The Election and the Economy - debt levels good or bad?

DavidMc

DavidMc

Hey guys,

I've been learning more about our voting choices for this weekend and I keep coming back to one question - the economy and our debt levels.

- The Liberals will tell you that we are drowning in debt, and when you see the figures and what has happened overseas, it can be daunting. $300B in debt. Looking to raise our debt ceiling again. The interest alone on this amount is x% of our nations revenue, etc. What is Australia's fiscal cliff (when our revenue no longer covers our interest repayments)?

- Labor however, and a Noble Prize leading economist, will tell you in this article how these debt levels are healthy and required to move forward, and how when German was going well and introduced austerity type measures it backfired on them. We need to spend/stimulate our way out of this.

(I note that to compare us against the USA based on their debt levels alone is not a convincing argument - let's ignore that from our discussion).


As investors we all know the difference between good and bad debt. No doubt there is associated admin wastage with all government programs (and that bugs me), but on the whole, are we better off for spending the money or worse off?
 
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DavidMc said:
but on the whole, are we better off for spending the money or worse off?
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It is better off for Governments not to spend more than they earn and borrow the difference. The reason is because Governments only generate revenue from taxpayers. Therefore more expenses from interest repayments have to be paid for by taxpayers, one way or another. It is also a false economy to claim that Government spending generates economic activity - we all know that due to Government waste and inefficiency every $1 of Government spending doesn't generate the same wealth that business spending would. Governments cannot and should not run businesses.
 
Maybe just wait till the real numbers come out in a few weeks time,no good letting the negative dominate the positive that,s about to happen in Australia..
 
willair said:
Maybe just wait till the real numbers come out in a few weeks time,no good letting the negative dominate the positive that,s about to happen in Australia..
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That will be a very interesting read.

IMHO I think the current government are going to leave us in a position worse than they are telling us, so as only to make the incoming government's job even harder and require even more ruthless decisions. This will give the new opposition some ammunition to fire back at them.
 
Aaron_C said:
It is better off for Governments not to spend more than they earn and borrow the difference. The reason is because Governments only generate revenue from taxpayers. Therefore more expenses from interest repayments have to be paid for by taxpayers, one way or another. It is also a false economy to claim that Government spending generates economic activity - we all know that due to Government waste and inefficiency every $1 of Government spending doesn't generate the same wealth that business spending would. Governments cannot and should not run businesses.
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This is an excellent post.

My only hesitation is that a business answers to their shareholders, and a government, while less efficient, answers to their people. There are many important but unprofitable items we need as a society that a business would cut in heartbeat. The awful public transport in Melbourne, for example. Cuts to live music, bike infrastructure, removal of penalty rates, disabled care, etc. I'm not a fan of all the handouts personally, in fact I was shocked to even learn of what is available!

Is the ideal scenario to have most 'public services' privatised with a lean, transparent government that uses a small amount of manipulation / regulation to make these community services economically viable?
 
DavidMc said:
Is the ideal scenario to have most 'public services' privatised with a lean, transparent government that uses a small amount of manipulation / regulation to make these community services economically viable?
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This sounds much like the USA.

Too much of a good thing can be bad for you.
 
Sometimes it's not as simple as "spending or saving". A government who doesn't spend money will kill an economy. Effectively the would just pull all the money out, with nothing left for anyone to spend.

It's a matter of how it is spent. From what I have seen the current govt spends it all in the wrong places. Increases the governments costs and fails to stimulate business growth.
Sometimes reducing companies costs will actually increase govt revenues as then companies spend more. This is how to grow an economy. Like him or not, its hard to deny Howard did a pretty good job of it.

However providing an endless supply of austerity doesn't do much for an economy. In fact it encourage people to stop working, this increasing cost to companies and reduces their profits. Like it or not a vast tax income comes from companies - more so than individuals.
I read the other day that over 50% of Australians recieve some form of govt hand out. A ridiculous statistic. Who pays for this?
Internationally over the last few years nearly every country has reduced or tightened welfare measures. Except Australia. Everyone has realized the damage it does. Except Australia.

Bring on Saturday

Blacky.
 
The way I see it is similar to how we all borrow. Borrowings for infrastructure/income producing assets good, borrowing to pay the bills bad.

We seem to be caught up in all debt is bad and we must have a surplus, but we all know that not all debt is bad debt. How many of us have a surplus?
 
Further to this, interestingly, even the traditionally right wing UK's Economist gives the slight favour to Labor and Rudd, "largely because of Labor's decent record":

http://www.theaustralian.com.au/nat...ses-rudd-in-poll/story-fn9qr68y-1226707679878

SMH - http://www.smh.com.au/federal-polit...evin-rudd-for-second-turn-20130830-2svda.html

The original article - http://www.economist.com/news/leade...just-about-deserves-second-turn-lucky-no-more

Daggy Abbott and rude Rudd

Of the country’s two main parties, the Liberal Party, now in opposition in a Liberal-National coalition, is the natural home of The Economist’s vote: a centre-right party with a tradition of being pro-business and against big government. But the coalition’s leader, Tony Abbott, does not seem an instinctive fan of markets, and one of the few key policies he has let on to possessing is a hugely expensive federal scheme for parental leave. That may help him persuade women voters that charges of misogyny are unfair, but he has not properly explained how he intends to pay for it (see article). His social conservatism does not appeal to us: he opposes gay marriage and supports populist measures against Afghans, Sri Lankans, Vietnamese and others who have attempted to get from Indonesia into Australia in rickety craft that have drowned thousands in recent years. Indeed his promise to “turn back the boats” seems to be his only foreign policy.
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It's a tough election this one, brussel sprouts or cauliflower?

