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

[mrsdawnrazor]

If this was directed at me....
Yes absolutely they should - that is exactly what I am saying

 

[Crabnet]

I cannot understand how any generation can simply blow cash and expect the repayments to be met by their children and their grandchildren.

What about infrastructure spending on hospitals, roads, ports, airports, schools and etc?
Why shouldn't governments borrow to build all that stuff and require future generations help pay for it seeing that they will also be using it?

If you want to reduce "The Waste" then the places to attack would be the areas of tax concessions that we have become accustomed to and we squeal about when they are threatened with removal.
Superannuation tax concessions would be one that costs billions.

 

[Blueberry]

What about infrastructure spending on hospitals, roads, ports, airports, schools and etc?
Why shouldn't governments borrow to build all that stuff and require future generations help pay for it seeing that they will also be using it?

If you want to reduce "The Waste" then the places to attack would be the areas of tax concessions that we have become accustomed to and we squeal about when they are threatened with removal.
Superannuation tax concessions would be one that costs billions.

All that infrastructure spend (hospitals, roads, education) isn't a once off investment expense though. It is ongoing. Borrowing for ongoing expenses isn't smart. It is pretty much the definition of bad debt.

I would accept the debt if it was for things that would actually pay their own way. But that isn't happening

Eta: not that I am saying spending on education is bad obviously. But it should come out of money they have.

 

[Aaron_C]

If you want to reduce "The Waste" then the places to attack would be the areas of tax concessions that we have become accustomed to and we squeal about when they are threatened with removal.
Superannuation tax concessions would be one that costs billions.

I reckon it is pretty arrogant to call tax cuts/concessions as 'waste'. Lower taxes are always a good thing. People know how to spend their money better than any Government - so they should be taking home as much % of their pay as possible. Government should only take that which is necessary, to provide for those who may have fallen on hard times and need a safety net and to provide essential services, and give the rest back to the people to spend as they see fit.

 

[Tony3008]

Haven't lived here quite long enough to know the full background but no doubt some bright spark thought it a really cool idea to not borrow and get the private sector to build Melbourne's CityLink and EastLink. No borrowing, no tax to pay the interest on same, but I and thousands of others are paying serious money to use them. It's not tax but it hurts the wallet just the same.

 

[Macca]

I believe that if we are building an asset that will be used by future generations then it is OK to go into debt to build it and then let those who use it in the years to come pay for it, eg: Sydney Harbour Bridge, Snowy Mountains Scheme etc

I don't believe that it is OK to buy votes with hasty decisions that give bad value for the buck and saddle future generations with a debt with no benefit to them.

The pink batt fiasco seriously damaged the industry because it was badly planned, the BER was a gold mine for those on the preferred tender lists but was a disaster as far as value for money is concerned.

Managing any large entity be it a government, company or department requires planning, valuation of costs and expected results then all the necessary terms, conditions and qualifications sorted Before making an announcement.

We don't go and buy an IP without DD, when a Government is spending billions they should be doing major DD not making it up on the run and expecting future generations to repay our debts.

 

[DavidMc]

The pink batt fiasco seriously damaged the industry because it was badly planned, the BER was a gold mine for those on the preferred tender lists but was a disaster as far as value for money is concerned.

The Batts and the BER are two often quoted 'failures' by pro-Liberal people.

I think they were excellent ideas fundamentally, however the execution is where things weren't perfect. What do others think?

Spending the money on the batts is far cheaper than building a new power plant. Although shonky operaters who sprung up overnight cut corners for a quick buck was totally the government's fault? The only fault I could put on the government here is their lack of wisdom to forsee such an event, perhaps a bit of naive trust. All in all, I think it was still a good thing on the whole. What % of installations were dodgy? 5%?

 

[DavidMc]

Anyway - this thread isn't about batts or BERs... I want some hard data on our debt levels to compare against our income levels.

The question is - Are we 'drowing in debt' as it's routinely pumped into us via our media, or are we at comfortable levels (and should even consider more debt to grow our economy - aka Keynesian)?

I posted our debt levels before. I am trying to find out 'income' levels. I make no claims to be an economist, so if it's possible to make analogies to property investing (i.e. LVRs, DSRs, cashflow, debt, interest rates, capital growth rates) then I think we'd all understand it more fully. While this forum has pages and pages of people banging on about 'we're in too much debt' vs 'the debt level is fine' from this thread alone it's pretty clear nobody actually knows the hard figures on all this.

