Budget highlights structural woes

(Published in Crikey 31^st May 2013)

The month of May is budget time for most jurisdictions. Most attention focuses on the Federal Budget but State Budgets help complete the fiscal mosaic.

On a State by State comparison it’s pretty easy to have a cheap shot at Tasmania for being a basket case, but adjusted for scale and rural location factors Tasmania is little different from other areas in Australia.

The budgetary problems facing Tasmania throws into stark relief the problems facing all States.

A brighter future?

Will Hodgman’s Plan for a Brighter Future, includes even shonkier savings than was included in last year’s Roadmap to Recovery.

Debt deficits and the State Budget

The preoccupation with debt and deficits that afflicted much of the discussion about the Federal Budget has carried over into the discussion following the Tasmanian State Budget.

The doctrine of surpluses being good and deficits bad as adopted by both major political parties and spruiked by 95% of the main stream media means that as we are forced  from deficits to surpluses as soon as politically possible, notwithstanding any adverse economic consequences that will almost certainly widen the output gap caused by unemployed labour and capital,  each budget will be contractionary relative to its predecessor and when Government surpluses eventuate the iron law of sectoral balances means the private sector (including the overseas sector) will inevitably be in deficit.

That’s the backdrop to the Tasmanian economy as it attempts to move forward.

Austerity pitfalls and alternatives

Austerity measures are very much part of economic policy discussions around the world, more so in Euro land but also in the US as part of the recent so called fiscal cliff stand-off.

The recent uncovering of some shoddy research by two prominent Harvard economists, Reinhart and Rogoff used to justify austerity measure has also reverberated around the economics blogsphere.

The Tasmanian Forest Gravy Train

What started as government funding to compensate for native forest areas lost to the Tasmanian timber industry has become a gravy train on a circuit returning regularly to reload before setting forth to deliver more spoils.

Tasmania the ungovernable State

There was a touch of irony during last week’s tortuously long deliberations by Tasmania’s Upper House on the contentious Tasmanian Forests Agreement Bill when it paused for a moment to consider the Mental Health Bill. Many Tasmanians would have been happy to see the latter Bill amended to make Parliament a proscribed organisation and closed.

The MIS phoenix

The MIS phoenix has risen.

AgriWealth’s 2012 Softwood Timber Project demonstrates memories are indeed short. The MIS industry pronounced dead after the disastrous insolvencies of Timbercorp, Great Southern, Willmott Forests, FEA and Gunns still has a pulse.

It is sometimes said we aren't predisposed to philanthropy but AgriWealth's latest offering suggests it too is alive and well. There is no other reason than philanthropy for becoming a AgriWealth grower. The massive upfront fees mean there is little chance of return on a before tax basis.

The tax driven Project differs from failed MISs in that it relies on Div 394 of the Tax Act which was enacted to overcome increasing problems with MISs prior to 2008.

But Div 394 has made it worse as prepaid expenses, some not due for 26 years are allowable deductions.

The upfront fees due to the loading of all prepaid expenses are ten times those charged by the old MIS projects.

Policy makers have taken their eyes of the ball probably thinking the MIS industry is dead.

Alas it’s not dead, as AgriWealth uses its cash to once again distort the pattern of agriculture in areas such as the beautiful Tallangatta Valley in northern Victoria as described in a recent Weekly Times article.

A closer look at the AgriWealth project follows but first a quick overview of how MISs used to operate, the issues and pitfalls.