Struggling to get a handle on where the economy is heading? Don’t beat yourself up about it. You’re facing an uphill battle. Nobody tells the truth about the economy.

Only Scully and Mulder can handle the truth. Picture: X Files

All the main sources of economic information - politicians, business people, economists and even journalists - are hopelessly conflicted when it comes to talking honestly about the economy. Let me lift the veil a little.

It shouldn’t shock you to learn politicians often bend the truth, particularly on such a hot button election issue as the economy. The political Punch and Judy show over government debt is a good example.

The Opposition would have you believe reckless spending has pushed the government’s finances to the brink, creating unsustainable levels of debt that will be passed to your grandchildren’s grandchildren. The government has unwittingly played into its hands with its dogged obsession to produce a budget surplus in this financial year, however slim.

In truth, the federal government’s net debt position (the value of its debts minus assets) is, at 9.2 per cent of gross domestic product this financial year, low compared to the rest of the world.

In fact, the very creditworthiness of the Australian government is pushing up demand for government-issued bonds, and, in turn, the Australian dollars needed to buy them. This is actually causing headaches by adding to upward pressure on our already turbo-charged Aussie dollar.

Global investors are so confident in the government’s stability they are lending to the government at an ultra low interest rate of about 3 per cent. Imagine if your mortgage rate was 3 per cent – how worried would you be about your debts?

But what can we learn of the economy through our esteemed leaders in business? Without wishing to labour the obvious, businessmen and women too are hardly impartial observers. They talk their own book, announcing job cuts on the eve of state budgets expected to contain tax increases for them. Hello Queensland.

The Australian business community has discovered in recent times just how easily lily-livered politicians can be bullied into backing down on decisions that adversely affect their shareholders’ interests. And fair enough too, business people should seek to maximise shareholder returns. It’s just that everything they do and say must be seen through that prism.

Economists too can play pretty hard and fast with the economic truth. Private sector economists – those sharp-suited talking heads in bank trading floors you see on your television every evening – are paid to come up with a view on what is going to happen with the economy. Financial traders for that bank can use this view to inform their trading.

But it’s also like a glossy brochure for potential clients for the bank – they see your chief economist’s mug on television sounding confident and knowledgeable about the economy and decide they want your bank to manage their money. Nobody wants to invest with the guy who simply admits it’s not clear where the economy is going.

And so economists tend to adopt a position on where they think the economy is heading and parse every data release for evidence to back up that prediction. Economists who have pronounced on television that interest rate cuts are imminent see weakness in every new release. Those predicting no rate cuts see only strength.

But maybe you think we can rely on journalists to always tell the truth? Well, sorry to disappoint, but we’re human too. Reporters face what economists call a “perverse incentive” when it comes to reporting economic data in that a bad news stories can often win a front page position; good news stories are relegated to down page 16.

Indeed, the entire media industry, with its heavy reliance on advertising from the retail and property sectors – both in structural decline thanks to lower household debt appetite – seem to have a glass-half-empty view of the economy at present. It is a mark of the editorial independence of our major newspapers that they run so many bad news stories when it would actually be in the newspaper industry’s commercial interests to tell a more upbeat story.

I say all these things not to tip anyone into hot water or to dissuade you from reading newspapers. The truth is economic forecasting is inherently difficult – that’s why economists are notoriously so bad at it. At the end of the day, the Australian economy is a sprawling entity of 22 million people trading, transacting, hiring, firing, buying and lending each day.

These decisions are, in turn, affected by the decisions of some 7 billion other individuals worldwide. Only fools pretend to know with any precision what they will all decide to do tomorrow.

The best we can know for now is that the Australian economy hit a weak spot recently due to sharp falls in prices international buyers are prepared to pay for our major exports of iron ore and coal. As a result, mining companies have begun pairing back investment plans and laying-off some workers. This change in economic temperature may well prompt the Reserve Bank to cut interest rates as early as next month.

But it depends.

It depends on whether commodity prices recover in the coming month – iron ore prices enjoyed their biggest one-day gain on Monday – and how the Australian dollar responds.

If commodity prices stay low and the dollar fails to ease by much – as it has to date – then it is entirely possible the Reserve Bank will act to stimulate the economy, and soon.

But should commodity prices rebound or the Australian dollar fall materially, this could buy the Reserve Bank some more time to see the impact of previous rate cuts.

But don’t take my word for it.

Twitter: @Jess_Irvine Email: jessica.irvine@news.com.au

Comments on this post close at 8pm AEST.

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154 comments

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    • Macca says:

      06:27am | 12/09/12

      “The Australian business community has discovered in recent times just how easily lily-livered politicians can be bullied into backing down on decisions that adversely affect their shareholders’ interests. And fair enough too, business people should seek to maximise shareholder returns. It’s just that everything they do and say must be seen through that prism”.

      The second half of this sentence is a complete myth. It’s 1970, Milton Friedman obsession of economics academics, MBA graduates and executives; businesses sole responsibility is not only to the shareholder.

      They have some responsibility to shareholder return, but to maximize shareholder interest at the impact of employee, community, society interests, well that’s when we start seeing BP, Enron and Leehman in the news.

      We need to rid this myth. the sole, the only, responsibility of an executive? No such thing.

    • Tubesteak says:

      08:10am | 12/09/12

      Wrong. It should be, and is, their only interest. Business is about profit. Governments are about elections. People are about rational self-interest. That is how the world works. Keep your socialist nirvana.

    • marley says:

      08:27am | 12/09/12

      I don’t think the author is saying that the only responsibility of business is to maximise shareholder’s return.  I think what she’s saying is that it is a major responsibility, however, and that whatever they say about the economy has to be judged in that light.  Businesses are no different from politicians or economists - they all have natural biases based on self-interest, and their opinions need to be assessed with that in mind.

    • Barney says:

      08:29am | 12/09/12

      Very good Jessica .

    • Michael says:

      08:45am | 12/09/12

      Actually Jessica is entirely correct - shareholder value is maximised when stakeholders such as employees and customers are looked after.

      You’re interpreting her statement from a very utilitarian stance and knowing Jessica’s writing its obviously not what she meant at all.

    • Joan says:

      08:55am | 12/09/12

      The daily value of share hardly a reflection of value of company as traders using computers and alogorithic trading turn Stock market into nothing better than a pokies machine. Disaster for stockmarket around the corner.

    • Gregg says:

      09:39am | 12/09/12

      @Tubesteak
      You have such a narrow view for whilst any business is about profits and returns to shareholders to maintain existence, maintaining that existence and the profits/returns entails so much more, re-investments, modernising, expansion and research to attempt knowing the best future directions an organisation should take re operations generally and new products etc.
      That may even mean some businesses going totally or partially offshore, going into mergers as with Qantas or with multi national mining conglomerates deciding to reduce production in Australia in favour of cheaper alternate production with better returns.

      Any business that operates on the basis of immediate profits with no view to the future may not be so profitable in the longer term and longevity counts for good investments.

    • MK says:

      10:09am | 12/09/12

      I am just waiting for a single CEO to say
      “Stuff it, we don’t care about short term results, we are about long term value creation”
      Hasnt happend yet,
      but i suspect they are all in fear of losing their jobs after the share price drops (initially) after such a statement

    • iMitchy says:

      10:31am | 12/09/12

      Everyone is a little bit right…

      @Macca,
      “...businesses sole responsibility is not only to the shareholder.

      They have some responsibility to shareholder return, but to maximize shareholder interest at the impact of employee, community, society interests, well that’s when we start seeing BP, Enron and Leehman in the news…”

      This is correct, but look a little deeper - when a business negatively impacts employees, community, society, environment etc for the sake of larger returns, it can actually negatively impact the share price via lack of demand, especially if the company is at risk of legal action or boycott. So looking after these issues at the expense of some profitability is better for returns for the company and shareholders. It’s a fine balancing act that comes full circle.

      @Joan,
      If you believe that, then stick to the pokies. You can try to manage your risk by diversifying - play multiple machines at once - Good Luck!

    • Budz says:

      10:32am | 12/09/12

      Even when the underlying goal is profit, if you don’t look after your stakeholders including your employees, it’s going to hurt the bottom line! High staff turnover never helped a company!
      Happy employees perform better, that’s why at places like Google they do everything to help you, including things like provide free food etc. so you never have to leave the office. And that helps both parties concerned!

    • M says:

      11:00am | 12/09/12

      Joan is actually right about computer trading. There have been several instances where computers have cause stock to gain or lose immense amount of values in mere minutes, in some cases leading to trading having to be halted temporarily to stop a fire sale.

    • Joan says:

      11:10am | 12/09/12

      MK: That`s what alogorimthic traders are doing right now. - the problem is they can crash the stock market,  me at the pokies just crashes my account

    • Economist says:

      11:11am | 12/09/12

      Well as a layman in the field of economics Tubesteak seems to be taking the view that we are nothing more than widgets, how inhumane.

