Opinion

Paul Bongiorno
A change in climate

The Brisbane G20 was in grave danger of becoming the G15 and a huge embarrassment to Tony Abbott. The threat to shrink the summit was triggered by the prime minister’s vow that he would “shirtfront” Vladimir Putin, and that the Russian president was not welcome in Australia.

Canberra quickly received the message from Washington and Berlin that China, India, Indonesia and Brazil would most likely join Russia in cancelling their flights down under. It didn’t take the government long to realise that excluding these significant economies and possibly others from the meeting would severely weaken its ability to come anywhere near achieving the plans Australia had set for it. Realpolitik became a reality check. It more often than not does.

The best television cameras could make of the encounter between Abbott and Putin at this week’s APEC summit in Beijing was to show both leaders giving each other the cold shoulder. The prime minister’s office insists there was a robust conversation between the two men in secret that was the equivalent of a “diplomatic” shirtfront. But it seems Abbott achieved no more in person than he did from an earlier phone call to the Russian president. He certainly did not get an apology, or willingness to pay compensation to the families of the victims of the MH17 crash. Moscow welcomes an investigation into the July downing of the Malaysia Airlines Boeing 777 in Ukraine and says it will not stand in the way.

In many ways the episode epitomises the age-old dilemma for politicians. Perception is reality. The prime minister raised expectations that he would be tough and uncompromising and stare down the bully, with a result that would deliver closure for grieving relatives. He didn’t get it. He is now raising expectations that the Brisbane gathering this weekend will inject new life into the whole G20 process, delivering economic growth in the world’s largest economies 2 per cent above business-as-usual levels by 2019.

But before the leaders had even touched down in the Queensland capital, the government had to admit its ability to be among the first to turbocharge its growth had taken a big hit. Treasurer Joe Hockey told Macquarie Radio that an independent analysis forecasting an unforeseen $51 billion black hole in his budget was wrong, but “… there is now no doubt that iron ore prices have had an impact on us. There has been around a 30 per cent fall in iron ore prices between the budget and now, and iron ore is about one in five of our export dollars. So it has a bigger impact on our bottom line, but they are the things we can’t control.” This is true. But it means the mid-year budget update in December will see a revision down of growth forecasts – something Hockey had no sympathy for when Labor was in power.

Here’s the rub. Economists look for what they call nominal gross domestic product (GDP) growth, which is the prices we get for our exports and other things. There is no way the 4 per cent budget forecast will be met this year, and looking out four years the
5 per cent figure is looking optimistic to say the least. So Australia is set to go backwards not forwards. The prime minister boasts that the G20 economies not only have to spell out their action plans to achieve the growth goal but have to verify them. Several economists I spoke with say there is no clear way you can measure the 2 per cent growth above business as usual anyway.

The government’s revenue woes aren’t confined to falling commodity prices. This week the Australian Bureau of Statistics showed that real wage growth was flatlining in the September quarter. When you combine that with higher unemployment, less income tax is being paid. Lower wages combined with weak consumer confidence – down 12.5 per cent since the election – mean the economy is in need of stimulus not austerity. Hockey gets this and says he won’t be trying to make up lost ground in a mini-budget. When you realise the budget is in fact the government’s “Economic Action Strategy” being trumpeted in Brisbane, the prime minister better hope no one is looking too closely.

The treasurer had hoped to achieve a budget surplus by the G20 target year of 2019. The senate is an obstacle, currently holding up about $20 billion in savings, which isn’t helping, but there’s no joy for him in prospect. Labor’s Chris Bowen says Hockey should “tell the Australian people that he’s got the message, that he’s listened to them and the parliament and he’s not proceeding with the unfair cuts and tax increases”.

Economist Stephen Anthony, who produced the Macroeconomics budget analysis, praises the treasurer’s aim to save $40 billion, but says he undermined his ability to deliver by being “just plain unfair”.