I have tried to find a few:

Australian federal debt (as of 31 August 2012 Wikipedia)
= 244,325,881,000 AUD

Total tax revenue (All levels of government, 30 June 2012 ABS)
= 390,067,000,000 AUD

So this is our 'governments' income. Hmmm.... what interest rate do we pay on this debt BTW? (is it the cash rate - 2.5%?)


Other figures, for some perspective:

Australia's GDP (December of 2012 - TradingEconomics.com.
= 1,520,600,000,000 USD

GDP = "The gross domestic product (GDP) measures of national income and output for a given country's economy". So is this our 'countries' income.

Australia's Total Wealth(Wikipedia)
= 6,400,000,000,000 AUD


Other other bits n pieces:

On average, each Australia is the richest in the world, buy FAR, more than double Switerzland.

According to the 2011 Credit Suisse Global Wealth report, Australia has a median wealth of US$222,000 ($217,559), the highest in the world and nearly four times the amount of each US adult.

Some budget stuff I can't make sense of (help anyone?):

In May, Federal Treasuer Wayne Swan released the 2011–12 Mid-Year Economic and Fiscal Outlook (MYEFO). [4] In 2011–12, the Australian Government general government sector recorded an underlying cash deficit of $43.7 billion (3.0 % of GDP). [5] The fiscal balance was in deficit by $44.5 billion (3.0% of GDP).

Australian Government general government sector net debt was AUD$164 billion (11.133% of GDP), which was AUD$16.7 billion higher than estimated at the time of the 2012 Australian federal budget. The change was primarily driven by the higher‑than‑expected market value of Commonwealth Government Securities (CGS), owing to lower than expected yields.[citation needed] Australian Government general government sector net financial worth was -$358.3 billion at the end of 2011‑12. Net worth was $247.2 billion at the end of 2011–12.

So our equity:
= 247,200,000,000 AUD


An interesting note on the Debt debate, however this is Wikipedia so who knows how big each parties media team is and how many updates they make to this page:

Debt debate

Australia's net foreign debt as a percentage of GDP since 1989.In October 2012, Justin Fabo, ANZ's senior economist, said there was little good reason why the government should not take advantage of historically low yields on government securities to fill Australia's infrastructure gap. In recent years Australian government debt has seen an increase in demand as faith is lost in European and US government debt. Reserve managers see Australia as a safe haven for investment.

The current ratio of Australian government debt to gross domestic product (GDP) compares favourably to the average ratio for developed countries of 90%. The very low levels of debt have permitted flexibility on behalf of the Australian federal government to use expansionary fiscal policy at their discretion to counter the effects of the financial crisis of 2007–2008.

I can't make sense of this fully.... help?

 

[HotRod]

But should we be comparing ourselves to other countries, when those other countries are in the crapper?

We are performing our own tall-poppy adjustment to ourselves, how insane.

We do not want to be compared with other countries.

We should strive to be debt free.

Also, I think our debt is charged at commercial rates. It is money that Australia has borrowed from outside sources.

 

[DavidMc]

It seems in Wikipedia, as well as the Soverign Man website, the norm is to compare debt to GDP. According this graph, even when compared to other countries that are doing very well, and are very much not in the crapper:

World public debt as a percent of GDP, 2011 - Wikipedia

(apologise, the next smallest version of this pic is too small)

Why should we have zero debt?

It seems this debate come down to does one believe in Keynesian theory (i.e. 'spending' your way to an improved economic position) is appropriate for Australia now (i.e. taking on debt to do it).

A Keynesian Success Story: Germany's New Economic Miracle

During the worst of the global financial meltdown, Berlin pumped tens of billions of euros into the economy and spent hundreds of billions propping up German banks. Now, the country is reaping the benefits as Germany is once again Europe's economic motor.

http://www.spiegel.de/international...-germany-s-new-economic-miracle-a-707231.html

Will cutting $70,000,000,000 hurt our economy or help it?

 

[Crabnet]

All that infrastructure spend (hospitals, roads, education) isn't a once off investment expense though. It is ongoing. Borrowing for ongoing expenses isn't smart. It is pretty much the definition of bad debt.