      Economics is nothing more than a social science to describe on aspect of our human behaviour. Sure there are plenty of economists that want everything examined through this prism, but these economists focus on costs more than the benefits gained from human interaction, they’re pessimists and mostly supply side economists who follow the Austrian school of thought, who live in a fantasy world of abandoning government intervention and regulation. Everything is defined in dollars and cents instead of what the fundamental purpose of economics, to examine utility gained from transactions. 

      These transactions are complex and there a millions of them daily, that involve money and those that don’t. The terms self interest is abused, because people do things that aren’t in their interest, they do things that are in the interest of others at their own expense.  It because we live in a society, where people don’t act rationally.

      You put too much faith in businesses getting it right when focusing on shareholder return. If only those in the media paid as much attention to what businesses are doing and their mistakes as they do with governments. Shareholders and the community may get better quality information to make decisions on.

      End rant.

    • acotrel says:

      12:12pm | 12/09/12

      ‘The Opposition would have you believe reckless spending has pushed the government’s finances to the brink, creating unsustainable levels of debt that will be passed to your grandchildren’s grandchildren.’

      The opposition has been on about this bullshit since immediately after the GFC occurred.  Their interest is about winning back their birthright regardless of the risksimplicit in destroying business confidence.  There is one FACT which came out of the thirties depression - success in staving off a social disaster is rooted in confidence.  It doesn’t matter one iota if that confidence is built on bullshit.  That is the way of the world.
      ‘The system runs on bullshit, anyone who tells you otherwise has an agenda. Just accept it and get on with life, you will be happier, however keep an eye on your own duty of care.

    • Tubesteak says:

      12:48pm | 12/09/12

      Gregg
      All businesses can do a NPV calc to determine the CBA of any expense or project. I did not say or imply otherwise. Just that their focus is on profits and returns to shareholders and should not be other than this.

      Economist
      While I am not a professional economist I do have undergrad and post-grad qualifications in economics, thus I do know what I’m talking about when it comes to business. No business should be responsible for “society” just as no individual is responsible for “society”. Everything I do is with rational self-interest as my prime motivator. I don’t do anything unless the ROI is greater than the cost of doing it. To call the Austrian school living in a fantasy world is wrong. We need to get back to the time of personal responsibility ie look after yourself and don’t expect others to do it for you or have any interest in you.

    • Esteban says:

      12:56pm | 12/09/12

      MK says:10:09am | 12/09/12

      I am just waiting for a single CEO to say
      “Stuff it, we don’t care about short term results, we are about long term value creation”
      Hasnt happend yet,

      It actually happens in akmost every company MK. Try establishing a business and getting instant good short term results. this is especially so in mining ventures which are very long term indeed.

      I would suggest you read the float prospectus of new listing and in most instances you will see a long term strategy.

      Lots of companies have been around a long time and focussed on long term wealth and that is what they are reaping now.

      Profit retention is still a pretty reliable way to long term wealth creation.

      Having said that as a shareholder you can go to the annual meeting and have some input on how long term wealth is to be created without short term profts.

      I don’t know if you would get much support from the other shareholders.

      Of course if you are not a shareholder then quite frankly it is none of your business how CEO’s operate the business as long as it is within the law.

    • Tom says:

      01:07pm | 12/09/12

      Gregg, “Tubesteak seems to be taking the view that we are nothing more than widgets, how inhumane”.

      Tubesteak’s analysis is a lot closer to the truth than your breathy little undergraduate sanctimony.

    • Mark says:

      01:27pm | 12/09/12

      Labor inherited no debt when they came to power in 2007. Despite record revenues from a mining boom, Australia is now significantly in debt. Labor could not manage a chick raffle. Those are the facts.

    • Economist says:

      01:36pm | 12/09/12

      Tubesteak I was referring to myself as a layman economist not you. I reread my comment and I can see how it could have been misconstrued, apologies. There’s nothing wrong with being in the Austrian camp, but it is simply one view and all I was trying to highlight with my rant is that we’re human first and widgets second.

    • Tubesteak says:

      04:40pm | 12/09/12

      Economist
      My view is that humans have moved from tribes of hunter-gatherers to towns and cities of workers and producers. Essentially, it is the same thing, though. Considering ourselves a “society” or that we have some higher calling is nothing more than the conceit afforded by an abundance of wealth. It’s a veneer. It is still our duty to “earn our way”. Whether you call us humans or widgets it doesn’t really matter.

    • Nathan says:

      07:05am | 12/09/12

      After working for Economists i would have to agree with what you say about the conflict of interest. I was lucky enough to work for an independent research house who didn’t have the conflict of interest but it was clear what the banks where putting out is rubbish and they know it. Put out research that so happens to be favourable about what ever they are trying to sell.

    • Get rid of both parties says:

      10:10am | 12/09/12

      “independent research house who didn’t have the conflict of interest “

      Yeah right.

      I too have been involved with research house’s with a “terms of reference” framework. They are paid to come up with what the payer wants.

      Everyone and every thing has an agenda. It’s our job as a human to weed out the BS. The people with the best BS filters are the ones that thrive.

      The others buy investment properties, endorse governments to sell public and private assets to foreigners, and populate to then share what’s left.

    • M says:

      07:19am | 12/09/12

      Steve Keen predicted the US housing bubble.

    • Get rid of both parties says:

      09:00am | 12/09/12

      Yes he did. So who do we now listen to? Those that didn’t predict anything and we ignore Keen and many others. Think Peter Schiff, Gerard Minack, Kris Sayce, Nouriel Roubini.

      Don’t trust the views of anyone that thinks everything’s cool. It aint.

      We’re in very big trouble.

      We’ve sold far too much stuff, we do far too little, we earn far too much, our housing’s so far over priced it’s ridiculous.

      Politicians are feathering their own nests at the huge expense of all of us. They’re smart people and manage to convince the dumb electorate in all sorts of crafty ways.

    • M says:

      09:11am | 12/09/12

      When the recession comes, I’ll be sitting back saying “I told you all so.”

      And I’m not even an economist.

    • David C says:

      10:13am | 12/09/12

      pity abut his Ozzie prediction

    • M says:

      10:30am | 12/09/12

      What do you mean? His Aussie prediction is coming true as we speak.

    • Get rid of both parties says:

      10:32am | 12/09/12

      “When the recession comes”

      It’s not a recession coming, it’s the annihilation of Australia’s wealth that’s coming.

      I’ve been guiding mates and family for decades. They didn’t listen at first and watched everything I said come true. This is no different. Housing prices will collapse, we’ll be earning about a fifth what we do now, there’ll be food shortages, there’ll be a revolution within the next twenty years.

      We’ve let our kids down so irresponsibly.

    • Markus says:

      10:34am | 12/09/12

      @David C, people always say Australia is 10 years behind the rest of the world, don’t they?

    • Economist says:

      10:37am | 12/09/12

      Steven Keen has predicted the collapse of our housing market for at least the past 5 years and it hasn’t eventuated.

      Umm as for your ability to sit back and say I told you so. Well recessions come and go, you’re bound to get it right at some stage but why don’t you be more specific?

      The fact is no other country has had 20+ years of GDP growth. From a combination of reform and considerable luck.

    • Get rid of both parties says:

      10:38am | 12/09/12

      @David C

      You’re joking right? It’s coming.

      Wages are heading down, banks are tightening loans, unemployment’s rising, rents stagnant.

      Do not walk, run away from housing.

    • M says:

      11:02am | 12/09/12

      That’s ok, I’m able to hunt, farm, and brew whiskey. Bring on the dystopian future.

      Oh yeah, and thanks boomers.

    • M says:

      11:17am | 12/09/12

      Economist, it not eventuating has a lot to do with government interfering with the market.

    • Get rid of both parties says:

      11:20am | 12/09/12

      @M

      “That’s ok, I’m able to hunt, farm, and brew whiskey. Bring on the dystopian future. “....

      I don’t think so. With the rest of us 50 million. Our governments still bringing passengers on to the Titanic.

    • Get rid of both parties says:

      11:24am | 12/09/12

      @Economist.

      ....“The fact is no other country has had 20+ years of GDP growth. From a combination of reform and considerable luck. “

      It’s as a result of selling stuff and personal debt. Nothing else. We all thought we could be rich. Market forces are about to show us otherwise.

      You think 5 years means anything? Especially since all the government does is make policy to prolong the charade.

    • David C says:

      12:23pm | 12/09/12

      Steve Keen lost a bet to Rory Robertson on his (wrong ) claim about Ozzie housing. It might still come true .. it might not ... but he still got that call wrong.

    • M says:

      01:12pm | 12/09/12

      David C, property prices always track inflation over the long term.

    • iansand says:

      07:21am | 12/09/12

      Cui bono? is an invaluable tool.

    • Get rid of both parties says:

      02:33pm | 12/09/12

      So are;

      “Always back self-interest because it’s the only horse who’s trying.”

      “Always process someone’s opinion through the self-interest filter before you consider it seriously.”

