THE DISTILLERY: MYEFO merry-go-round

The federal government's imminent MYEFO stirs the commentariat to question its timing and assumptions.

The Mid-Year Economic and Fiscal Outlook comes out today, with the usual questions about the credibility of its underlying assumptions. It’s a classic collision between the structural issues undermining the budget’s long-term position and the government of the day’s short-term political needs. And while forecasters of all stripes have been made fools of in the post-GFC world, one European commentator’s reputation has increased exponentially – a Fairfax writer takes a closer look.

But first, The Australian’s economics editor David Uren says the potential recovery of Australia’s housing market will be front and centre today.

"Both Treasury and the Reserve Bank are highlighting the upside in the home building industry, which they believe can deliver a domestic impetus to economic growth at a time of continuing weakness internationally. Housing has a long way to go for recovery, with downward revisions to home building figures released last week showing it is in deep recession. The volume of home building work in the latest June quarter was the lowest since the corresponding period in 2002. That was also a time of difficulty for the building industry in the wake of the introduction of GST. But the population has grown by three million people in the last decade, so the building industry is much more depressed now than it was then.

The Australian Financial Review’s Jennifer Hewett points out that the Australia Taxation Office is set to receive the first quarterly instalments of the mining tax today, with only BHP Billiton and Rio Tinto expected to be actually making payments.

"What is clear is that they won’t be paying anything like the amount Treasury has budgeted for. But the large gap between rhetoric and reality won’t be obvious until much later in the year – safely after the Treasurer has released his mid-year budget update today. According to the head of Treasury’s revenue division, Rob Heferen, it will take at least a week for a report of the payments to be forwarded to the Treasury department, which would have to undertake its own analysis of reported liabilities and payments. How convenient. It means Treasury will still be able to make use of its original, if flawed, assumptions to get to the numbers it needs from the mining tax for the Mid-Year Economic and Fiscal Outlook. Even when the mining tax figures become public in a few months, the government will use the excuse that the lower amount is because commodity prices have fallen sharply from their peaks. No one’s fault, presumably.”

Fairfax’s Ross Gittins looks at the mid-year update through the prism of weakening GST collections and the impact this has on the current incarnation of Australian federalism.

"I have a fair bit of sympathy for the states. They have primary responsibility for the big-ticket spending areas of education, hospitals, law and order, roads and transport, and much else, but their revenue-raising power is limited, having been progressively whittled away by the High Court. That's why John Howard bequeathed them all the proceeds from the goods and services tax. But the GST is no longer the growth tax it seemed to be. Consumer spending will never again grow as strongly as it did during the tax's first seven years, and an ever-growing proportion of consumer spending goes on items excluded from the GST base. Because the revenue-raising capacity of the two levels of government is so unequal, any serious funding problem for the states ends up being the federal government's problem. But it's harder to feel sorry for the states when you remember – as prompted by the secretary to the Treasury, Martin Parkinson, in a recent speech – the way they have knowingly and over many years perverted one perfectly good tax in their possession, payroll tax.”

And Fairfax’s Tim Colebatch explains how Financial Times economist Martin Wolf is gaining in stature and influence with every correct call he gets on the global economy – and he’s picked many turns correctly.

"When Europe's leaders decided their top priority should be to cut deficits, he warned this would condemn the European Union to a long recession, making deficits bigger, not smaller. Each time leaders declared they had found the solution to its problems, he shredded their PR bluff with relentless logic. If governments, banks and companies all pursued contractionary policies at once, he asked, where would the growth come from? Unless someone bought more goods and services, there could be no growth. Unless someone borrowed, there was no benefit in saving. The common euro currency meant countries could not devalue as a short cut to raising competitiveness. And while one country in trouble could adopt austerity as the way out, a continent could not.”

In other news, Fairfax’s Adele Ferguson and Michael Idato team up again for a look at the Australian TV industry, describing it as the most protected sector in Australia that’s still facing an uncertain future.

"Coupled with the looming shadow of dramatic structural ownership changes across the industry, audience fragmentation, TV piracy and dwindling advertising revenues are conspiring to crush the traditional business model. Next year is expected to be a watershed for the broadcast industry. For the first time the amount of money spent on advertising over the internet will match the ad spend on free-to-air television.”

Meanwhile, The Australian’s Richard Gluyas says Nine Entertainment boss David Gyngell, having spent two days enjoying some time with his growing family, will shift his attention to taking on main rival Seven Network with debt negotiations behind him.

And Business Spectator’s Shane White points out in his column The Last Gasp that the most crucial missed opportunity for all negotiators in the Nine-debt showdown was the cancellation of Big Brother.

In other company news, The Australian’s Glenda Korporaal looks at the potential energy discoveries off the coast of Israel, which has lacked its own resources historically, which could also deliver opportunities to Australia’s own Woodside Petroleum.

Elsewhere, Fairfax columnist Michael West details the fight between Grid Australia and NSW farmer Bruce Robertson about the real reason why electricity prices are rising.

And finally, Fairfax’s Malcolm Maiden recalls his time in New York as a reporter for The Australian Financial Review during which Black Monday took 23 per cent off the Dow Jones in a single day – happy 25th anniversary!