2013 is shaping up as the year of blockbuster economic jargon. Unless you’ve been living under a rock or relaxing on a remote beach (lucky you) you’ve heard of the fiscal cliff. Ad nauseum, no doubt.
But fear not. Let me guide you safely back from the fiscal cliff; let’s bust the debt ceiling together and run hand in hand from any zombie banks we may encounter. Here is my cut-out-and-keep, economic jargon-busting guide to 2013:
FISCAL CLIFF: The name given to the hundreds of billions of dollars of tax hikes and spending cuts that were due to start from January 1 in the United States. Fiscal is the name given to the tax and spend decisions of governments. Cliff refers to the sudden nature of the change in budget settings. Tax hikes and spending cuts of $670 billion, roughly 4.3 per cent of American annual economic output, were set to knock the world’s biggest economy back into recession.
How much income tax did you pay last week, even within a few hundred dollars? You don’t know. Approximately how much GST did you pay last week? Again, you don’t know. Australians’ utter and rampant cluelessness about the amount of tax they pay is the single biggest reason our governments have ballooned to such monstrous and inefficient sizes.
“Fiscal illusion” is the reason voters do not have an apoplectic fit every time politicians proffer yet more open-ended, feckless spending schemes, that history shows are guaranteed to be delivered late and over budget.
By accident or perhaps design, governments have become masters of obscuring the true tax burden from voters, tricking them into seeing value in government spending where they should observe gross inefficiency. Keynes, whose name is routinely invoked to promote yet more spending, wrote in the 1920s that a level of taxation at 25 per cent of national income was probably “the maximum tolerable proportion”.
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Wayne Swan will be Johnny-on-the-spot on Tuesday, holding talks in Washington on the day Americans vote to decide who will be their president for the next four years.
Debate over economic policy dominated the campaign and will almost certainly be crucial in determining whether Barack Obama gets another term or is replaced by Republican Mitt Romney. Swan will obviously take a keen interest in the result.
But the Treasurer will be more concerned about a matter that - while it hardly got a mention in the campaign - could plunge the US into recession within months, with inevitable consequences for Australia. It is known as “the fiscal cliff”.
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Here’s one number you won’t hear Wayne Swan spruiking: $173,315,000,000. That’s the amount of red ink officially booked by the federal Treasurer for his first four Budgets.
Since inheriting a surplus of almost $20 billion from Peter Costello, Swan has handed down four of the biggest Budget deficits on record - $27 billion, $54.8 billion, $47.7 billion and this week the final accounts were released for last financial year showing another deficit of $43.7 billion.
Yet the government members were congratulating themselves when Swan and Finance Minister Penny Wong announced that the latest figure wasn’t quite as bad as the $44.4 billion predicted just five months ago. Never mind that Swan had originally said it would be only a $22 billion deficit - you have to search through the ghosts of Budgets past to find that long abandoned number.
It is now beyond doubt that the 2012 US presidential election will be all about the US economy and which candidate can convince the majority of voters that he or she can do the best job of managing it. If you find this a depressing scenario you are not alone.
Virtually all international media coverage of America’s recent debt ceiling crisis carried with it a sense of disbelief as to how the United States could come so close to defaulting on its debt obligations when its capacity to pay them simply required a rubber stamp.
However the incredulity of so many of the world’s political commentators reveals more about their lack of basic knowledge of American history, and in particular how powerful the folklore of the “Founding Fathers” is to many citizens of the United States.
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We shouldn’t lose sight of the fact that Australia is still in a “different” economic league to the rest of the world and there are five rocks underpinning those solid foundations.
The global financial turmoil is definitely a worry. Many are saying it’s based on fear… and they’d be right.
But it is also based on reality. Some of the economic numbers coming out of the US and Europe are seriously bad. So bad that the global market reaction has been justified.
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Note: Liberal MP Sophie Mirabella and Labor MP Richard Marles are among our favourite contributors to The Punch, and we have asked them to write a piece every Friday during this five-week election campaign giving their take on events.
The most talked-about aspect of the federal election campaign so far would have to be Labor’s vacuous and meaningless slogan “moving forward”.
Ms Gillard is too scared of the mess she left behind as Deputy Prime Minister to look back.
She cannot ask the Australian people to vote for her as Prime Minister when she is unable to defend her credentials as Deputy Prime Minister. And while I may earn the ire of many by even mentioning it again - given the Prime Minister’s nauseating repetition of the slogan (dubbed “mo-fo” by the twitteratti) – I have a suggestion that would lend it some meaning and accuracy. A simple addendum: “Moving forward at a cost of $100 million every day”.