    • Bazza says:

      07:21am | 12/09/12

      The Govt is paying 3% interest on its borrowings. If we were paying 3% on our home loan would we be concerned about our debt level? Well, if that rate of 3% was locked in for the length of the loan I guess not, but mortgage rates rise and fall do they not. So, if all of a sudden rates start to rise and reach 10% then I guess I would be in deep trouble. So will the Govt be if and when rates start to rise. Economists may think they can read the tea leaves but history shows economists have no form whatsoever at this hocus pocus art.
      Just as the Govt thought the high prices for iron ore and coal would stay high for a considerable period of time and have budgeted for it, so they must think interest rates are going to stay low for a considerable period of time and have budgeted for it. Good luck, because none of the smart arsed economists and politicians have a bloody clue. Based on history they can’t even tell the time.
      Just as an after thought, if our 3% interest rate is based on our Govt stability and low net debt ratio of 9% are you saying it is fine to keep borrowing, what happens when our net debt rises to say 20 or 30%. That is still low when compared to European countries. Yeah, I thought so, lenders not quite so confident so up go the interest rates.

    • Alfie says:

      07:30am | 12/09/12

      A good example of a reckless government (ture horror story) is Queensland Labor who were heading the State toward $100b debt. The scale of incompetence is hard to beleive, but includes some of these examples:

      - $9b on a water grid (which has never been used for the intended purpose)
      - $1.6b on a (messed up) health service payrole system
      - $450m on Traviston dam (which never went ahead)

      Their financial position was so bad that Labor’s capital expenditure program in 2011-12 was funded almost entirely from debt. The clowns were even going to $6m on building an olympic ski jump (yes in Qld!!!)

    • Bazza says:

      07:51am | 12/09/12

      @Alfie…...$450m on Traveston, plus the cost of all the properties they purchased to allow the dam to be built. All of them now devalued not only because of the drop in property values but also to the run down state they are now in. Plus the cost of the NON use of the farmlands.
      And the Health Dept computer still does not function correctly.

    • M says:

      08:00am | 12/09/12

      And everyone wonders why newman is cutting the public service.

    • Bris Jack says:

      08:03am | 12/09/12

      Alfie this is my favourite labor legacy.
      “Egg-shaped pile of rocks that will crumble into its environment has cost taxpayers almost $700,000 after being built in a remote section of national park near the Sunshine Coast.
      Resource Management, under the former state Labor government, quietly commissioned British artist Andy Goldsworthy to create the “not-to-be-missed attraction”, in the rugged Conondale National Park.

      Strangler Cairn, made from granite and slate from a local quarry, will eventually “blend into its environment” when a strangler fig grows over bit.
      Breaking down the $684,000 Arts Queensland project. Of that, $330,000 was paid to Goldsworthy, who was flown from Scotland, while the rest went on “production expenses”. This included $50,000 to heli-lift the 30-tonne collection of rocks to the site, about two hours’ drive north of Brisbane.
      “They spent well over half a million dollars of taxpayer funds on an international artist to ‘enhance’ a remote area with art that is designed to eventually disappear.”

    • Trevor says:

      08:12am | 12/09/12

      An even better example is the Queensland LNP under Campbell Newman. Getting in Peter Costello to provide a totally politicized and inaccurate ‘audit’ to justify his ideological mass public service sackings and lying, lying and then lying some more.

      It reminiscent of the shock doctrine practiced by Pinochet, Thatcher and Reagan- the greatest posse of economic illiterate bozos ever to have breathe put in them.

      When it comes to governing, jobs are the ends and the economy the means, not vice versa as the economic anarchists would have you believe.

    • Get rid of both parties says:

      08:51am | 12/09/12

      ..............“The scale of incompetence is hard to beleive”............

      It’s not incompetence. They know exactly what they’re doing. Ensuring they stay in power UNTIL a long, long way down the track when everyone realise’s it cannot go on.

      A smart population wouldn’t let it go there.

    • Alfie says:

      08:51am | 12/09/12

      @Trevor

      “...and lying, lying and then lying some more. “

      Any facts to back that up with, or are you just another ranting leftie?

    • dovif says:

      08:56am | 12/09/12

      Trevor

      Do you actually have any idea of how bad the Qld economy is after the mismanagement of the last ALP government, Even the budget and debt level “reported” by the incompetent ALP government told us what a disaster the ALP left the Qld economy? It did not need any reporting by Costello.

      Also Costello is through so highly of in the ALP circle, for his job as treasurer, that Kevin Rudd appointed him to the Future Fund board, so his credential is impregnable

    • Borderer says:

      09:14am | 12/09/12

      Trevor
      An even better example is the Queensland LNP under Campbell Newman. Getting in Peter Costello to provide a totally politicized and inaccurate ‘audit’ to justify his ideological mass public service sackings and lying, lying and then lying some more.

      He was “discredited” by an expert paid for by the public sector union so his opinion is obviously unbiased….
      My opinion on the layoffs was a bit suspect until they moved through legislation to remove “job protection” of full time civil servants. Up until that point I was concered that this was just a body count to get the wages bill down. Now they have a chance of building a productive civil service, one that is as professional and efficent as the private sector and there are no longer jobs with no work or jobs for useless incompetants or mirrored departments of federal authorities.
      It of course remains to be seen how this all washes out but the ground work has been laid, he just needs to follow through.
      So cry your eyes out for the poor civil servants facing the axe, they are no different to the rest of us now and that is obviously so unfair…

    • Trevor says:

      10:25am | 12/09/12

      Don’t read the news much do we Alfie? Or do you only hear lies if they come from the ALP?

      ‘public servants have nothing to fear from an LNP government’

      ‘Under the LNP unemployment will be under 4%’

      ‘There will be no sale of queensland assets’

      ‘Queensland is the Spain of Australia’

      Dovif

      Read the independent report from McTaggart about the Costello report. It relied on sleazy and outright dishonest accounting practices.

    • Mouse says:

      10:46am | 12/09/12

      Trevor, the only people who thought that Costello’s audit was inaccurate where Battams, president of the QCU and Walker, whom the QCU paid to “analyse”  the said audit.  If you think that the LNP haven’t been left with a massive debt by the Bligh government and have to now take severe measures to fix the problem, then maybe you live in a little opaque glass bubble!  :o)

    • dovif says:

      10:48am | 12/09/12

      Trevor

      LOL @ Read the independent report from McTaggart,

      You mean the Doug McTaggart who worked at Qld Treasury, who was partly the cause of the massive deficit?

      Which part of “Independent” do you not understand

    • Trevor says:

      11:09am | 12/09/12

      Boarderer

      In regards to public service job security, it is an old tradition that public servants need to have job security so that they have the confidence to provide frank and fearless advice to their political masters.

      Oh wait, now I understand…

    • Richard says:

      11:35am | 12/09/12

      Re: the Costello report… excuse me if I trust the findings of the Longest Serving Federal Treasurer In Australian History over the shilling of two leftist ivory tower academics with no experience in public finances who were paid by the unions.

      Accounting and economics is always subjective to a very large extent, but the fact remains that Costello managed to eliminate Australia’s Sovereign Debt, a feat unmatched by any other Finance Minister or Treasurer in the Developed World. It was an astounding accomplishment, and it lends Costello’s opinions on matters of finance an unparalleled amount of gravitas that cannot be matched by the obviously partisan/ideologically compromised pair of academics that disagreed with him.

    • Economist says:

      12:53pm | 12/09/12

      I have no issue with the claims that working in the public service does not mean a job for life, but it disturbs me the level of glee that some people are expressing. I can’t recall public servants going I’m glad employees in other sectors are losing their jobs. Many recognise their own jobs are dependent on economic growth, and I would have thought M that Compassionate Conservative took you to task yesterday.

      Don’t be a miserable sod. While you may argue it’s a deadweight loss, these public servants still pay taxes and the vast majority are more than capable of working in the private sector.

    • Babylon says:

      01:27pm | 12/09/12

      The Gillard Government is cutting back on it’s initiatives related to its Carbon Policy, in a desperate effort to save cash and tackle it’s $120 Billion budget black hole.

      So desperate that it risks showing it has no credentials whatsoever and the carbon tax was just a money grab afterall.

      The Gillard Government keeps telling us it will cut spending but compared to Howard, the Gillard Government is spending $100 Billion more per year.

      Despite being one of the highest taxed nations, I reckon Aussies can expect more taxes to cover this reckless spending.

    • Borderer says:

      01:39pm | 12/09/12

      Trevor,
      In regards to public service job security, it is an old tradition that public servants need to have job security so that they have the confidence to provide frank and fearless advice to their political masters.

      Wow, that was a innocent notion, a public servant can be reassigned to Mt Isa, plus there is promotion stagnation and numerous other ways of leverage. The job security has instead promoted a culture of sycophantic idolesence that is dependant on a largesse the state can not support. People being paid wages with no work while other departments can cry out for funds is ridiculous. The change is necessary, I hope it is made effectively, the union bleating is annoying but expected, in fact if they didn’t I’d be more alarmed.

