows from his time with the central bank. Whether this is a fair assessment or evaluation remains debatable. The sense that a fresh perspective is called for, however,, is undeniable. I have highlighted the passage in the Review’s criticism that I think is paramount to the current discussion. Australia is not in the grip of a wage-price-spiral and yet Philip Lowe has continued to warn of its dangers. Economists from The Australia Institute have crunched the numbers and identified price gouging by business indicating a profit-price-spiral at the heart of stubborn high inflation in Australia. Record half yearly profits by many Australian companies have confirmed this. Bankers rarely point the finger at business but regularly do so at workers when it comes to anti-inflationary measures. Bankers are more likely to socialise with the captain’s of industry and commerce than workers or their representatives – it is their shared milieu after all.?The traditional view of the economy places business at the top of the tree and workers’ wages as merely a cost of production.

“Between 2016 and 2019, the bank held official interest rates steady despite unemployment remaining above 5 per cent and inflation staying below its 2 to 3 per cent target band. The RBA expressed concern at the time that a cut in interest rates could destabilise the financial system, largely because of Australian households’ high level of debt caused by large mortgages.”

-???Sydney Morning Herald

“The bigger the hat, the smaller the property”

-???Australian proverb

House Prices Not Included In Inflation Rate

House prices are not included in the data the RBA uses to compile the inflation rate.

“The measures of inflation the RBA use come from the Consumer Price Index (CPI), which is compiled by the Australian Bureau of Statistics.

Firstly, it's because the household sector is purchasing a good from within the household sector, so the purchase and sale of the property is cancelled out within the same sector.

Secondly, an already-existing dwelling is not adding to the supply of homes, and it didn't require the purchase of anything new. It's considered an asset. And asset prices are not included in the CPI — they're included in measures of wealth. That's why soaring property prices, and land values, are excluded from daily measures of inflation.”

-???ABC

Inflation is, often, caused by large amounts of money supply coming in to the economy. Lots of money and limited supply of goods, which is the perfect description of the Australian housing market, means inflationary pressures on prices. The big four Australian banks have pumped large amounts of money via credit for residential loans into our economy. Indeed, they have made most of their long standing giant profits each year from this sector. The effect of high inflation, however, means that your dollar does not buy as much as before. Decades of soaring property prices in the residential sector in Australia tells us that the inflation rate over 30 years would be something like 382%. The results of this, as we all know, is that many Australians cannot afford to buy their own home. This is a ridiculous outcome, when hard working citizens cannot afford to purchase a home because inflation has put it out of their reach. Wage growth in Australia over the last 20 years has been stagnant. Is it good economic governance, for the majority, when a nation’s institutions have overseen such a situation? Now, rents are going the same way and we have a housing crisis on our hands. At the same time, we are seeing a 1 000 new migrants coming into Australia per day on the back of industry groups demanding more workers to fill vacancies. Unfortunately, they and many Aussies will have nowhere to live due to the shortage in rental stocks. Governments have neglected to build social housing over the last two decades and the huge increases in rents means homelessness and property crime rates will spike. This is bad governance and neglectful planning both by the elected governments, RBA, and commercial banking sector.

“Half a loaf is better than none”

-???Australian proverb

There are winners in this situation, these are those folks firmly entrenched as property owners, as their asset worth goes up and up and up. Banks will always favour property owners and those rich in assets, when it comes to the management of the economy and the RBA is no different. The RBA will always favour companies over their workers. The RBA looks out for the interests of property owners over those trying to get into the market. This is the paradigm in which we live in, here in Australia, where the haves are getting much richer and the have nots are falling further and further behind. Australia is fast becoming one of the most inequitable nations on earth, according to new figures released.

“A new paper from the Australia Institute shows 93% of the benefits of economic growth between 2009 and 2019 went to the top 10%, while the bottom 90% received just 7%. The paper shows the share of economic growth going to the top 10% over that period was far higher in Australia than in other developed countries, including the US and Canada. It also showed the phenomenon has been getting worse – in the postwar period, larger shares of the benefit of economic growth have been going to the top of Australia’s income recipients.”

-???Amy Remeikis, The Guardian, 11 April 2023

This has occurred under the direction of the RBA economically and state and federal governments of both persuasions. Australians receive less tax revenue from mining companies digging up our resources than any other nation around the world. We have to seriously ask ourselves, why is this so? Are we plagued with low self-esteem and are soft touches on this basis. Or is there corruption at the political and public servant levels undermining our sovereign rights? Britain, under a conservative government, charges a headline tax rate of 75% for gas and oil producers, upped by 35 % last year. Qatar earns a comparable tax revenue of some $76 billion from its energy exports, whereas we may get $2.6 billion from our gas exports via taxation this year. Norway received around $133.8 billion in tax revenue from miners last year. In addition, Australia generously subsidises the establishment of mining operations to the tune of billions of dollars.