It's not a direct answer to the question on our debt in my mind, but it does seem to say it's 'good debt'.
 
I cannot understand how any generation can simply blow cash and expect the repayments to be met by their children and their grandchildren.

Surely we have a moral obligation to let them enjoy the benefits of their labour by limiting the debt and interest payable on that debt to an amount that can be cleared within an election cycle.

I think the amount of debt run up by Labor is a national disgrace and the people responsible should be publicly ridiculed as the incompetents they are. While I believe that by the time the NBN is rolled out it will be superceded by wireless at least that is something tangible, all the pork barreling with pink batts and BER highlights just how incompetent this bunch are.

I am filthy that my kids and grandkids will be paying this debt while trying to start their own adult lives.

Despite what the BS artists will tell you, the government has no money, it all comes from us one way or the other. Any debt by any government anywhere must eventually be repaid or that country hits the wall and enters a period of severe depression.

All this crap about we are in good shape is utter BS, just because the other countries are going over a cliff doesn't mean we have to join them.

The day the USA says that they are going to slow the QE all hell will break loose, it dropped 6% in a day just because they said "one day we will have to" .
 
Macca said:
I think the amount of debt run up by Labor is a national disgrace and the people responsible should be publicly ridiculed as the incompetents they are.
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Ah ha! But is it? That's my question. Can someone show me the maths here to say our debt levels are too high? Sure, the number sounds really big, but how is it all in perspective? Personally, I do not know.

I can tell you many of my family members think that my debt levels are a massive disgrace, and they ridicule me. You guys on here though think I do alright ;)
 
mrsdawnrazor said:
The way I see it is similar to how we all borrow. Borrowings for infrastructure/income producing assets good, borrowing to pay the bills bad.

We seem to be caught up in all debt is bad and we must have a surplus, but we all know that not all debt is bad debt. How many of us have a surplus?
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It's very simplistic to compare a national economy to a household one.
 
DavidMc - that is because Government debt is not private debt. If I take a $2m mortgage, it may seem big to your relatives - but is it really impacting on them? Are they paying for it? Hardly.

Whenever the Government borrows $1, that is $1 plus interest that we must all bear. If that debt keeps escalating and compounding, it means that even more taxes need to be raised in the future to pay for it. Taxes deter and undermine business.

That's not to say that all Government debt is bad - but as we have seen over the past 6 years, that $300bn has been used for useless handouts, massive blowouts on asylum seekers etc. There has been no infrastructure spending which is the only real justification for Governments to borrow - since infrastructure spending provides the community and the Australian people with an asset that they can use for their personal/business use - thereby creating more economic activity and prosperity.
 
OK so this is going to make me sound like I've got a hidden agenda when starting this thread, but please know I made it in all honesty and to help me decide who to vote for.

I've done some more searching on some real figures, rather than emotional reactions to all these lots of zeros we see thrown around.

There is a website called http://www.sovereignman.com/. It's an interesting site, that gives information on 2nd passports, offshore banking and continually bangs on about how the current 'fiat currency experiment' is doomed, we're all drowning in debt and we should rip all our money out and use it to buy gold as everything is going to come crashing down.

Whilst it is very alarmist and anti USD, JPY, GBP and Euro, it just listed Australia as a 'safe place' to bank, given our 'low debt, strong economic fundamentals, and a solvent banking system'.

In terms of the government balance sheet, Australia is one of the healthiest in the western world. As of June 30, 2013, Australia's net government debt was $225B according to the Australian Office of Financial Management.

As a percentage of GDP, this is rough 16%.... suggesting that the Australian government would be in a position to support the local banking section in the event of a financial shock
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So there is one figure, our debt is 16% of our GDP (if these numbers are correct).

Is 16% good, bad or indifferent? Do people want 0% debt?
 
Ed Barton said:
It's very simplistic to compare a national economy to a household one.
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Ok name me a business that has a surplus and doesnt run on debt. It is the purpose of the debt that is the issue not the debt itself if it is manageable and is adding value to the business.

Yes it is a simple analogy but to debate the economics of the situation without a very long and complicated explanation that would lose most sane people within about 5 seconds it is a realistic one. If people/businesses/countries could survive on their income and only invest when they had a surplus then many opportunities to drive growth and income would be lost.

Would BHP say - Oh sorry, I cant open another mine as I don't have enough cash right now to pay for it. That is what the demand to be in surplus requires. I have no issue with reasonable debt PROVIDING the loans are raised for effective infrastructure, nation building and income producing activity.

Whether you trust a government of any colour to manage this is a political not economic debate.
 
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