    • Borderer says:

      01:39pm | 12/09/12

      Trevor,
      In regards to public service job security, it is an old tradition that public servants need to have job security so that they have the confidence to provide frank and fearless advice to their political masters.

      Wow, that was a innocent notion, a public servant can be reassigned to Mt Isa, plus there is promotion stagnation and numerous other ways of leverage. The job security has instead promoted a culture of sycophantic idolesence that is dependant on a largesse the state can not support. People being paid wages with no work while other departments can cry out for funds is ridiculous. The change is necessary, I hope it is made effectively, the union bleating is annoying but expected, in fact if they didn’t I’d be more alarmed.

    • Richard says:

      02:05pm | 12/09/12

      However, economist, I have a theory about these job losses, and perhaps you might give your view on it, but might it not be beneficial in the medium term for all these 10,000 public servants to be sacked, because as you say they are all highly competent and productive, and so, when they all find jobs in the for-profit sector, their skills will give private enterprise in Queensland such a boost that they overall economy will improve.

      The Public Service by its nature is not-for-profit, which means that it necessarily is not as efficient as possible. Therefore, considering that labour resources are finite, wouldn’t it be better for the economy overall for these highly competent and productive resources (i.e. the workers) to be utilised by the private for-profit sector?

    • Economist says:

      04:43pm | 12/09/12

      Quite possibly Richard, but like a lot of people who lose their jobs, I’m sure their intial reaction is shock and dread.

    • Esteban says:

      05:53pm | 12/09/12

      Richard. I bet you are a hell of a snooker player !!

    • wakeuppls says:

      07:30am | 12/09/12

      I love how people state such things as “the Australian debt is only 9.2% of GDP” and then proceed to justify this as good by stating “which is low compared to the rest of the world”. Ever stop to think the rest of the world is nigh on financial collapse? Approaching disaster is much better than teetering on the edge of financial oblivion but it still requires swift and decisive action in the form of taking an executioner’s axe to the Federal budget instead of a butter knife.

    • M says:

      07:46am | 12/09/12

      It is low compared to the rest of the world. We don’t know how good we have it atm.

    • GC says:

      07:59am | 12/09/12

      I’m so tired of Swannie and Julia saying ‘it’s not as bad as the rest of the world’ when questioned on debt.

      It’s like to primary school boys getting in trouble for teasing the girls and one of them saying ‘well Gary teased two girls I only teased one’

      IT DOESN’T MATTER, IT’S STILL BAD!

    • Bear says:

      08:09am | 12/09/12

      No it isn’t, it is low. Greece aren’t the whole world.  Don’t lie.

    • TimB says:

      08:10am | 12/09/12

      Exactly. That sort of relativity based argument is moronic.

      It’d be like people teklling us to stop complaining about gun crime here by pointing out that things are worse in America.

      I don’t care if things are worse in other countries. That doesn’t give our government an excuse to spend like drunken sailors *here*.

      And no concrete plan to pay any of it back beyond a vague promise of a surplus derived from creative accounting, and is looking more and more shaky by the day.

    • M says:

      08:15am | 12/09/12

      You guys realise that debt is not a bad thing right? Too much is, but managable amounts of debt are good. 9.2% of GDP is manageble.

    • iansand says:

      08:36am | 12/09/12

      If a company’s debt was only 9.2% of its assets analysts would be muttering stuff about “lazy balance sheet” and tut tutting.

      This obsession with no debt is unsophisticate populismd.

    • Null and Void says:

      08:37am | 12/09/12

      It doesn’t really matter though. If the rest of the world falls into financial ruin, it takes us down with it. Hello. Didn’t you pay attention to the GFC??!!

    • paul of chester says:

      08:41am | 12/09/12

      @wakeuppls, it is you that needs to wake up. 9.2% is sustainable even in the worst of economic times. Debt in itself is not a bad thing, it is how that debt is invested that is important. In Europe the debt was invested mostly in propping up welfare, no investment at all. In Australia we do not have that problem asmost debt goes into infrastructure such as roads, hospitals, etc. Also, because we have compulsory super our savings are much higher than in Europe (NOTE: This was a Labor policy, but don’t let that stop your rant).

      The Labor drive to get back into surplus is political nonsense. We could still reduce the deficit slowly and be in a strong position. The trouble is we are being driven by ideologues of the far right instead of good policy and being frightened by commentators and a deviant opposition who have power motives only. Sensible debate in the country is a non-existant.

      But, sigh, you keep believing what you believe because it suits your ignorance and gives you something to worry about when there is nothing to worry about.

    • TimB says:

      08:50am | 12/09/12

      ‘Too much is, but managable amounts of debt are good. 9.2% of GDP is manageble. ‘

      I’d be a lot more reassured If I actually saw any evidence of Labor’s ability to manage debt.

    • John says:

      08:50am | 12/09/12

      Government debt of 9.2% of GDP is about $140 billion or about $8000 per person.  That’s nothing compared to what people have on their mortgages, their car loans, their credit cards and HECS debt.

      Government debt is the least of our concerns.

      More important is why Jessica Irvine has gone to the dark side.  I know Fairfax is circling the drain, but still ...

    • M says:

      09:14am | 12/09/12

      TimB, I don’t have any faith in the coalition either whilst they’re promising to throw money left, right and centre with socialist vote buying handouts.

      We are squandering a once in a lifetime mining boom on handouts.

    • Get rid of both parties says:

      09:14am | 12/09/12

      @wakeuppls

      It’s 9.2% PLUS the revenue from selling all those producing assets. PLUS added population to consume what’s left, PLUS declining work participation PLUS the highest household debt on the planet. PLUS a slowing commodities market.

      Whatever the number, we’re as bad as Greece, Italy, and are heading towards a standard of living something like Indonesia.

      We should all sit our kids down and tell them we lived the dream at your expense.

    • dovif says:

      09:21am | 12/09/12

      Ian Sands said “This obsession with no debt is unsophisticate populismd”.
      John said “Government debt of 9.2% of GDP is about $140 billion or about $8000 per person.  That’s nothing compared to what people have on their mortgages, their car loans, their credit cards and HECS debt.Government debt is the least of our concerns. “
      Do you guys actually know the effect of government debt? Lets say this government had 180 billion of borrowing (ie reported government borrowing plus the government owned “off balance sheet” NBN” and the average borrowing rate is 4%. That means each year $7.2 billion of the budget has to be used to repay the interest on this debt, the more the government borrow, the higher the interest payment is.
      That means each year, every taxpaying Australian are paying $1,440 of their taxes not on Education, not on disability, not on medicare, but on interest payment to overseas, this money goes overseas and Australia has nothing to show for it.
      As the debt gets bigger, government has to cut more services (see recent middle class welfare cuts) which means more Australians are out of a job. The mismanagement of the budget has significant effect on the economy and the welfare of future Australians, who must not only repay the interest, but they have to also repay the borrowing.
      This is completely different to debt on “mortgages, their car loans, their credit cards” Where the bank inherits the problem and can sell the property to get their money back, or are compensated for by higher interest rate.
      The Budget mismanagement had to be pay for by all Australian.

    • wakeuppls says:

      09:42am | 12/09/12

      John

      How much control do you have of your own spending and debt compared to the control you have over government spending and debt? If you simply pass off a relatively low number as good for no other reason than that it is relatively small then you need some lessons in logic.

      Paul

      I don’t know why you keep raising Labor/Liberal for. My post was non-partisan. Have a think about what you are actually arguing against next time.

    • Get rid of both parties says:

      09:46am | 12/09/12

      @M

      ...........“You guys realise that debt is not a bad thing right? Too much is, but managable amounts of debt are good. 9.2% of GDP is manageble.”.................

      Can you elaborate? If the return is less than the debt costs you, how is debt a good thing?

      This is the unbelievably misguided trap all these negatively geared property owners are finding themselves in. It worked while property capital gains were there, now it’s a certain path to poverty.

    • Andrew says:

      10:01am | 12/09/12

      Private debt which is more than 150% of GDP a bigger problem.

    • David C says:

      10:17am | 12/09/12

      yes it is low, but it is masking the real issue. Australias external debt to GDP % is way up there. The GFC showed you that private debt becomes public debt very quickly ie Ireland and Greece

    • M says:

      10:19am | 12/09/12

      Am I the only one who often finds wakuppls’ comments to be hilariously ironic?

    • M says:

      10:28am | 12/09/12

      @ Getridofboth (GROB) Do you have a mortgage? If not, do you understand the purpose of a mortgage?

    • Incompetence says:

      10:42am | 12/09/12

      @iansand That’s right. But debt should be used for growth, not wasted as has been the case with this government. They inherited no debt, now $230 billion (that’s right, billion with a B) later what have we got to show for it? Some unwanted school halls, a botched home insulation scheme oh and everyone got $900 to either put in the pokies or buy a Chinese plasma.

      And before someone mentions GFC it was an AFC, Atlantic Financial Crisis, it was never going to and never did seriously affect any country other than Europe and America.