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Well, I hope you all feel comfortable that you now owe $140 billion. If you take our population as approximately 22 million, that means you owe in excess of $6300 for each man, woman and child in Australia.
I will keep talking about debt until people realise the dangerous position it puts us in. We are borrowing in excess of $1 billion each week. We see every night on the news the problems of other countries that have not dealt with their debt but have waited for the inevitable when the debt deals with you. How could we be so foolish as a nation to be mounting up debt the way we are?
Then, to all intents and purposes, nationalise half of the sector of our economy which has actually kept us from the jaws of recession – the mining sector. This is something that would be more appropriate for Hugo Chavez or Evo Morales or Castro in Cuba. Australia hasn’t experienced this sort of insanity since the failed approach by the Labor party when they decided to nationalise the banking industry in 1949.
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The old fashioned, but I think correct view, of spending public money is to approach it as no different from that of spending your own money. Amongst a myriad of quotes confirming this view, Franklin Roosevelt summed up the principle by saying “Any government, like any family, can, for a year, spend a little more than it earns. But you and I know that a continuation of that habit means the poorhouse.”
Government’s that do not manage costs end up costing the taxpayer. The pink batts disaster is the most prominent example. We are now paying to rip out or fix much of what has been installed.
The 19th century French economist, Frederic Bastiat, once suggested, in jest, that one way to stimulate the economy would be to break shop windows. At least the regulatory standards in the glazier industry may have been more up to scratch!
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Watching Kevin Rudd exhort the nation to work harder to deliver greater national productivity reminded me of a university attack that humanities students used to level at graduating students in the engineering faculty.
Arts students used to mock engineering graduates for what they claimed was an inability to communicate beyond formulas and equations.
They used to assert engineers would say on graduation: “Last year I couldn’t spell enganeer, this year I are one.”
More data today suggest the national economy is in a holding pattern. More than 21,000 people found themselves out of work in June, a rise of just 0.1 of a percentage point in the national unemployment figure.
The Reserve Bank cut interest rates to 3 per cent in April and hasn’t budged them since. And this week the Fair Pay Commission, in defiance of the government and unions, effectively gave low-income earners a pay cut when it froze the minimum wage. The commission argued that it would cost jobs and, as Clive Mathieson pointed out this week, jobless people can’t help the economy as they have zero money to spend.
These consumer sentiment figures show that significantly more Australians are feeling upbeat rather than gloomy about the economy. This is despite a range of forecasts - from banks and the federal government - predicting significant job losses over the coming year.
The unemployment figure today was 5.8 per cent. The crystal ball-gazers say it’s heading for around 8 per cent. Clive also pointed out recently that economists’ predictions are often useless and change tack with the economic winds.
There may yet be some nasty surprises as cuts in business budgets for the new financial year, which started just eight days ago, start to bite. Today, though, I’d like to ask where you think the economy is heading over the next six months. Are we out of the woods yet?
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The debate the government deficit reminds me of the slogan that The Sheep from Animal Farm chanted in support of The Pigs: “Four legs good, Two legs bad”. Anything The Pigs did was OK, because they were Animals, and therefore good. Anything Humans did was not, because they walked on two legs and were therefore bad.
Ditto the debate over the debt levels being accumulated by the Federal Government in response to the Global Financial Crisis: it seems that Government debt is “two legged”, while private debt incurred is “four legged”.
I often get asked what will be the lasting effects of the Global Financial Crisis and the Australian recession on Australian attitudes and behaviours. What will be the lesson to be learnt from all this?
In many ways, it is early days for Australian consumers. Sure the finance media has been full of bad news for over twelve months.
But up until the end of January we were still finding that consumers were taking a cautiously optimistic approach to the economy.
The battle lines in national politics have now been drawn along a fault line summed up by two four-letter words: debt and jobs.
In the one corner we have the Rudd Government, justifying an audacious program of pump-priming in order to protect jobs; in the other we have the Opposition, telling us it’s all about debt.
The key to understanding the jobs versus debt debate is that this is not an argument about economics – it is a battle to manage the national agenda.
HERE’S a quick test. Read the following words out loud:
Did you succeed? Congratulations! You could be in with a chance of doing a better job at levelling with the Australian people than the current Prime Minister.
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