Is Anyone Thinking About the Taxpayers of Tomorrow?

Interest rates have taken centre stage this week. Macquarie Bank has led other banks in predicting the cash rate falling to 1.00%.

This is a far cry from what the institutional analysts were saying a little over 18 months ago.

Here’s an extract from the 6 May, 2016 edition of The Gowdie Letter:

Holding money in the bank became just that little bit more difficult on Tuesday with the RBA cutting the cash rate to 1.75%.

This was not unexpected…look at page 92 of The End of Australia.

3. In the next two to three years, as the global economy weakens, Australian cash rates will continue to fall into the sub-2% range.

When I wrote that observation in early 2015, it certainly was not the mainstream view on where rates were headed.

This is an extract from a Sydney Morning Herald article on 7 October 2014,

“Economists expect cash rate to hit ‘new normal’ in three years”:

Shane Oliver, chief economist at AMP thinks the cash rate will start to rise in quarter three of 2015 and will continue to rise to a new normal of 3.75%.

Paul Bloxham, chief economist at HSBC thinks rates will rise in the second quarter of 2015 and will reach a new normal of 4-4.25%.

Savanth Sebastian, economist at CommSec expects rates to start rising in the first quarter of 2015 and reach a new normal of 3.75%.

In my experience mainstream economists all herd around the same ‘safe’ and ‘popularly held’ opinions.

The contrarian in me says that if all the institutions are tipping much lower rates, you should consider the opposite. However, I find myself in agreement with them.

The deflationary forces within the global economy are gathering strength. In response to stagnant wages and low inflation, the RBA will do what all other central banks have done (even though it has failed) and sacrifice savers at the altar of debt.

Speaking of predictions…

Last weekend, I warned you in advance that my policy manifesto was likely to lead to heartburn, offending the majority of readers.

That proved to be one of my more accurate forecasts.

This weekend, I make two promises. The first is that this will be my last article on hypothetical policies. And second, to never again cause you anywhere near the angst I did last weekend.

Some readers took a great deal of time to articulate why two particular policies — less welfare dependency and denying the right to vote to those dependent on government employment and welfare — were uncalled for and discriminatory.

They felt that these policies only widen divisions within the community, further demonising those in receipt of welfare and in public sector employment.

Painting everyone in these categories with the one colour was, in their heartfelt and well-argued opinions, unfair.

At face value, each person’s case was an exception to my very broad rule. And given the type of reader who typically gravitates to Markets and Money, that’s what you would expect. Our readership, by and large, is made up of people who want to read alternative views. To see the world from a slightly different perspective. If you want bland, tow the party line type commentary you are not going to subscribe to Markets and Money…at least not for very long.

My policy manifesto, in keeping with our culture of questioning the orthodox, was about looking at our problems from a different perspective.

As Einstein so succinctly said, ‘the definition of insanity is doing the same thing over and over again and expecting different results.

How can we possibly (even partially) remedy what ails the world by continuing with the same tried and failed policies?

Here’s what I think are the major problems.

Global debt has reached the stage where it’s now counterproductive. Debt, once the fuel of economic growth, is now a lead weight. Never before in the recorded history of money has there been a cumulative debt pile (measured as a percentage of GDP) as large as there is today. Every recorded period of excessive debt accumulation has ended in a crisis.

Funding for health and welfare consumes more than half of every tax dollar raised. Forward estimates — rightly — predict this percentage will continue to grow through a combination of boomer retirees and longer life expectancies.

The political process is being held hostage to the whims of society — lobby groups acting out of self-interest create merry hell to either gain more benefits and/or to pressure politicians into repealing needed, but unpopular, reforms. The purpose of denying the vote to those on the government payroll, or in receipt of welfare, was not to demonise the recipients of government funds. It was to remove a blatant conflict of interest. With millions of voting boomers heading for retirement, how many changes do you think there’ll be to the age pension? Very little…and very slowly.

We hope politicians go to Canberra with some intention of making the world a better place. Their version of a better place is poles apart to mine. But putting that to one side, let’s give them the benefit of the doubt that they, initially, intend to act with a degree of integrity.

My mother said to me a very long time ago: ‘You become like the five people you hang around with most, please choose your company carefully.

When you’re in that Canberra bubble — a cesspool of greed, corruption, double dealing, backroom favours — you must, to varying degrees, become like those around you. This is why someone like Bronwyn Bishop, a 20-year Canberra veteran, can deem it normal practice to charter a helicopter or plane around the world…all at taxpayers’ expense. The longer you’re in that bubble of disconnect, the more you risk losing touch with reality. Therefore, we need to limit the amount of time politicians are exposed to this toxic environment.

Australia, in my opinion, is over-governed. For a population of 24 million people we have three levels of government…much of it is duplication.

Kerry Packer famously said at the 1991 Senate hearing that if the government wants to bring in a new law, they should first repeal an old one. Unfortunately, Packer’s sage advice was never taken. Taking a very sharp knife to government and its bloated bureaucracies is what this country desperately needs. But, as Campbell Newman found out in Queensland, that can make you many powerful enemies.

The banking system, while being a pillar of society, is far too dominant. There appears to be a systemic abuse of power in pursuit of never-ending revenue growth. ASIC’s case against ANZ and Westpac over manipulation of the bank bill swap rate is yet another example of banks behaving badly…rigging rates to line their pockets. This is just one more transgression in a long list of black marks against the banks.

Finally, people complained about it being ‘draconian’ and unfair to deny the vote to those with a perceived conflict of interest. But not one person gave a second thought about the debt legacy we are leaving to tomorrow’s taxpayer. Why is it fair to saddle our children with the costs of our indulgences borne from self-interest?

As a society we have to change our culture. Either we do that voluntarily and hope to achieve some sort of not-too-turbulent glide path back to a more sustainable system, or we’ll have change thrust upon us by unforgiving market forces.

My political manifesto was really a wish list that I know, in the real world, has a snowball in hell’s chance of ever being acted upon.

In the real world, life will continue as we know it — debts will grow; governments will over-promise with money they don’t have; bureaucracies will go from bloated to morbidly obese; banks will continue to push the envelope…only when caught red-handed will they offer ‘sincere’ apologies; politicians will live in their bubble of corruption and power, while deluding themselves they are doing us all a public service; and, finally, tomorrow’s taxpayers will be none too happy with the greedy and self-serving generation that left them a trillion dollar bill for the party.


Vern Gowdie,
Editor, Markets and Money

Vern Gowdie has been involved in financial planning since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser (IFA) magazine as one of the top five financial planning firms in Australia. He has been writing his 'Big Picture' column for regional newspapers since 2005 and has been a commentator on financial matters for Prime Radio talkback. His contrarian views often place him at odds with the financial planning profession. Vern is is Founder and Chairman of the Gowdie Family Wealth advisory service, a monthly newsletter with a clear aim: to help you build and protect wealth for future generations of your family. He is also editor of The Gowdie Letter, which aims to help you protect and grow your wealth during the great credit contraction. To have Vern’s enlightening market critique and commentary delivered straight to your inbox, take out a free subscription to Markets and Money here. Official websites and financial eletters Vern writes for:

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