    • TimB says:

      10:43am | 12/09/12

      “TimB, I don’t have any faith in the coalition either whilst they’re promising to throw money left, right and centre with socialist vote buying handouts. “

      I’ll admit I wish that Abbott would drop this ridiculous PPL scheme of his, (among a few other things I’m sure), but unlike Labor, I’ve seen the Coalition rein in debt before. Which gives me at least a flicker of hope that they can do it again. Certainly more hope than Labor managing to do it at any rate.

      I really hope to not be proven wrong though.

    • Get rid of both parties says:

      10:49am | 12/09/12

      @M…...........“Do you have a mortgage? If not, do you understand the purpose of a mortgage?”..............

      No I don’t have a mortgage. Why would I want to gear up on a depreciating asset?

      The purpose of a mortgage is to enjoy the fruits of your FUTURE earnings today.

      If you can put that same money in to an appreciating asset you’d be far, far better off.

      People in the US walked away from their mortgages because they could. It will be far different here.

    • Al B says:

      11:14am | 12/09/12

      When our property bubble pops and the banks need bailing out, our public debt will be much much higher potentially ...assuming we follow the lead of elsewhere. So lets not get too focused on just public debt.

    • M says:

      11:24am | 12/09/12

      @ TimB, I grew up during the howard years, and I distinctly remember a lot of people saying “whenever labor gets in they start throwing money away left right and center.”

      I never believed them until we got jules.

    • M says:

      11:27am | 12/09/12

      I meant mortgage as in borrowing to fund the aquisition of infrastructure or assets, as in buying a house, not as in “would you buy a house in the current climate.”

      Debt is ok, as long as it’s used to finance something was my point I guess.

    • Richard says:

      11:47am | 12/09/12

      The only reason debt is low is because Peter Costello eliminated all our country’s Sovereign Debt. This is a feat unparalleled in the Annals of Modern History. It was seriously such a unique and astonishing accomplishment, that we might go another 100 years without seeing it repeated.

      @iansand~ sovereign debt is a handbrake on economic growth, just like credit card debt is a handbrake on consumer spending. Had the government accumulated hundreds of billions of dollars of debt to build a high speed railway linking the 5 major cities, or a network of dams in the tropical north and pipes to irrigate the vast interior desert for agriculture, then your point about lazy balance sheets might be justified (*might), but I think the experience of the US/UK/EU/Japan et al sufficiently refutes your notion that massive Sovereign Debt levels ain’t no thang.

    • iMitchy says:

      12:25pm | 12/09/12

      Hmmm lots of talk… I just want to make some points:

      Those who think that debt at 9.2% of GDP is okay, some of you say it’s okay because it’s managable while others say it’s okay because other countries are worse off so we are in a good position relatively.
      So, hypothetically, what if we woke up tomorrow and every other country in the world had debt of between 0 and 6% of their GDP - would you still consider us to be in a good position? It wouldn’t be good by relative terms but would you still consider it managable?

      Secondly, this figure of $8000 per person of public debt - I assume that this figure ignores the projected loan term and subsequent interest, and “per person” includes those who don’t pay income tax? What would be the dollar value per person if we only took into account those who pay a positive amount of income tax?

      Thirdly, something that costs you money is not your asset - it’s your liability eg your home. It becomes the banks’ asset when you borrow against its value because even though they don’t own it (technically you own it), it is what makes them money by allowing them to lend to you in the first place. Don’t get confused just because the bank refers to it as an asset. It’s not yours, it’s theirs. There is no such thing as an asset that loses money.

    • Ben C says:

      12:42pm | 12/09/12

      @ iansand

      Read Jessica Irvine’s piece again - she refers to net debt. We currently have more debt than we do assets. Would you have any confidence in a company that owes more than it owns?

      There is nothing wrong with debt, so long as it’s utilised properly and we have the assets to cover it. At the moment, neither applies.

    • Economist says:

      12:46pm | 12/09/12

      Why is everyone calling for a collapse in the housing market? Are you all going to default? Wouldn’t you change your consumption patterns to hold on to the roof over your head?

      Do you think your bank, or the RBA, wouldn’t drop interest rates to keep you repaying or do you think they’d prefer to screw you and take your house to resell? Are you ignoring the fact that the vast majority of HH with a mortgage are paying off these down quickly while interest rates are low. If anything what the housing market is reflecting is a fall in speculating behaviour from investors.

      We’ve already changed our HH savings patterns. The heat has come out of the housing market but it’s not collapsing. The very fact that Australians are probably one of the most unique countries in the world with such a focus on owning our own home that investors see our private debt as manageable, because we’d do anything to keep the roof over our heads.

    • Chris L says:

      01:13pm | 12/09/12

      When people try hard enough they will find something to panic over.

    • Esteban says:

      01:21pm | 12/09/12

      iansand. There is a strong assumption that the debt of a company has been used to acquire income earning assets or will improve shareholder worth.

      Yes it would be lazy not to leverage an asset that might return 20% on the investment especially if the interest cost was 5%.

      $150 billion of our debt is comprised of budget deficits. In other words the debt is not offset by an income earning asset. tut tut.

      A similar analogy would be a company increasing debt to fund losses and maintain shareholder dividends despite losses.

      That would get the tut tutting going but debt to acquire quality assets is usually considered good.

      Keep it simple iansand. $150 billion of deficit debt. a forecast surplus of $1.5 billion. 100 years to repay the debt. Does that sound easily managed? tut tut.

      By the way I call manageable debt that that can be repaid from budget surpluses.

      Borrowing more money to meet loan repayments is not what I call managing your debt although I fear that is how Australia will be managing our debt in the future.

      I guess that sounds pretty easy to the left wing.

    • iansand says:

      03:13pm | 12/09/12

      My point about a lazy balance sheet was intended to highlight the simplistic nature of the “no debt” mantra, not to imply that debt is necessarily a good thing without analysing the reason for debt.

    • Esteban says:

      04:34pm | 12/09/12

      iansand. Unfortunately you used a simplistic analogy to highlight the simplistic nature of the debate about public debt.

      What are your feelings about the simplistic mantra” Our debt/GDP is low by comparison to other countries therefore we don’t have a problem with our debt”?

    • iansand says:

      06:13pm | 12/09/12

      Esteban - Now you are just making stuff up.

    • Mike says:

      07:37am | 12/09/12

      “Global investors are so confident in the government’s stability they are lending to the government at an ultra low interest rate of about 3 per cent.” - no, it’s because it’s called the carry trade.  You borrow at a lower interest rate and stick it in a higher interest rate country, one that has a good credit rating (like Australia does)

      The chances of Australia not paying them back is pretty low, compared to say, Greece (hence the credit rating difference).

      Why would you go and settle for a negative return on your bond payment when you can get 3% here ? Everywhere else in the developed world, interest rates are essentially zero (it is a no brainer, except, some people are, fixated with a return of capital instead of on capital).  Corporate Australia’s banks and the balance sheet of most of our ASX listed companies are actually quite good; the hurting is coming from those companies exposed to the high dollar and weak commodity prices.

      We are basically talking ourselves into a recession in this country, people don’t have it “as bad here” as they do in the UK, America or Greece.

    • M says:

      10:23am | 12/09/12

      We aren’t talking ourselves into one, it’s bound to happen anyway.

      House prices have stagnated. Jobs are being shed from all parts of the economy including private business, retail and tourism. Unions are making our labour uncompetitive with that overseas which puts doubt on future mining projects and infrastructure, we are bound down in regulation so onerous that the cost of actually doing business is astronomical, making it hard for small business to flourish, we are taxed to the high water mark, etc, etc, etc.

      The writing is on the wall as far as I’m concerned.

    • Al B says:

      11:19am | 12/09/12

      If things to go bad here we are very poorly placed to deal with it. About now is a perfect time for Malcolm Turnbull to turn us into the Singapore of the South Pacific. At least as a low tax haven ...perfect for attracting capital flight from the US and Europe. I mean which low tax, low regulation haven would u rather live in? Singapore or a future Republic of Australia? Can we recruit Peter Schiff to replace Swan? Love that bloke.

    • M says:

      11:56am | 12/09/12

      *Socialist Republic of Australia.

    • Al B says:

      03:01pm | 12/09/12

      Lol ummm libertarian Republic of Australia ? Choose your own adventure. Wanna start a socialist commune, Go For It ...i might even join…as long as there’s wi-fi and fixed cable…

    • Get rid of both parties says:

      07:42am | 12/09/12

      Australia has only a couple of global advantages that politicians are rapidly giving away for short term gain. A relatively low population and resources. If we don’t stop them we’ll soon be earning about a fifth what we presently do in line with our competitors.

      Our greed and stupidity is about to teach us all some very harsh lessons.

    • Suzanne says:

      08:00am | 12/09/12

      There has been reckless spending, masquerading as wealth redistribution, and coupled with the downturn in the economy, I fully expect Swan to be cutting and grabbing like never before to save his reputation.  An early election before this all unrevels for him is possible as well

    • Mahhrat says:

      08:05am | 12/09/12

      My concern is not with mining - the stuff’s in the ground and it’s ours; we can always figure out useful things to do with it.