“Australian gas exporters’ earnings soared to a record $92.8 billion in 2022 on the back of intense international demand, with a global energy crunch caused by international embargoes on Russian energy exports driving prices and pushing LNG revenue up 86 per cent in the past twelve months.”

-???Mike Foley, SMH, 5 Jan 2023

Are Australians Ill-Informed or Just Stupid About Our Resources?

Australians own the energy and minerals extracted from the ground beneath our feet, surely we should have governments getting the best return from these mining deals on our behalf. Are we so badly informed by our governments and media or are Australians just stupid? Gas and minerals are finite resources and will run out. Our kids will not benefit from the earth’s largesse, especially if we sell off the extraction and export rights for peanuts. We are not putting enough pressure on our representatives in these negotiations. The easy going Aussie is being ripped off by the more hard nosed international miners. We are likely a laughing stock because our nation provides security for these investments from overseas. Mining in Australia is a lot safer than mining in Papua New Guinea or Africa. Our paid representatives are not driving a hard bargain when they should be.

“Always back the horse named self-interest, son. It’ll be the only one trying.”

-???Jack Lang

Australia’s economic future: RBA changes, budget and taxation challenges what will they mean? On the domestic front, right now, ordinary Australians are doing it tough. Whilst our governments are too timid to make those who should pay, miners and energy corporations, do so. The Albanese government is content to mouth commiserations to those unable to pay the rent and feed their families because of the economic crisis currently unfolding, but do they have the guts to take on the big end of town? The Australian Petroleum Resource Rent Tax has been an underwhelming measure for the nation. It deserves a serious upgrade and expanded scope if we are going to arrest the black hole of Australian taxation revenue opening up before our eyes.

Australian Petroleum Resource Rent Tax revenue

Taxation minimisation by corporations and their accountants is a global problem and Australia is no exception. These companies lobby governments to ensure that they stay on top of new tax measures and use every loophole possible to legally minimise their taxation. Workers, are once again, having to bear the brunt of this onus via their income tax, whilst companies shirk the load through clever accounting. This is the world we live in; and governments are going to have to do something about this quickly because current projections show there will not be enough money to maintain levels of service going forward. The Albanese government has tinkered around the edges with small changes to the superannuation set up but much larger measures are called for. The Stage 3 tax cuts loom like an elephant in the room, which will cost the economy $243 billion over the next 10 years. The government should defer these until the next election and allow Australians to vote on them, in my view.

“Thirty-two per cent of Australian public companies paid no tax in 2020-21, according to Australian Taxation Office (ATO) data. The ATO's eighth corporate tax transparency report, which covers 2,468 corporate entities, found that 782 (32 per cent) did not pay any tax.”

-???Nassim Khadem, ABC News, 3 Nov 2022

Australia No Longer A Fair Go For All

In the previous decade, Australians voted in a Coalition government which flattened the tax rate making it less progressive and thus widening the divide between rich and poor. Coalition governments, led by Tony Abbott, Malcolm Turnbull, and Scott Morrison respectively, were responsible for an attack on the poorest Australians via the Robodebt scheme. This was a politically motivated,?misguided attempt to portray needy Australians as welfare cheats. This spectacularly backfired and ended up costing tax payers $1.8 billion in a class action settlement. In addition, it, also, cost the lives of several vulnerable Australians, who killed themselves after being wrongly accused of owing thousands of dollars. There has not been a more disgraceful betrayal of the people by government and its bureaucracy in Australia’s history.

“I’ve never seen anyone rehabilitated by punishment.”

-???Henry Lawson

Australia’s economic future: RBA changes, budget and taxation challenges ahead must provide meaningful solutions to very real societal problems. Rich people and business have the ear of government and the effects of this are becoming ever more apparent in terms of economic outcomes. Union power has been greatly diminished over successive decades by a concerted political campaign from the conservative side. The Murdoch media has enthusiastically focused on extremist behaviour by a small minority of CFMEU leaders at the expense of the much greater body of responsible trade unionists. Murdoch’s own historic battles with unions are legend, from when his corporation took on the printers of Fleet St newspapers in the UK. We are all made by the challenges we meet on our journeys. The demise of union influence in Australia has accompanied wage growth stagnation over two decades. You cannot have only one side with a loud voice and the rest muted if you want a fair and equitable Australia.

Do Australians Really Want A Fair Nation?

