Over the weekend I was reading the local newspaper which contained a 3 page spread about families who are struggling with day to day life because of the rising cost of living, mostly energy. In the same week it was determined that the new carbon tax would cost Australian families approximately $900/year and oil approaching record highs with and fuel hitting $1.50+ in some areas. This is on top of the already mounting evidence that many Australians are losing control of their finances due to their large mortgage burden.
At the same time the government is announcing that it is time for a tough budget.
Wayne Swan, has begun softening the ground for a mean May budget with a speech to Parliament detailing the economic impacts of the floods and cyclones in Australia and the Japanese earthquake. Mr Swan revealed the loss to coal and agricultural production in Australia was estimated to be about $8 billion, which is $1 billion more than was thought, while the nuclear crisis in Japan could exacerbate the impacts of that.
Mr Swan, who is in the middle of budget deliberations with other members of the government’s razor gang, said the disasters ”will make a difficult task even more difficult”. One source familiar with the deliberations said the only conundrum was whether to cause a lot of people a bit of pain or a few people a lot of pain.
The main priority is to ensure the budget returns to surplus in 2012-13, as promised, by when the next federal election is due. There are expected to be widespread cuts and the theme of the budget will be skills initiatives and welfare changes. These will be badged as productivity measures and designed to drive those who are able to work off of welfare and into the workforce.
As you can imagine anyone with even a simple grasp of FIAT currency macroeconomics is in a rage about the latest government media statements about the need for a surplus. However given the state of the economy outside of the mining sector, which has absolutely nothing to do with government, I can sympathise with those who claim that giving politicians more length on their economic reins would be a disaster. But lack of knowledge is dangerous whichever way you look at it, and the latest push for a surplus will just add to the strain on the public. Let’s not even mention here, as I have been documenting for some time, that there is a fair possibility that the housing market is about to stumble in a big way.
So after years of a China driven mining boom that continues to adjust our terms of trade ever upwards how did we get here? How is it possible that after so much luck in our economic circumstances we have a private sector choking on debt and a public sector claiming it doesn’t have the money to deliver services? In a decade marked by the privatisation of many government services and entities in order to balance government budgets I find it hard to point to a single piece of new production enabling infrastructure that any government has delivered. Today I note the federal government is now taking that lack of delivery further, claiming it needs the private sector to “fund” its work.
The Gillard government is planning to use next month’s budget to overhaul its key infrastructure body so it can more aggressively tap the private sector to plug a shortfall of government funds for crucial projects. As Julia Gillard and Wayne Swan warn that the budget will be tough because natural disasters have hit revenues, Infrastructure Minister Anthony Albanese yesterday quashed state government hopes of big-ticket infrastructure spending in the budget.
He revealed the budget would include measures to “strengthen up” the government’s advisory group Infrastructure Australia and to focus on leveraging private funds into infrastructure because of the “unavailability” of public financing for certain projects.
“This is not going to be a big-spending budget,” Mr Albanese told the Sky News Australian Agenda program yesterday.
“So in terms of the ambitions of any government, whether it be the incoming NSW government or others for massive infrastructure projects, that isn’t going to happen at this stage.”
How is this possible? I think there are a number of reasons for this.
One of the most startling is the basic lack of understanding that our economic “elite” seem to possess about how the economy actually functions at a macro level. (Please see this post by Leigh Harkness for an example of this), but this is only half the issue.
I think the main issue is that there is a complete lack of long term economic strategy in this country. As I have always said, the aim of macro economic policy should be to support sustainable growth, productive gains, employment and social calm, with the overall goal of economic self-reliance and a better standard of living for the nations citizens. The real issue as I see it is that Australia has forgotten this and simply lost its way. Somehow the public and the government have managed to convince themselves that debt driven speculation is a road to prosperity, when it is anything but. Australia is wasting its economic fortunes and unless it changes course will inevitably suffer the fate of other nations who lost sight of the important economic goals.
The two biggest issues I see are:
- The private banking system has been allowed to steer credit towards increasing the “value” of existing assets instead of business and new capital investment.
- The surplus from the nations productivity has not been re-invested in to support higher production rates, lower barriers to production or improve the standard of living of the population.
In my opinion the latest issues with the economy all stem from these two things. Now all I have to do is workout how to convince everyone else this is the problem and how to nudge the economy back on course. Any ideas ?