      I did want to explore a throwaway comment Clive Palmer made ont he TV recently about stopping selling raw material overseas and instead keep the goods and make the products, value-adding to the raw stuff, and then selling THAT overseas.

      While it’s a return to the manufacturing I think we’re also beyond, I wonder if there are true, high-end products we could be making to which we would be more suited?

    • Michael says:

      08:54am | 12/09/12

      Australia has no competitive advantage in the value adding process. If it were to be sold to world markets it would have to be at the world price. The cost of labour here would mean anyone value adding to resources would not make a return.

    • Get rid of both parties says:

      09:20am | 12/09/12

      .....................” I wonder if there are true, high-end products we could be making to which we would be more suited? “...............

      That’s hilarious.

      Who’s going to buy it? There’s no wealthy idiot westerners left, we globalised remember.

      This way of thinking is what’s got us in this mess. We think we’re so clever, we’ll always be okay. It’s the end. We let our politicians stuff the whole thing.

      We’ve consumed the wealth of Australia’s future generations.

    • Get rid of both parties says:

      09:26am | 12/09/12

      “the stuff’s in the ground and it’s ours; “

      It’s all sold and or there’s bugger all of it left. From memory. Coal 40 years, Gold, 30 years, copper 60 years.

      What now?

      I wonder if China and the US would sell our stuff back to us? Maybe, but we’ve got no money.

      We’re like junkies in a porn shop. The porn shop’s rich and we’re looking for our next fix.

    • Mahhrat says:

      09:52am | 12/09/12

      @Michael, it is if we control the supply of the raw materials.

      Uranium is a great example.  We have something like half the world’s supply.  If we hold onto it for long enough, the value of that stuff is only going to get greater.

      Effectively monopolies are every right-winger’s wet dream; surely a little government wisdom into who and at what price we’re selling our one-time natural resources is required?

    • Gregg says:

      09:59am | 12/09/12

      @Mahhrat,
      Michael has given you the basics thumbs up or down if you like and as for resources in the ground and figuring out useful things to do with it, it is called mining.

      Yep, Clive throws a heap of comments out there and is a bit of a buffoon, just lucky for the moment to have got wealthy through mining and he probably would have no idea of manufacturing.
      Anything manufactured in Australia , high end or whatever can be done far cheaper in countries where labour and power is so much cheaper along with likely far less environmental restrictions and safety standards.

      As another example, not even a super trawler is now going to be allowed to harvest the seas here.

    • M says:

      10:25am | 12/09/12

      Depends on what you’re making. On plenty of resources projects in aus we get all the steel components from china. It’s not just that their labor is cheaper, our labour is stupidly over priced.

      Unionism will strangle the jobs it is meant to protect in this country if it doesn’t come to terms with the fact that we are now working in a global economy.

    • Michael says:

      10:38am | 12/09/12

      @Mahhrat

      Having the resources to begin with doesn’t make the processing and value adding stage significantly cheaper - the only cost you avoid is the transportation of raw materials.

      It’s the same with the live animal export industry (judgements about its ethics aside) - Australia supports the cattle live because we have no competitive advantage in slaughtering and exporting the meat. Other low cost countries can do it cheeper.

      That’s just globalisation - play to your strengths.

    • Get rid of both parties says:

      10:58am | 12/09/12

      @M

      I’m confused (unless there’s two M’s).

      You say ............“our labour is stupidly over priced. “.............

      but then say .................“If not, do you understand the purpose of a mortgage? “..................seemingly suggesting house prices will stay high.

      If wages fall (which they will) the other will collapse.

    • M says:

      12:01pm | 12/09/12

      I’m not going on about the housing issue, i’m going on about how unionism has driven wages far above what is sustainable for australian employment. It is cheaper to source structural steel from china and ship it here after we’ve sent it over as ore than it is to get it manufactured localy. Yes, chinese wages pay a pittance, but our wages are astronomical in the scheme of things.

    • dovif says:

      08:07am | 12/09/12

      Jessica Said

      “In truth, the federal government’s net debt position (the value of its debts minus assets) is, at 9.2 per cent of gross domestic product this financial year, low compared to the rest of the world. “

      The issue is this is not the whole truth, The government set up the NBN outside their normal budget and they are spending $40 billion (Expected to blow out to about $50 billion) and since it is part of a government’s “borrowing”, they had to borrow at interest rate of 6-7%

      The ALP did it so it would not appear on their budget. The ALP has also proposed recently another $15 to $30 billion in additional spending that are not budgeted for.

      As for the line, “low compared to the rest of the world” while that is true, Australia also benefited more than the rest of the world from the mining boom and $140 billion in debt even at 3% will cost Australians $5 billion a year to finance, which does not include the NBN interest and any repayment.

      As for “creating unsustainable levels of debt that will be passed to your grandchildren’s grandchildren.” The debt accumulated by this ALP government over 4 years is $140billion or $180 billion with the NBN, since the ALP’s best “surplus (including all the lies surrounding it)” is $1.5 billion, it would take 120 years to repay the ALP debt. So you are correct that our grandchildren’s grandchildren will be paying for the ALP mismanagement.

      Can we have more truth in reporting please, Jessica

    • Michael says:

      09:06am | 12/09/12

      You have fundamentally misrepresented the workings of the Australian budget and the NBN.

      The $27.5bn Government component of the NBN is funded by debt, through the issuing of Australian Government Bonds. That is, the Federal Government offers our AAA-rated bonds to investors, at an interest rate of about 4% (depending on the term) - not the 6-7% figure you have pulled out of thin air.

      The NBN however, will provide a return of about 7%. This means that (once the network is operational), the NBN will begin repaying those bonds at a higher rate than what Government is paying on the debt. By 2034, the entire Government investment (including the interest) will have been repaid by the users of the network, leaving the Government owning a valuable asset (the NBN network) and no associated debt. Big users of the network (those who choose the high speed and high volume plans) will contribute more towards repayment of the debt, and actually subsidise those on smaller plans.

      The other fallacy in your argument is that Government debt can only be repaid by surplus - you will find that over half of the debt paid off by the Howard Government was actually from selling assets.

      Truth in commenting would be nice too.

    • mark C says:

      09:19am | 12/09/12

      120 yrs? Can we have some truth in the comments section.
      You do remember the GFC happened and the huge drop in company receipts during that timeand the govt had to step in to stimulate the economy which did keep us out of recesion while the rest of the world went in that direction. And the mining companies? they dumped 20% of their workforce as their profits dropped just like they’re doing now.
      The debt is 9.2% so calm down a little bit.

    • Peter says:

      09:42am | 12/09/12

      @dovif,

      In the budget statement, the NBN is accounted for as a financial asset (equity investment) under the ‘investments in other public sector entities’ line item of the balance sheet… Money transferred to NBN Co cannot be classified as an expense under currently accepted accounting standards. It is accounted for as a financial asset on the balance sheet (an ‘investment in other public sector entities’), as opposed to an expense item on the operating statement. An eventual gain or loss on the government’s equity investment in NBN Co is accounted for in the operating statement as an expense, but this does not affect the fiscal balance measure.

    • dovif says:

      10:39am | 12/09/12

      Michael and Peter

      Do you know what the NBN losses for this year is?

      Time to look it up, if it was not treated “off balance sheet” guess what the budget would look like

    • The Truth says:

      10:54am | 12/09/12

      Michael said NBN however, will provide a return of about 7%

      LOL at 7%, was that before the expected blowout in cost already know (almost 20% increase), which would hit that 7% and I seem to remember all those toll roads in NSW, Victoria and Qld was supposed to return 9-12% but are all bankrupt now and the airport tunnell in NSW too

      If you really believe the NBN will return 7%, I have a Wayne Swann “surplus” to sell you.

    • Michael says:

      12:13pm | 12/09/12

      @dovif putting the NBN on the balance sheet would be a gross abuse of accounting standards. The NBN is not a Government expense but capital investment, and is such, not there.

      The NBN is running at a loss because it doesn’t actually exist yet. Thats like me saying a hotel is running at a loss whilst it is still under construction.

      @The Truth The NBN Return on Equity remains completely unaffected due to the nature of the project. It runs as a natural monopoly giving it a highly predictable cash-flow and certain customer base.

      I highly recommend both of you try and take some sort of economics course

    • andye says:

      12:46pm | 12/09/12

      @dovif - “The issue is this is not the whole truth”

      How amusing that you make this point and then present limited facts, ignoring several important ones to make your own point. Look in the mirror, champ.

    • Get rid of both parties says:

      01:42pm | 12/09/12

      @Michael.

      “I highly recommend both of you try and take some sort of economics course”

      I highly recommend you forget everything you ever learned about economics. What’s coming has never been seen before in a western country.

