How many plasma TVs does one country really need?
There may be discussions that the financial crisis is over. This, I believe, is premature, because the fundamental aspects that create economic instability are still present.
Right from the outset it should be stated that a domestic stimulus package for the Australian economy, an economy which earns its money from the export of agriculture and minerals and which spins around the money by the provision of services, will not be assisted by personal expenditure in imported plasma screens and sound systems and the construction of school halls. The outcome of the stimulus expenditure does not proportionally increase the aggregate size of the economy. Any benefit is far outweighed by the extensive leverage to which our nation is exposed.
If we imagine the Australian economy as an Australian family household, the debt has brought new plasma screens, ceiling insulation and a new coloured phone but the house remains the same size, the same value and no one in the house is earning more money because of the expenditure.
Australia now has a debt that one may question whether we can repay. This has an incredibly destabilising effect. In the attempt to repay the debt there will be the absorption of excess cash in the economy and this will have a regressive effect on economic growth. The leaching from the repayment of debt can have a far greater negative effect than the stimulus has in creating a positive effect.
The stimulus that the Government injects into the economy may come from the best of intentions but its delivery is haphazard and arbitrary as to where the money is actually spent. It is also, by reason of its lack of structure and its temporary nature, very inefficient.
While the private sector can spend a dollar and get a dollar’s value, the Government spends a dollar and will lose 20 per cent because of bureaucracy; it will lose another 10 per cent because it’s trying to spend in a rush and it will lose another 10 per cent because people factor in “fat” because they are dealing with the Government. The economy factors in a premium when dealing with the Government because they believe the Government is not as aware and adroit in its capacity to negotiate tight deals in the commercial market place.
Where the Government does have better structure is in the provision of ongoing services such as health, defence and education, however, when the money has to be repaid these are the income streams that are compromised. Where Government inefficiencies can be covered is in the construction of major capital projects, which can be later sold for a profit. Nothing can be recouped from the so-called $900stimulus cheques, along with other payments, which culminated in Australians spending $12.2 billion. Nothing can be recouped from $14.7 billion spent on school halls and infrastructure. Nothing can be recouped from the $890 million spent on boom gates. Nothing can be recouped from the $3.9 billion spent on ceiling insulation and solar hot water rebates and nothing can be recouped from expenditure on small scale public works that are intrinsically part of a larger public asset that cannot be sold.
What has the Labor Government’s so-called stimulus expenditure actually stimulated? Have we constructed one ceiling insulation factory from our expenditure on ceiling insulation? Will the school halls deliver a better outcome in English and Maths, so that students can demand a higher wage for which they will pay more tax and give the Government access to funds to repay the debt? Did the boom gates increase the capacity of internodal port transportation, reducing costs and increasing exports? Since coming to power the Government has lost sight of their discretionary expenditure. There has been a disjuncture between the person who signs the cheques and the knowledge of how to earn the money. While Christopher Wren said, “If you want to see my monument, look around you,” one could ask the same question of Mr Rudd.
Where has the money reflected in the $110 billion debt gone? It feels like the only monument Mr Rudd has left us is a monumental debt.
Quite evidently none of the Australian expenditure did anything to increase the size of our economy, apart from a Christmas stocking stimulus; flashy, one-off, eclectic, economically dysfunctional rubbish.
Noting that you cannot get your money back from where you spent it, you have to get it back from somewhere else. The aggregate size of the economy has not increased; the net recoupment from taxes has a disproportional regressive effect that far outweighs any benefit of the stimulus that brought the debt into existence.
Australia now has its leg out in the street trying to entice funds to cover our $110 billion worth of federal debt and $230 billion worth of state debt, which is underwritten by the Commonwealth. America too has its leg out in the street, looking at $11.8 trillion dollars; the UK is out there with $US1.25 trillion and Japan is out there for $US7.5 trillion. Now this can’t go on. Something is going to give and it is going to give in a very nasty way. And the smartest thing that Australia can do is to stop calling for acclamation that the rat trap hasn’t gone off while we are still gorging on the cheese. If you want to get out of the rat trap, get out of debt.
Don’t miss: Get The Punch in your inbox every day
Read all about it
Up to the minute Twitter chatter
The latest and greatest
Good morning Punchers. After four years of excellent fun and great conversation, this is the final post…
I have had some close calls, one that involved what looked to me like an AK47 pointed my way, followed…
In a world in which there are still people who subscribe to the vile notion that certain victims of sexual…