Have you ever seen an electrocardiograph (ECG) monitor in operation? It’s that machine you often see at a hospital. You know, the one that monitors the heart rate of a patient.
Sometimes you’ll see it in a movie, telemovie or TV soap. Have you heard the sound it makes when the heart of the patient stops working? That’s what I was getting at in the opening line of today’s Money Morning.
Why? Well let’s assume the patient in question here is the Australian economy.
Almost a decade ago the ‘patient’ was strong, robust and had the heart of Phar Lap. Over the last year or two now that heartbeat has become increasingly weak. No longer the thumping mass of muscle driven by the fuel of a commodities boom. Now it’s just a struggling hunk of former glory, battling from one beat to the next.
And in the last few weeks that heartbeat has come to a halt. In fact you could almost say this patient’s heartbeat is flat-lining. Now, if you’ve seen movies with a patient whose heart stops, you might know what happens next.
Doctors, nurses, appropriately trained people will try to get that heartbeat going again. Get it beating once more and bring the patient back to life. Sometimes they’ll apply CPR, sometimes to get a real shock to the system they’ll use a defibrillator.
The ‘defrib’ is a machine that sends an almighty electric shock to the heart. The idea is the shock alone will jump start the heart and get it beating again.
Well yesterday the Aussie economy got its own defibrillation. In fact, it got what I’m calling the double-whammy defibrillation.
The first part of the double whammy was the RBA’s decision to cut rates. With the rest of the world teetering around a 0% cash rate, Australia had some wriggle room up its sleeve. From 2% the cash rate is now 1.75%. It’s not a great sign, but it certainly beats countries like the UK and US, both sitting on 0.5%.
However, cutting rates isn’t a good sign of a growing economy. The RBA cut rates to help stimulate the economy. To help jump start a flat-lining heartbeat. The main reason was the unexpected deflation from the last quarterly CPI figures.
Will it work? We’ll see. But I doubt it. In fact I think we’ll see another rate cut before a rate hike. There’s no clear sign of how the economy is going to grow without some kind of strategy to stimulate the right kinds of industry.
Then, conveniently on the same day, the government released its 2016 Budget. A good, strong, positive budget also has the potential to resurrect a dying heartbeat. It can put some hope and optimism into the psyche of the general public. It can have a stimulatory impact. But did this Budget stimulate? Did it stimulate you? Not me. I was left distinctly unstimulated this morning.
What did Treasurer Scott Morrison deliver? Well to be frank, not much. Wishy-washy is the first thing that comes to mind. Clear strategy and direction? Nope, none of that. The country hasn’t seen a decisive piece of economic management since…um…since…well probably since 1992. But that’s a whole different discussion to have.
If you’re earning a truckload of cash — over $250k but less than $300k — then your super tax is doubling. And you can’t put more than $25,000 into super as a concessional contribution. Boom! Take that you 1-percenters.
But here’s something funny. Only 376,267 people earn over $180,000 per year, according to the ATO stats from the 2013/14 financial year. Those 376,267 paid 29.8% of the nation’s total tax — around $49.5 billion.
It’s pretty easy to figure out that those earning between $250k and $300k aren’t going to be a lot. And the doubling of tax on their super contributions isn’t exactly going to get us back into surplus. But it’s a decent vote grabber, isn’t it?
Tax the uber-rich more. Doing this for the working class. For the man on the street. Does it fool anyone? Probably not. In fact, I’m pretty confident that in a week, maybe two, everyone will have forgotten about this budget. I know I just about have already.
With the Aussie economy in a spot of bother, now is the time for real leadership. For someone to make some hard calls. For someone, anyone, to pull their finger out and get the country back on the right track.
I was listening to the ABC coverage of the budget this morning (UK time) and a reporter on the ABC made a remark about (to paraphrase), the Australian economy as it weans off the commodity boom and moves to…something else.
The ambiguity of his words was clearly evident. And if I were to ask you what that ‘something else’ is, I wonder what you’d say? Think about it. Where is the growth in the Aussie economy going to come from? What major industry is going to lead us out from the doldrums of a commodities boom hangover?
The real way to jump start the heart of Australia
Most people have no idea. The government surely doesn’t, or this budget might have had a lot more to it.
But I’ll tell you what’s going to lead Australia forward. And it’s not rate cuts or taxes on 1% of the population.
It’s knowledge, science and technology. It’s technology industries like supercomputing, robotics and artificial intelligence that are going to put Australia back on the map. These might not be as tangible to some as good old dirt in the ground, but it’s our best opportunity to turn Australia around.
Clearly though, investment has to redirect to these areas. Into schools, universities and education to build Australia’s army of nerds and geeks. They’re the ones that will lift our economy back up and onto growth again. But unless those in their ivory towers stop chasing votes and do something positive for the country…then perhaps not even an electric shock will restart this dying patient.