    • Joan says:

      08:36am | 12/09/12

      A country going gangbusters doesn’t have government giving out handouts to help citizens pay for living costs. Don’t gain any confidence from such an economy - Gillard ads on TV showing families scraping for dollars to make ends meet. - and still scraping even with Gillard handouts. People losing jobs as businesses down size , move off shore or go dead broke like Darrel Lea,. Increased `for Lease` signs visibile on commercial buildings, shops and housing - all reminiscent of Keating `recession that we have to have` days. And final sign of bad times our Christmas party is to held at boss`s home and we all bring a plate. The last time that happened was during Keating recession.

    • Brenda says:

      09:55am | 12/09/12

      Our pensioner Mum received a Labor government ministerial letter congratulating themselves on the money they had just so charitably put into her bank account.  (This give-away was before they re-aligned Australian carbon tax policy with basket-case Europe’s of all places). 

      Their letter promised more money, “more to come”.  Mum was horrified at their blatant self promotion courtesy taxpayer funds.

      I sense that Julia Gillard and her mob have sunk us into deepening debt worse than we are yet to know. Comparing Australia’s economy as so much better than Europe’s and then aligning their ugly carbon tax with Europe, is about as stupid as she could get and that’s been pretty damned unforgivably stupid.

    • Brian says:

      08:47am | 12/09/12

      “The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed, lest Rome become bankrupt. People must again learn to work instead of living on public assistance.”
          - Cicero , 55 BC
      We haven’t learned a lot.

    • wakeuppls says:

      10:04am | 12/09/12

      Brilliant quote buddy.

    • Zoe says:

      10:59am | 12/09/12

      Brian, your quote is a fake.

      The actual quote from Cicero is: ““The arrogance of officialdom should be tempered and controlled, and assistance to foreign hands should be curtailed, lest Rome fall.”

      The American Tea Party added the rest.

    • Rose says:

      11:09am | 12/09/12

      “Public debt should be reduced”....even then they were aware that public debt didn’t necessarily need to be avoided!

    • Brian says:

      11:35am | 12/09/12

      Zoe, Than must have been the second time he said it.

    • Brian says:

      08:47am | 12/09/12

      “The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed, lest Rome become bankrupt. People must again learn to work instead of living on public assistance.”
          - Cicero , 55 BC
      We haven’t learned a lot.

    • Aussie Wazza says:

      08:57am | 12/09/12

      Art fart. Bris Jack.

      Oh! you philistine.

      This sculpture is one with the mother Earth; Its re-entering the environment as time (in the intergalactic phase) will, infact already has, since time is only a concept of man, be testament to the frailty of humanity.

      All will be (is/was) one. and (Ah fuck! No wonder I can’t get a government arts grant to wrap Lake Eyre in used condoms as tribute to the ancient pre- aboriginal people that wandered Thursday Island.

      My b/s level is sadly lacking.

      Probably why I’m not a politician too.

    • Richard The Lionheart says:

      08:58am | 12/09/12

      The banks can’t afford to pass on any more interest rate falls to mortgagees. They will opt out of monthly RBA rates as before. Meanwhile there is only one hedge in troubled times to protect and grow your savings as proved over thousands of years. GOLD.

    • Richard The Lionheart says:

      08:58am | 12/09/12

      The banks can’t afford to pass on any more interest rate falls to mortgagees. They will opt out of monthly RBA rates as before. Meanwhile there is only one hedge in troubled times to protect and grow your savings as proved over thousands of years. GOLD.

    • Richard The Lionheart says:

      08:59am | 12/09/12

      The banks can’t afford to pass on any more interest rate falls to mortgagees. They will opt out of monthly RBA rates as before. Meanwhile there is only one hedge in troubled times to protect and grow your savings as proved over thousands of years. GOLD.

    • Get rid of both parties says:

      09:05am | 12/09/12

      Let’s see.

      We compete with people that earn a fifth what we do, we then sell them all our good assets, we sell our real estate to the richest people on the planet. All we do is consume and service each other. We don’t produce anything.

      Yeah everything’s cool.

      We’ll be slaves in our own country thanks to the blindingly stupid voters of this country.

      Why can’t we learn from what’s already happened overseas?

    • George says:

      09:19am | 12/09/12

      Our personal debt, ie mortgages and credit cards is about $1.2 trillion. But you won’t here anyone talk about that.

      I’m no economist but apparently that’s pretty, or even really bad, and very similar to the debt to gdp levels that crushed the likes of Ireland and the US.

      Our government debt levels being relatively low is good for the banks because they might need to be bailed out.

      Privatise the gains, socialise the losses!

      Go to bed Jessica! Sorry, had to get it out of my system.

    • Anna C says:

      09:25am | 12/09/12

      Our economy is failing same as Europe, China and America.  All these economies need to lower their spending, reduce their debts and stop kicking the can down the road.  The chickens (GFC Mark 11) have come home to roost and the sooner everyone realises this the better.

    • Get rid of both parties says:

      09:29am | 12/09/12

      I read the following somewhere.

      .............“The dole is equivalent to 250kg of top quality jasmine rice per fortnight”.............

      Given we are in a globalised economy. Does any intelligent Australian think this can go on?

    • Wayne says:

      09:32am | 12/09/12

      Net debt is not a good measure. If you have assets earning a return and then take on debt, the funds available to be spent are taxes plus earnings from assets less borrowing costs and debt repayments. The issue is that all the taxes + earnings from assets were accounted for in spending, and then debt was taken on. So starting from minimal debt to what we have now, we are well behind the 8 ball. The fact the earnings from assets and investment was already spent is not taken into account in referring to net debt. Directors of businesses are legally required to act in the best interests of shareholders, so maximising the long term value and return of the business is paramount.

    • Little Joe says:

      09:51am | 12/09/12

      How surprising .....

      “... mining companies have begun pairing back investment plans ...”

      should be

      “... mining companies have begun paring back investment plans ...”

      Maybe Tory should do another story on illiteracy in Australia.

    • Gregg says:

      10:24am | 12/09/12

      One thing you’re right about Jessica is the myriad of views and as you can see The Punch is quite representative.

      When things are so uncertain, one golden rule is to return to basics and part of that is living within ones means, something all governments should also adhere to.
      So you reckon we have it reasonable with:
      ” In truth, the federal government’s net debt position (the value of its debts minus assets) is, at 9.2 per cent of gross domestic product this financial year, low compared to the rest of the world. “
      If you scale that back to your average citizen with a mortgage and you have more debt than assets, people will find themselves quickly looking for someone else’s garage to occupy if their capacity to service the debt suddenly reduces.
      Same same for Australia as a whole except we’ll all just be doing without rather than moving into a garage.

      ” These decisions are, in turn, affected by the decisions of some 7 billion other individuals worldwide. Only fools pretend to know with any precision what they will all decide to do tomorrow. “
      Too true and so anyone who thinks our piddling 22 million can have any significant impact on the global stage is more than kidding themselves.

      Our impact is also further removed because of our relative isolation and thus reliance not so much on manufacturing, any that we do not only being weighed down by labour costs here and the $A value but our distance from markets and shipping costs.
      The latter will come further into play as oil reserves/production diminish and costs go up.

      One reason we ought to be developing more by way of self reliance and sustainability.

      ” It depends on whether commodity prices recover in the coming month – iron ore prices enjoyed their biggest one-day gain on Monday – and how the Australian dollar responds.
      If commodity prices stay low and the dollar fails to ease by much – as it has to date – then it is entirely possible the Reserve Bank will act to stimulate the economy, and soon. “

      That we have a system that can fluctuate to the tune of short term fluctuations is just another measure of instability and lack of any certainty for the future.

      But don’t take my word for it and we’ll all likely muddle along being fed much of the same whilst some do it tougher than others.

      Jeff Kennett on Insight last night had the answer and that was to keep those Casinoes rolling in the high rollers from China and wherever else.
      Well, the partial answer for maybe we should have a super profits tax on the Casinoes so more goes into government coffers.

    • Get rid of both parties says:

      10:24am | 12/09/12

      Suppose your suburb is Australia.

      1. Sell all the producing assets to the next suburb.

      2. Borrow money from the next suburb.

      3. Buy all your stuff from the next suburb.

      4. Hand out councils money to everyone.

      5. Double the population.

      6. Bring in people from the next suburb to work.

      How’s this going to turn out. Our economy has far more problems than interest rates, the price of fruit and vegies and housing. We’re in serious trouble.

    • Esteban says:

      11:50am | 12/09/12

      Unfortunately Jessica has contributed to the veil by using the debt/GDP to effectively dismiss concerns over our public debt level.

      The debt/GDP ratio is useful for only one purpose. To rank the public debt levels of different countries with different GDP’s.

      That is all that is used for.  When economic journalists started cutting and pasting polititions comments who used Australis’s reletively low debt/GDP to claim that the debt can be managed easily they exposed their lack of individual thought.

      It is completely wrong to draw any conclusions about capacity to repay or in fact willingness to repay debt from compaing debt levels between different countries.

      Asset sales aside, the primary source of money to repay Govt debt is budget surplusses. Looking at GDP in order to assess repayment capacity is like someone who works for BHP going to the bank to apply for a loan and using the income of BHP to justify their borrowing capacity.