He says, “He has certainly placed much of the fiscal adjustment burden on the poorest members of the Australian and international community (the unemployed, students, low-income pensioners and foreign aid recipients) up to 2017-18, while failing to rein in tax concessions for high-income earners.” There’s $12 billion a year up for grabs, some of which could be given as tax cuts to lower-income earners. Another Liberal treasurer, Peter Costello, understood in his first budget the importance of spreading the burden. He drew howls of protests from wealthier Australians, mainly in Liberal electorates, when he hit them with a superannuation surcharge.

Social justice campaigners such as World Vision’s Tim Costello suspect Abbott and Hockey don’t quite get the “inequality” argument. They are listing as a key contribution to Australia’s 2 per cent growth target their proposed denial of welfare payments to the young unemployed. How that lifts productivity is a mystery, but is a clear example of expecting the poorest to carry a huge share of the cuts.

Tim Costello is chairing the C20 (Civil Society 20), which is urging the government to tackle the disparity within G20 countries between high- and low-income earners and between individual and corporate tax payers. He wrote in the Fairfax press: “In relation to the G20’s tax reform agenda, the inconvenient questions of fairness and equity come to the fore starkly. If the G20 fails to deliver a workable timetable and genuine commitment to innovations in tax transparency, avoidance and profit-shifting, then only the already wealthy will have reason to cheer.”

The prime minister says identifying tax cheats is on the agenda. The treasurer is promising, “wherever companies engage in extraordinary activity in order to avoid tax we will go after them”. A ReachTEL survey in Hockey’s own electorate found 72 per cent of his constituents don’t believe the Coalition is doing enough to tackle corporate tax avoidance. It’s a finding not hard to believe. A cache of documents that fell into the hands of the International Consortium of Investigative Journalists in Washington shows how hundreds of companies, including the government’s own Future Fund, are channelling profits through Luxembourg to artificially lower their taxes.

IKEA was named as listing its profits here over the past 11 years as $103 million, whereas its real windfall was closer to $1 billion. Reason enough, you would think, for Hockey and other G20 finance ministers to get serious.

But at least international tax dodging is on the main agenda. The prime minister steadfastly refused to list climate change action as a core item. In defending the omission, Abbott seemed to suggest he didn’t think it was an economic issue. United States president Barack Obama sees it very differently and had much more success with China’s president Xi Jinping. After the APEC summit the leaders of the world’s two biggest economies, and the two biggest polluters, signed a historic deal to slash their carbon emissions. Obama is hoping it will spur other leaders around the world to follow their ambitious example. He told a joint news conference with Xi: “We have a special responsibility to lead the global effort against climate change.” He described it as an urgent global challenge.

The US pledged to cut its emissions by up to 28 per cent by 2025. China pledged to reach its peak by 2030, if not sooner, and will implement a renewable energy target of 20 per cent by the same year. This is a massive boost to hopes for a new global pact on emissions reduction targets in Paris next year. It makes the Australian government’s attempts to abandon the legislated target of 41,000 gigawatt-hours of renewable energy by 2020 very shabby. Labor walked away from negotiations this week, claiming the government was committed to a 40 per cent cut in the target. Opposition Leader Bill Shorten said: “It’s become clear to my skilled negotiators that the Abbott government is not interested ... in the renewable energy industry.” The industry agrees. The Australian Solar Council is now planning to mount a concerted campaign against the Coalition. “If the government won’t change its renewable energy policy, we will change the government,” said the council’s John Grimes.

Environment Minister Greg Hunt was left to play word games. He talks of a government still committed to a “real 20 per cent cut” in omissions by 2020. Few believe him; certainly the industry doesn’t. And that’s the difference between being in opposition and in government, as they are all finding. Words are cheap when they aren’t measured against the reality of having to deliver outcomes.

This article was first published in the print edition of The Saturday Paper on Nov 15, 2014 as "A change in climate ". Subscribe here.

Paul Bongiorno
is a columnist for The Saturday Paper and a regular commentator on ABC Radio National Breakfast.