Australia rejected the Coalition’s vision of Australia and Scott Morrison’s in particular. The nation elected a new Albanese Labor government despite Albo’s stumbling pre-election performance in front of the cameras. We decided to give the little bloke with the unassuming voice a go at the top job. The cold hard economic facts tell us that Australia is fast becoming a deeply inequitable place to live. Will the modestly mannered Albanese government have the courage to make any real changes or will it remain too scared to rock the boat. Vested interests, as in the mining companies, conservative media oligopoly, and wealthy end of town will kick up a stink if their unfair dominant stake in the wealth of the nation is threatened in any way. Mega profits by the gas companies did not stop them from making noise about wholesale price setting for the domestic market. Santos declared a $1.66 billion half yearly profit this year.

The Coalition failed miserably to establish a viable energy policy during their decade in power. Culture wars rooted in a denial of climate change and global warming hamstrung any attempts, by then PM, Malcolm Turnbull, to give industry and the market any certainty. They were voted out of power on this basis by the Teal wave swamping formerly safe Liberal seats in the last federal election. Greens were elected in Queensland to the federal House of Representatives on the back of these concerns. Peter Dutton, the Opposition leader, is taking the Liberal Party further to the right in his campaigning against an Aboriginal constitutionally enshrined Voice to Parliament. The National Party is doing the same. There is great popular support for the Voice among ordinary Australians, who recognise the lack of formal recognition for First Nations’ people in Australia. Many of us, also, recognise the massive disparity in wealth and wellbeing that Indigenous Australians experience in comparison to non-Indigenous Aussies. This has not shifted in decades and centuries and many of us clearly want to try something new. We may not understand every detail but are willing to risk it on the basis of the goodwill regularly embodied by Aboriginal and Torres Strait Islanders, despite their neglected treatment over the course of history. It is time for a fair go for our First Nation’s people.

The coverage of this campaign for a Voice to Parliament, which must be taken to a referendum if it is to be enshrined in the constitution, has been interesting to observe. Politicians who have rarely been outside of the Canberra and metro bubbles are suddenly in the bush interviewing Indigenous Australians. Some folks in the city are surprised that many local Aboriginal people have not heard about the Voice, but I suspect that these people do not tune into the media much. Why would they? There has only been decades of rejection and institutional neglect and indifference to listen to. I doubt that many Indigenous Australians living deep in the bush would be holding their breath, when it comes to putting their faith in European white Australia. Their land is the oldest continent on the earth and their culture is some 60, 000 years old. Deep time pays scant attention to the goings on in the 24 hour news cycle. Peter Dutton has suddenly discovered the problems in Alice Springs but strangely was unaware of them during his 10 years in government. These issues have been going on for some time and are another reason why Indigenous Australians need a Voice to advise on the issues facing them. Australia is really at a crossroads in societal and economic terms and the decisions we make and our governments make now will define our future going forward.

“All our best heroes are losers.”

-???Richard Glover

Australia’s economic future: RBA changes, budget and taxation challenges may mean tougher times ahead for those on struggle street. The falling tax revenue forecast is a serious one if something is not done to arrest it.

“Australia relies on taxing personal income and business profits more than any other advanced economy, while under-utilising consumption taxes, according to a new report that has reinvigorated calls for tax reform. While overall Australia is a relatively low-taxing country, the Organisation for Economic Co-operation and Development said it was one of only three to raise more than 50 per cent of its total revenue from taxes on personal and corporate income combined.”

-???John Kehoe, AFR, 21 Sept 2022

Calls To Increase the GST

It will become harder for Australian governments to deliver high levels of service if the tax revenue cannot justify it. There are calls to raise the consumption tax rate, as we have one of the lowest GST rates in the world. However, the GST is immediately felt by poorer Australians at the checkout, as they spend more of their weekly income on essentials. A 15% or 20% GST may, indeed, capture much more revenue from wealthier Australians for the government but at what immediate cost to those who can least afford it. We are currently in an economic trap for the poor, where the federal government is resisting assisting the poor because of the risk of inflationary pressure making things worse. Meanwhile, working Australians are struggling to make ends meet, as rents, food, and energy prices are all high. There seems to be a lack of corporate responsibility in Australia, when it comes to sharing the economic load. Qantas is an example of that under the leadership of Alan Joyce, as it claws back profits via high ticket prices after billion dollar federal government bailouts. Qantas recorded a record half yearly profit of $1.6 billion.