I would accept the debt if it was for things that would actually pay their own way. But that isn't happening

Eta: not that I am saying spending on education is bad obviously. But it should come out of money they have.

Okay. How would you handle the scenario facing Western Australia at the moment.
They've experienced a long period of economic growth with the associated influx of people.
Government income growth was steaming along.
Government expenditure growth rose too but was below income growth so their government was able to produce surpluses.
A few years ago that changed with income growth declining meaning that in the future they have forecast deficits.
So should they reduce services? Lay off some public servants (Longer queues at the rego counter and hospital emergency department and fewer police and larger class sizes.
Force the public servants to take pay cuts and become the working poor perhaps?
Hold off on spending on that bridge to cross that river and increase the road lane so the residents of the new housing estates suffer from traffic congestion?
Crowd more prisoners into the jails with fewer guards?
Don't maintain the roads and infrastructure?
Increase taxes?
Go into debt until for a while?
Parts of all of the above?
We could leave our children with insufficient services and infrastructure to meet their needs.

The sensible thing to do would be to slowly return to surplus over the medium to long term even if it involved going into some debt.

 

[Macca]

It is a bit hard to ignore why we have debt when discussing debt IMO

We as RE investors use the terms good debt and bad debt but in reality it is usually our goal to own that IP outright eventually, our tenants are helping pay for it but we still hope one day to either own or sell it and make a profit.

When it comes to our country we as citizens of the country will all have to contribute to the repayment of the debt plus the interest. If we did not owe the money then we could use that money for other things.

If we create a long term benefit to the country to be used by us and future generations then we could call it good debt (in RE terms) as we are creating an asset or filling a need. If we borrow money for a program and it doesn't work through poor planning or poor management then we have created an unnecessary burden on all of us.

In RE terms, lets say we have bought a fixer upper that we intend to rent so OK we ring up a builder and say we want this, this and this, no quotes, no consultation just do it ! He says beauty and charges whatever he thinks we will pay.

When we have it valued we find that surprise, surprise we are now over leveraged, the job which cost us $150k was really only worth $30k and our value has only gone up $40k. Now, technically the $150k we borrowed is good debt because it was used to improve/create an asset but the lack of DD has blown up in our faces, this is where Labor has gone wrong.

They have managed the economy badly, incurring debt that is way more $$$ than any benefit gained from it and now over the next 2 decades everyone will be slugged extra taxes to repay it and that is what bugs me, my grandkids will start work in 10 years time and have to repay the debt created by these dills.

 

[D.T.]

if I was PM i'd scrap Centrelink, that'd save several billion a year. Some of the proceeds can be put back into Medicare to help the terminally ill/disabled or into apprenticeship schemes.

If it wasnt there, people would find other ways to live without it. They'd get part time or full time jobs or start small businesses. Sure it'd be a bit of a shock to the system the first year or 2, but people would figure out that their education is important if there's no cushion option at the end.

Economy would be the best ever.

 

[DavidMc]

In RE terms, lets say we have bought a fixer upper that we intend to rent so OK we ring up a builder and say we want this, this and this, no quotes, no consultation just do it ! He says beauty and charges whatever he thinks we will pay.

When we have it valued we find that surprise, surprise we are now over leveraged, the job which cost us $150k was really only worth $30k and our value has only gone up $40k. Now, technically the $150k we borrowed is good debt because it was used to improve/create an asset but the lack of DD has blown up in our faces, this is where Labor has gone wrong.

This is a great analogy! Very helpful, thank you. I suspect though we will get this no matter who is in charge, would Liberal really be that much better, really? They sell themselves as better, but what is the reality? Denis Napthine (Victorian Liberal state government) is increasing car park taxes in Melbourne which is going to add about $3 a day to the cost of parking in the CBD. Just another BS tax, just like Labor does. Aparantly the Liberal paid parental leave thing is poorly thought out from an economic standpoint.

I think pretty much 95% of cases where you have people spending other peoples money you'll have this concept of wastage, like a junior / lazy PM getting a plumber to relight a pilot light and a $150 bill to the LL.

I'm not convinced one party is hugely better than the other. Red, Blue or Green they'll all give the juicy contracts to their mates, kickbacks, fancy events, overspend, etc. As Aaron said, governments should not run businesses.

