Your editor writes from home this morning, as we pre-recorded a radio interview for ABC Coast FM early this morning [that's 91.7 on your dial for those in the Gold Coast area].
The show was due to be aired later on this morning.
They were interested in your editor’s views on government subsidies. It won’t surprise you to learn that we weren’t short of things to say. The main subject on the agenda was Queensland’s scrapping of the 8-cent per litre fuel subsidy.
Who benefited from it? Who would lose out from its removal? And were there any circumstances where subsidies were good? There was also a question about the first home-buyers bribe as well.
But before I give a quick rundown of the show, it does have relevance to today’s main subject of Australia’s GDP figures that were released with much excitement yesterday. But I’ll get on to that in a minute…
We’ve covered most of the arguments against subsidies before. But the Queensland fuel subsidy is/was perhaps a perfect example of government inefficiency. It’s one reason why we were happy to do the interview.
In Queensland you have (until the end of June) the bizarre situation where the Federal government imposes a tax on fuel only for the state government to give a credit to reduce the tax.
The only people who get anything out of this arrangement is the public servants who are employed to levy the tax and those that are employed to remove it. It’s the white collar equivalent of paying someone to dig holes and someone else to fill them in again.
Naturally, there are plenty of people up in arms about getting rid of the subsidy. Not least of which is Agforce which “represents thousands of Queensland beef, sheep and wool, and grains producers.”
Agforce claims dropping the subsidy will not only mean a 10% rise in the price of fuel but it will mean a 20% rise in the price of food!
As we pointed out, we’ve got no idea whether Agforce is right or wrong. What we do know is that Agforce is just one more special interest group that is trying get more benefits for its members at the expense of others. As we also pointed out, “Is there an industry not just in Australia but worldwide that craves a subsidy more than the agricultural industry?”
On the subject of the first home-buyers bribe we pointed out as usual that the subsidy may provide a short term benefit but in the long run would only serve to pump up the property bubble further and harm those the policy was supposed to help.
But that’s enough of the self-indulgence, back to the GDP numbers.
Do we really want to come out as the party-pooper on this one? I’m afraid that’s just what we’ve got to do.
You see, the GDP number shows, combined with the Balance of Payments stats from the previous day show that if it wasn’t for the billions of dollars of handouts, the trade position would have been even better, and the GDP numbers would have been better too…
Because what the multi-billion dollar handout has done is increased consumption levels. And as we know, many of Australia’s manufactured goods are imported rather than produced locally.
But to be honest, part of the problem is the fascination among economists for these kind of statistics. Does it really matter whether the economy grows by 0.3% or 0.4%. Statistically it’s neither here nor there.
The real important fact is how the economy is performing and what is impacting on it.
Too many of the mainstream economists seem to base their entire work around predicting GDP, Jobs, Inflation, Trade, Interest Rates, etc… Now, we’re not saying these numbers should be ignored, it’s just that predicting whether 934,712 people will lose their jobs or whether it will be 934,715 people completely clouds more important issues in an economy…
But the GDP numbers don’t really matter. What is more important is the efficient allocation of resources within the Australian economy.
The excitement over the positive GDP will merely encourage further wasteful policy decisions. It will convince the politicians that their plans are working and that they need to spend more.
What the economy really needed was a period of slowing down. It needed a period where individuals could save and pay off debt rather than remaining over-leveraged.
But, policymakers will believe they have been vindicated, that only government spending can give the economy the boost it needs. This will inevitably mean even more extravagant programmes, and most likely a further increase in government debt…
Mainstream economists and treasury will get their economic models working overtime to show how spending more means more people will be employed which means more taxes which means the debt can be repaid quicker.
Of course, all any of this does is to rack up the debt and push the burden of repaying it further out.
Before you know it, Australia will be facing similar debt problems to the US and UK. Our only escape route is China and the resources industry. But even that has its limits to how far it can cushion the economy from government interference and over-spending.
Other Stuff on the Markets
The S&P/ASX200 added 1.55% yesterday to close above 4,000 points for the first time since 10th November last year. Overnight, Wall Street ended lower with the Dow Jones Industrial Average losing 65 points.
Meanwhile, in Europe the FTSE100 dropped by over 2%.
The price of gold in Australian dollars gained slightly to $1,205.89, while in US Dollars it lost ground to USD$962.90.
The Aussie dollar lost ground, trading this morning at USD$0.7993 and JPY76.70.
Crude oil dropped after inventories rose. It finished trading overnight at USD$66.12.
Biggest movers on the market yesterday were…
On the economic calendar today we have the Trade Balance for April, while tonight in the US it’s the weekly Initial Jobless Claims.
{ 1 comment… read it below or add one }
i’m a reg. dem. in ms. today i watched your reporters do reporting on tight jeans on women. on fox at the same time reporters were reporting on the new health care bill. a bill not even our president, i voted for has read. is it any wonder more and more people are changing to fox. you are
do more left wing than fox is right. the truth needs to be reported i do not need you to direct me. as a small business owner i’m making plans to reduce my staff because of what i have read in this bill. i also no longer get time or newsweek mag. the next election i’m moving to the right.