      Sometimes economic commentators can get caught up in following the pack by only looking at debt to GDP.

      What would be so wrong with some commentary on debt to budget surplus for instance. Given that if the debt is to be repaid that is where the money is to come from. In other words the bank looking at the worker’s own wage rather than the company he works for.

      Given that Swann’s first 5 budgets were deficits which resulted in debt of $150 billion and that the forecast surplus in 2013 is $1.5 billion we might think that it would take 100 years to retire that debt.

      What relevance is the amount of debt if you can’t afford the repayments or don’t have the political will to make the repayments (record budget surplus)?

      A country with a large debt/GDP but is recording budget surpluses and repaying debt is in a better position than a country with a low debt/GDP that is recording budget deficits.

      Yes our debt is low compared to many other countries but those other countries can’t repay their loans without printing money or borrowing more money to make loan repayments.

      Would it be so crazy if we compared our debt levels with a country that can repay their loans rather than countries that can’t repay their loans?

    • St. Michael says:

      12:58pm | 12/09/12

      Short version: comparing our debt-to-GDP ratio is grading Australia on the curve, as our unfortunate American friends would say.

      More sobering is Australia’s maximum debt level—250 billion, raised last Budget—with its annual Federal taxation income over the past few years, which is at that level.

      In other words, we have a credit card limit the size of our country’s entire annual pay.  And we’re spending towards that limit.

      It’s not a smart position for a household to be in.  It’s even less smart for a country to be that way.

    • Tim says:

      02:01pm | 12/09/12

      St Michael,
      that’s assuming that you haven’t bought anything with that credit card debt. I don’t think you can say that about Australia.
      No one blinks twice when a household borrows 5-10 times their average wage to buy a house.

      Esteban,
      isn’t that exactly why the government is trying to get the budget back into surplus? Eventually we can outgrow our debt.

    • Esteban says:

      02:30pm | 12/09/12

      Even shorter version. Minimal or no budget surpluses means minimal or no capacity to repay the debt.

      There will be residual debt when the next economic cycle requires the next round of deficits.

      And that my friend willbe a very slippery slope indeed.

      On a seperate matter, I got the bras n things catalogue last week. Did yours come?

    • St. Michael says:

      03:12pm | 12/09/12

      @ Esteban: No, they must’ve missed my suburb.  It’s a pity, too - I see they’ve got the new season’s range up when I sneaked a glance at the shop windows while out and about in my local suburban hell they call a shopping centre. smile

      @ Tim: there is a crucial difference between a mortgage on a homeowner and a loan that the government takes.

      A mortgage has an actual asset to secure the loan: the house, which isn’t easy to catastrophically devalue or outright destroy the value of it. 

      A government’s promise to pay you back the value of your bond is backed by nothing but, well, its promise (what we so nobly call the “full faith and credit of country X”).

      Partially for that reason, a mortgage, absent several months of default or so, can’t traditionally be pulled out from under you.  Keep making the payments and the bank usually doesn’t have the capacity—or generally the interest—in calling in the debt and demanding it’s paid.

      Not so with bonds, which can be bought and sold like stocks and shares can and which therefore can drastically fall in price.  If your country has a lot of bonds issued (generally because you aren’t collecting enough tax to cover your government’s spending) then you are highly vulnerable to a bond market collapse - what’s called a run on the currency and which amounts to a sudden loss of confidence by the market at large that your government will repay its debts or not pay off your bond with a devalued currency.

      Greece is the classic example: because it had so many bonds and so little taxation to pay for it, the market in some sections began to speculate on the price of the bonds (shorting), and in other sections began to get scared Greece would default on its bonds (outright sale).  As a result, nobody could sell its bonds; as a result, its economy went down the toilet because the government was literally running out of money since it did not tax enough to cover the shortfall between what it spent on and what it was getting in from bondholders.

      The US is heading to this position in a matter of years, which I won’t rehash again here because people can Google my arguments on this.

      In short (well, not so short now): if you have a lot of bonds issued, as we are, you are vulnerable to bond market panics.  This is what got Greece, Italy, Portugal, and Ireland into the shit.  We are very, very foolish as a country to owe as much money on bonds as the government taxes in a whole year - because, as Greece and Zimbabwe show us, and as the US is going to show us, absolute misery follows a country that cannot pay its debts, be it by austerity measures or hyperinflation followed by depression.

    • Esteban says:

      04:03pm | 12/09/12

      Tim. “that’s assuming that you haven’t bought anything with that credit card debt. I don’t think you can say that about Australia”

      Apart from the off budget NBN the rest of the debt is how we have paid for the 5 budget deficits delivered by Wayne swann. The main thing bought with that money has been time. The recession was delayed beyond the election of 2010.

      About 15% of the stimulas package was spent on infastructure and much of that dubious.

      We certainly didn’t buy the equivalent of a house from the deficits.

      Tim the point of my contribution today is to counter the argument that Australia’s debt is easily managed.

      The forecast 2013 surplus has been achieved by bringing certain expenditure into 2012 and delaying some expenditure to 2014.

      There is no real underlying surplus. Sure you can forecast a surplus for political reasons by resheduling expenditure but it only works for 1 year. If you are clever you make that 1 year just prior to an election.

      Even with the political surplus it would take 100 years to repay the 5 years of deficits. Hence my contention that the debt is in fact not easily managed.

      But here is the rub. We don’t have 100 years to repay it. An economic cycle lasts 15 - 20 years. So in about 15 - 20 years there will be another downturn and once again deficits will be apporopriate.

      So if we don’t retire all the debt in 15 - 20 years there will be residual debt from this economic cycle. To put that in perspective we went into this cycle debt free and effectively in credit so to have leftover debt from the previous cycle would be a slippery slope and just get worse over the longer term.

      So to repay our present deficit debt before the next cycle we would have to set a new record for budget surplus then repeat that record for 15 years in a row.

      Once again , hence my assertion that the debt is not easily managed but yes we look good to countries that are completely in the shit.

    • Esteban says:

      04:47pm | 12/09/12

      But cedric the taxpayer is not called upon to repay private debt.

    • Robert S McCormick says:

      01:44pm | 12/09/12

      isn’t it a fact, Jessica, that the only people who talk about the Australian Government’s Debt as being a “percentage of GDP” are politicians, public servants, economists & all the people you mentioned at the start of your report?
      All the public see, as they do with their own debt is the amount. How much debt has the Gillard Government created? $200 billion? $250 billion? $300 billion?
      They then ask who & how is that debt going to be paid off?
      We are constantly being lectured by politicians, economists, retired heads of Treasury etc. that ” You Must live within your means” Isn’t that why people are not spending as they did? Isn’t that why people are trying to pay off all those Credit Cards as quickly as possible? To get back on an even keel?
      They can’t have it all their own way. They can’t blather on about how we have to tighten our belts, live within our means & then, as the Gillard Federal, Weatherill SA Government has been doing, going on a spending spree using that Credit Card. Think of it: The SA ALP Government under the recently dumped Mike Rann & now Jay Weatherill will have amassed a total SA Government Debt of, as has so far been admitted, $13 Billion by 2014 - to which has to be added all the interest which will have accrued between now & then. The whole State of SA has but 1.6 million people in it. That massive debt will have to be paid off sometime, somehow. GDP % is meaningless to the vast majority. For the politicians it just doesn’t sound as much as when they talk in terms of the billions actually owed.

    • maria says:

      01:47pm | 12/09/12

      Struggling to get a handle on where the economy is heading?

      Struggling to get a handle on where the country is heading under our mafiacracy run by the mob?

      Struggling to get a hand on where is our so-called democracy we are hearing everyday from the mob?

      What would you expect under our MAFIACRACY and their CRONIES in which the people are irrelevant ?

      When the core structures of our system of governance is rotten with lies and frauds as supreme than politicians, business people, economists and even journalists - are hopelessly conflicted when it comes to talking honestly about everything touching our way of life.

      Let me lift the veil a little and open the"X"files.

      Do you think that if we had a system of direct democracy a la Switzerland in which only the people are sovereign with true democratic rights we would have to listen to that crap?

      Switzerland’s direct democracy means that all proposed amendments to the constitution are decided by referendum. Any other federal law can be put to a referendum if 50,000 citizens sign a petition - meaning that Switzerland’s federal system can be changed by its citizens and just the mob.

      Switzerland does not have any oil or good re$ources it did not participate in most european wars did not do any colonizing but they are richest country in the world is this only because of swiss banks or are there anything else?

      Once democracy is dead the political parties and their cronies no longer represent the interests of the public but serve as vehicles for personal ambitions.

      For responsible government to be effective, citizens must feel they are connected to government….. are we?

      Direct democracy
      -Restores authority to the people, and makes them responsible, not the parties and their cronies.
      -Curbs the imbalance of power, makes politicians responsible to the people and a better economy too.

      Phony democracy-phony government=phony economy and as Tony famous sentence “$.....  HAPPENS.”

 

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