Budget Time Again

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It’s budget time again…the annual ritual of asking not what we can give to our country, but what our country can give to us.

The mainstream media helps drive this attitude. The tabloids and the horribly depressing ‘breakfast TV’ sum the budget up into a ‘what does the budget do for you’ package.

No one stops to consider ‘what is this budget doing for the country’? No, because it’s all about ‘me’. Millennials tend to cop the brunt of much intergenerational bickering. They’re self-centred and self-important. But as far as I can tell, pensioners, baby boomers and Gen X are similarly selfish. Try and take a perk away from any of these groups and listen to the howls of indignation.

That’s what happens to an entitlement society. Everyone believes they are entitled to something because everyone else seems to be getting something for ‘nothing’.

We want something from the ‘government’. But we forget the government has to take from someone else to give to us. The government consumes. It doesn’t produce a thing.

This is why a productive and self-reliant society should demand as small a government sector as possible.

But is that the case in Australia? We might like to think that we are a resourceful lot, but that’s not really the case. In fact, government spending as a percentage of GDP is close to record highs, as are government debt levels.

As Adam Creighton reports in The Australian:

‘…the payments to GDP ratio has fallen from 25.5 per cent of GDP in 2014 to 25.2 per cent, and will rise to 25.4 per cent next year, according to the ­December budget update. That’s hardly impressive.

The fiscal strategy also talked about paying down debt by ­“reducing, then stabilising commonwealth government securities on issue”. Well, federal debt on issue has surged from $310 billion in 2014 to $534bn this year, and is on track for $684bn by 2027, ­according to last year’s budget forecasts. Net debt as a share of GDP has soared from 13.1 per cent in 2013 to 19.2 per cent this year, ­according to the International Monetary Fund’s latest figures.

Because we’re an entitled lot, we are happy to vote in those who promise to give us stuff, and penalise those who try to balance the books. As a result, government spending grows faster than the economy and debt keeps increasing.

Is this increase in debt productive spending or is it just buying elections? Mostly, it’s the latter. And if that’s the case, it’s a pretty big spend for a three year term…and a pretty poor outcome at the end of it.

Because let’s face it, as bad as the current mob is, who really wants to think about the other mob being in charge?

Maybe that’s why we just want what we can get from the system?

Politicians are such an uninspiring lot, who cares about the greater good? The ‘big end of town’ certainly doesn’t. As shown by the Royal Commission into financial services, they’ve embedded their snouts firmly in the trough.

Which is why AMP has had to appoint David Murray as Chairman. The former long standing boss of Commonwealth Bank is one of the few financial players with integrity intact. He knows banking is a con game. That is, it’s all about confidence. When confidence in a bank or financial services player is gone, so is its business.

Unfortunately, you can’t say the same thing about politics. It just keeps on keeping on. Only a sharp economic downturn will impose discipline on politicians and the electorate.

We had a sharp one in 2008. But Australia had the fiscal and monetary firepower to withstand it. We have no such firepower now. Interest rates are still at ‘emergency lows’, private sector debt is at record highs and government debt is close to threatening our AAA credit rating status.

Thankfully, Australia is enjoying resurgent commodity prices, which provide a boost to the terms of trade, national income and, in turn, the government’s tax coffers. Which they duly spend…

For example, tomorrow’s budget will apparently include infrastructure spending of $24.5 billion. The government will package this as pro jobs and pro-growth.

But don’t forget, this is really just spending designed to provide essential infrastructure to an expanding population. The government deliberately runs a high immigration policy because they know population growth boosts economic growth without them having to do anything useful, apart from stamp passports.

But after a few years of this, cities groan under the weight on this increased population and infrastructure needs an upgrade. Which is where we are at now, especially in Sydney and Melbourne.

The government has treated these cities as ‘cash cows’, taking what they can from them (increasing population to boost economic growth) while giving nothing back. But now it’s time to reinvest before ‘the business’ implodes. That is, votes for someone else.

And, of course, the government packages this up as ‘look what we’re doing for you!’

But don’t forget, all they’re doing is taking. And if they’re not taking from you directly, they’re taking from your kids in the form of increased borrowing. It will be their burden to repay the creditors at some distant date, if not directly, then via a painful adjustment mechanism like inflation or deflation.

But who cares about that? It’s too far down the track for an entitlement culture to care about. Instead we ask, what’s in it for me, now?


Greg Canavan,
Editor, Crisis & Opportunity

About Greg Canavan

Greg Canavan is a Feature Editor at Money Morning and Head of Research at Fat Tail Investment Research.

He likes to promote a seemingly weird investment philosophy based on the old adage that ‘ignorance is bliss’.

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