They have managed the economy badly

Really? Didn't our GDP increase by 16% during the last 4 years (OECD average of 6%). The traditionally 'Liberal' Economist newspaper says they did an OK job

The Economist has hesitantly thrown its support behind Kevin Rudd as the nation gears up to head to the polls next week, declaring that the Labor Party's "decent record" in recent years makes it the best party to face the challenges of the future.

Read more: http://www.smh.com.au/federal-polit...second-turn-20130830-2svda.html#ixzz2e01eOq77

I'm no Labor lover but I want some more independant analysis and figures on this, of course the Liberals have spent the last year drumming into us they're bumbling fools with all this character assasintation and have spent 10x the amount on their election campaign. Let's not forget to mention the huge influence the Murdoch press has on the public mind.

Do we have any independant sources of their performance?

Do we have anyone other than the Liberals and big business telling us they have done such a horrible job?

I try to source some overseas economists (like that Noble prize winning one), but it's generally known that some academics can be a bit 'left wing'. I'd believe them over what is on TV, in the papers and on billboards though.

 

[Macca]

Hi David,

In recent times Labor has created debts and Liberals have repaid them, it is not that bad an arrangement actually, in the past some of the Labor social benefits have improved our society in the longer term IMO.

Unfortunately it seems to me that the current ALP has changed to a party that looks after the pollies and party officials rather than the workers it claims to represent. They seem way more interested in big noting themselves overseas than seeking to improve the lifestyle of the working people here in OZ.

I think we need a change of government to halt the ballooning debt ASAP so I guess that means I will be voting Liberal this time and hoping the experience of the Liberals that are left from the Howard team will rein in the spending and reduce the debt.

 

[DavidMc]

They seem way more interested in big noting themselves overseas than seeking to improve the lifestyle of the working people here in OZ.

It's interesting you view that as a weakness. Don't get me wrong I hate the tax payer funded schmooze trips just as much as the next guy, however I view that as one of the strengths of the Labor party.

Rudd and co seem to have a much better relationship with China and our SE Asian neighbours. Sure it's a bit sucky when he speaks Chinese, but our country does have a pretty big economic depdendancy on China (which must be very hard to balance with our security depdendancy on the US).

The only forgein policy I know of the Liberals are turn back the boats and cut foreign aid.

It's a tough election this year, that's for sure.

 

[Canberran]

It's a tough election this year, that's for sure.

Why you think it's tough? I think it is one of the easiest.

Rudd and co seem to have a much better relationship with China and our SE Asian neighbours. Sure it's a bit sucky when he speaks Chinese, but our country does have a pretty big economic depdendancy on China (which must be very hard to balance with our security depdendancy on the US).

Check the link below you will see Chinese are not fond of him: http://mobile.abc.net.au/news/2010-12-06/rudd-silent-on-wikileaks-claims/2363780

 

[Token Funder]

Hi David,

In recent times Labor has created debts and Liberals have repaid them, it is not that bad an arrangement actually, in the past some of the Labor social benefits have improved our society in the longer term IMO.

Unfortunately it seems to me that the current ALP has changed to a party that looks after the pollies and party officials rather than the workers it claims to represent. They seem way more interested in big noting themselves overseas than seeking to improve the lifestyle of the working people here in OZ.

I think we need a change of government to halt the ballooning debt ASAP so I guess that means I will be voting Liberal this time and hoping the experience of the Liberals that are left from the Howard team will rein in the spending and reduce the debt.

This is demonstrably untrue.

Real govt. spending grew faster in the last four years of the Howard govt. than in any four year period since the early 90s, in spite of Costello trying to prevent it.

Howard was prepared to create a long-term structural deficit in order to stay in power. He got the former but not the latter.

Howard's entire political career, right back to his time as Treasurer in the Fraser administation , was a case of talking like a fiscal conservative whilst avoiding being one.

 

[Macca]

Hi TF,

My main beef with the current Labor Govt is the massive debt my kids and grandkids face, JH and PC cleaned up a nasty pile of doo doo left by the previous Labor govt and then increased spending once it was under control.

If the Labor government had done the same thing, ie: ran a tight ship for a year or two then spent the surplus I am good with that

Very, very different to having a party to buy friends and leaving the bill for someone else to pay

 

[Aaron_C]

Just voted. Mine is a safe Liberal seat so not much manpower there but I laughed when I saw Kevin's face with big letters 'A NEW WAY'.