Unemployed Aussies Well Below the Poverty Line

The Job Seeker unemployment payment is so far below the poverty line it is, almost, absurd, if it wasn’t so appalling. Australians and their elected governments maintain an attitude of you deserve what little you get for those on the dole. The tough love mantra has been in effect for more than two decades. Prices of essentials have risen of late but nothing much changes when it comes to this kind of welfare payment. Greed is celebrated in our culture and there are no caveats on having too much, but for those unable to get work they are considered the low of the low. Disabled Australians struggle to get into the workforce and this has not shifted much over the last three decades, according to the data. There is a brutality to Australian attitudes around work and this has not changed much over time. As a nation, we are missing out on some wonderful human beings because we are too narrow minded to open up to new possibilities in the workplace. The official RBA full employment measure has always been around 4.5% unemployment. This means that around 500, 000 Australians need to live in dire economic straights in unemployment, for which they are punished by our society and governments. The traditional economic belief is that this level of unemployment is necessary to put downward pressure on wages to prevent inflation rising out of the 2-3% target band. However, as we have seen over the last couple of decades wages in Australia aren’t growing whatever the stage of the economic cycle. Therefore, this piece of economic lore needs to be updated and scrapped. You can see that there have been institutionally defined levels of economic injustice in Australia over the last 50 years or so. RBA changes are long overdue but will they go far enough or just be more window dressing?

The Packer Tax Lore

The late Kerry Packer is infamously preserved on video addressing a senate enquiry into taxation. He has become an Australian folklore hero in his dressing down of senators about his attitude toward the paying of taxes.

A long held view on the right is that minimising your taxes is justified on the basis that governments waste them on things that you probably don’t agree with. This is why right wing parties don’t support minorities and expenditure on what they consider to be fringe issues. The right represent the dominant cohort, more generally, and leave the rights of minority groups to those on the left, so that they can bitch and moan about wastage spent on LGBTQI+ folk, Indigenous people, and immigrants. It is a nasty and unedifying political game played all over the world. More and more we are seeing culture wars being played out in America by figures like Trump and DeSantis over social issues like wokeness and racial identity politics. Australian politicians on the right, often, mimic the stance of their more reckless American role models in this regard. Whether Peter Dutton would take on Australia’s equivalent of Disney, like Florida’s Governor Ron DeSantis, is a question for another day.

Accessing Credit in a Recession

As the RBA’s monetary policy pushes Australia into ‘the recession we will have to have,’ accessing credit will become harder and more important to many doing it tough. ‘Batten down the hatches’ only works for so long in an economic storm. Eventually many of us are likely to need a financial lifeline. In preparation for this, it is a good idea to check on the health and wellbeing of your consumer credit file. Reach out and get hold of a copy of your free credit report from each of the credit bureaus. You are entitled to a free copy every 3 months and in the advent of being refused credit from a participating lender or business. In addition, it makes sense to scan your file for malicious stuff like identity fraud and scamming, especially in the current clime. Check every detail for accuracy in terms of dates, amounts, and protocols carried out in accordance with the laws governing the consumer credit system in Australia. If you are unsure about such things you can source this information via government websites. Alternatively, there are experienced credit law experts operating on a No Win No Fee basis if you want the steadying hand of those who truly know the lie of the land and will serve your interests best.

The credit reporting system is the standard upon which our modern economy works for consumers and many of us are flying blind when it comes down to it. We may have made mistakes in the past and wonder about such things as credit repair and whether such second chances actually exist. The good news is yes, every dog can and does have his or her day. No matter the carnage of yesteryear capitalism wants you back in the game. Talk to a credit lawyer, if you are ready to make good on past transgressions and seek redemption on the financial road ahead. Expertise makes everything a hell of a lot easier going forward. Understanding the time frames ruling negative listings on your credit file is one such handy piece of information to know. Mistakes on your credit report by the lender or business involved can be corrected. Cleaning up your financial reputation is the smart move in the face of an impending economic recession. Take heart and, then, take action.

Credit Reporting Bureaus

Illion Ph. 1300 734 806

Experian Ph. 1300 783 684

Equifax Ph. 138 332

References

Cole Wayne, Australia’s central bank to get new rate setting board under review shake up, Reuters, 20 April 2023, Viewed 24 April 2023.

Foley Mike, Gas export earnings surge 86% in one year to a record $93 billion, SMH, 5 January 2023, Viewed 25 April 2023.

Hutchens Gareth, Why are soaring property prices left out of inflation figures? ABC News, 6 Feb 2022, Viewed 25 April 2023.

Kehoe John, Australia taxes workers and business more than other countries: OECD, AFR, 21 September 2022. Viewed 25 April 2023.

Khadem Nassim, Almost, 800 large companies paid no tax in 2020-21, Australian Taxation Office report reveals, ABC News, 3 November 2022, Viewed 25 April 2023.

Remeikis Amy, Australia’s richest captured 93% of economic growth between 2009 financial crisis and Covid, paper shows, The Guardian, 11 April 2023, Viewed 24 April 2023.

Review of the Reserve Bank of Australia, https://rbareview.gov.au/, 31 March 2023, Viewed 24 April 2023.

Verrender Ian, Why Australia lags behind the rest of the world in taxing oil and energy giants, ABC News, 25 April 2023, Viewed 25 April 2023.

Wright Shane, RBA should not target debt or house prices: review panel, SMH, 24 April 2023, Viewed 25 April 2023.