Will Australia Ever Be Debt Free?

The sun will come out tomorrow. Bet your bottom dollar that tomorrow, there’ll be sun! Tomorrow! Tomorrow! I love you tomorrow. You’re always a day away!

Martin Charnin

40 years have come and gone since Martin Charnin published the now iconic song ‘Tomorrow’. You may know it from the 1982 film Annie.

I watched that film for the first time this week. I’m not much for musicals — or G-rated movies — but my three-year-old daughter loved it. And, admittedly, some of the tunes are quite catchy.

But why am I bringing up a kids’ musical in a financial newsletter?

Simple. Because I have a sneaking suspicion that Scott Morrison — and all the other treasurers before him — are closet fans of Annie. Or at least of Martin Charnin’s hit theme song.

Of course, rather than betting his bottom dollar that there’ll be sun tomorrow, Scott’s betting there’ll be a budget surplus…by 2021. And it’s not his bottom dollar, but yours.

The problem for Scott, and whoever follows in his footsteps, is that just as in the song, tomorrow is always a day away. And so is the ever elusive budget surplus.

As you’re likely aware, the latest budget — once again — relies on some rather optimistic forecasts. That includes a strong uptick in GDP growth to 2.75% in the next financial year and 3% in 2018-19.

With retail spending already in the doldrums — showing negative growth in three of the last four months — that’s indeed a rather hopeful forecast. Don’t forget that Australia’s economy is consumer driven. Household spending makes up around 60% of GDP. If the masses are hesitant to open their wallets, GDP growth — and government tax receipts — will suffer.

Even if the government’s rosy outlook holds true, Australia’s debt problems are far from over. The budget papers estimate that gross debt will reach $725 billion by 2027. And that staggering figure could take another century to pay off.

From the AFR:

It could take a century to repay the nation’s ballooning debt burden if the surpluses don’t grow substantially in the coming years, a Liberal backbencher [MP Craig Kelly] has suggested.’

What Craig is suggesting is that if my daughter lives to be 103, then maybe, just maybe, she’ll live to see a debt-free Australia.

Tomorrow! Tomorrow! I love you tomorrow. But you’re always a…erm…century away!

If that reality is as unnerving to you as it is to me, I highly suggest you grab a copy of Vern Gowdie’s latest book, The End of Australia. Vern highlights just how we got into this mess…and how painful it will be to get out of it. More importantly, he explains what you can do today to protect your wealth from the coming financial implosion he foresees.

Find out how here.

This week in Money Morning

Australians are worried about a crisis that won’t happen. And not worried enough about the genuine problems that will. That was Greg’s argument on Monday.

It’s understandable to be anxious about markets. Memories of 2008 are still fresh for many. Every time markets see a decent correction, there’s speculation that this could be another big one. As Greg notes, little has changed to prevent a similar crash. And global debt levels are at record highs. But there’s no way to know if the crash will come this year…or 10 years from now.

According to Greg, you should focus less on an unpredictable crisis and more on the real crisis that’s already happening in Australia. To find out what that is, and the opportunities it may present, you can read Monday’s Money Morning here.

On Tuesday, Greg looked at China’s slowing credit growth. The Chinese government manipulates credit to cool markets when they’re overheated. But is the government simply fine-tuning? Or is something more going on?

If China wobbles, our resources industry will suffer. And that could have serious consequences for Australia’s dollar. Not to mention our banks and the red-hot housing industry. To read why, you can find Tuesday’s Money Morning here.

Greg had better things to do than watch the budget circus live on Tuesday night. As he explained, he was attending — and presenting at — Port Phillip Publishing’s Doomers’ Ball. Not to worry. There was plenty of time to pore over the numbers in print. And Scott Morrison’s budget, Greg wrote on Wednesday, is designed to keep everyone happy. Or almost everyone.

Yet the government will still need to borrow $29.4 billion this year. Morrison predictably forecasts a return to surplus by 2020-21. However, the reality looks quite different. Not that reality has ever gotten in the way of rosy government forecasts before. You can read Greg’s full analysis on the budget’s fanciful assumptions in Wednesday’s Money Morning.

Sam opened Thursday’s Money Morning with his take on the budget. There were few surprises, other than the $6.2 billion tax on the big four banks. That could be expected from Labor or the Greens. But the Libs? Never.

Of course, this isn’t just the government taking on the ‘fat cat bankers’, as it’s meant to appear As Sam explained, the costs will likely be passed on, making it just one more tax on every Australian. And if they’re not, the banks’ share prices will suffer…and so will your super account. 23% of Australian share portfolios in super funds hold bank stocks. One way or another, the man in the street is going to cop part of this hit. That’s why it’s more important than ever to learn about — and consider investing in — cryptocurrencies. Find out why in Thursday’s issue here.


Bernd Struben,
Managing Editor, Money Weekend

Publisher’s Pick: Vern Gowdie’s Crash Protection Portfolio’: Vern has written a new book we believe everyone with money in the stock market should read ASAP. This week, we are mailing hard copies to any eligible reader who requests one. All you need is a valid Australian postal address.

As Vern demonstrates in the book, Australia may be staring down a market crash that could wipe out all the paper wealth created since the GFC. When this market does explode, Vern believes investors are going to see decades of gains blown away in a very short space of time.

If you cannot afford to see your wealth shrink by as much as two-thirds in value, you need to prepare for that potential snap NOW.

Numbers of interest, as of Friday

Aussie Dollar to US Dollar: 73.79

Gold: US$1,225.11 (AU$1,660.35)

Silver: US$16.32 (AU$22.12) per troy ounce

Bitcoin: US$1,569.54 (AU$2,128.19)

West Texas Intermediate Crude Oil: US$47.88 (AU$64.34)

ASX 200: 5,836.90

Money Morning Australia