Labouring Under Debt

The workers united will never be defeated.

No cuts to penalty rates.

Labour Day in Queensland.

Loyal union members, their politically-ambitious union leaders and the Queensland Labor Party faithful take the day off to chant their slogans and wave their banners.

Today is the day they celebrate the labour movement.

In the past five years, there’s been no greater movement of labour than in the Queensland public service.

Back in 2012, then Premier Campbell Newman culled about 14,000 public servant jobs.

ABC News, 14 September 2012:

Treasurer Tim Nicholls unveiled the Liberal National Party (LNP) Government’s first state budget on Tuesday, cutting 14,000 public service positions.

Mr Nicholls said the cuts would save almost $8 billion over the next four years.

The job cuts have sparked fury in Queensland, with thousands of people marching on state parliament on Wednesday.

While some of us rejoiced at the decision to contain costs in the bloated public sector, there were obviously many more who were far from happy with the decision to ‘trim the fat’.

Newman was a one-term premier. His historic landslide win in 2012 was followed by an equally historic loss in 2015.

Since the Labor Government regained the reins of power in 2015, the movement of labour has been back into the public sector.

The Australian, 29 November 2016:

In FTE [full-time employee] terms, the [Queensland] public sector has grown by 2544 positions in the June [2016] quarter to 212,132 workers.

By late March, the Queensland bureaucracy — in FTE terms — was the largest it had ever been. It had previously peaked at the end of former Labor premier Anna Bligh’s term in 2012.

LNP premier Campbell Newman’s controversial job-cuts campaign reduced the public sector to 192,000 FTEs by June 2013.

In the space of three years, Premier Annastacia Palaszczuk and Treasurer Curtis Pitt have re-employed over 20,000 full-time public servants. And we won’t even mention the part-timers.

In theory, there should be a lot of happy union campers dancing in the streets at today’s Labour Day march.

But is the union movement ever happy?

The campaign to retain penalty rates in select industries (the same penalty rates that have been traded away in other industries) demonstrates just how out of touch the union membership is with the modern world.

Penalty rates are a hangover from another century.

The traditional and dominant Western world could afford that luxury in the 20th century.

But we are now (well) into the 21st century.

There are two massive deflationary forces at play.

A lean, mean and low-cost developing world. Billions of people wanting a better standard of living…at our expense.

And the rapid uptake of automation.

Former Wesfarmers group (owner of Coles) managing director Richard Goyder is on record as saying that US online retail giant Amazon will ‘eat all our breakfasts, lunches and dinners.

To compete, Australian retailers must become more innovative, and barriers to competition must be removed.

To gain an appreciation of the scale of creative destruction Amazon has planned in the coming years, look at this YouTube video by Professor Scott Galloway, titled ‘How Amazon Is Dismantling Retail’.

Those who live comfortably cocooned — living off the taxes and membership fees of other people — can afford to peddle their visions of pure economic fantasy. The remainder need to take an economic reality-check.

Queensland started to bring some economic rationale to the people. Cut the public sector to reduce expenses. Sell off assets to reduce debt.

Perfectly sensible decisions.

But when you’ve been used to living beyond your means, adjusting is never easy.

The Australian Financial Review, 15 February 2015:

‘[Peter] Costello’s blueprint of asset sales and spending cuts, including cuts to services, enabled [Premier] Newman’s opponents, in the public sector unions and in the community at large to mobilise against what was portrayed as a heartless government out of touch with real Queenslanders in the boondocks.

Sometimes you have to be cruel to be kind. Take the tough medicine now or face even direr consequences later.

But my fellow ‘real’ Queenslanders (I was born in Rockhampton and consider myself a real Queenslander) opted to listen to the self-interested public sector unions (the ones caught in a 20th century time warp) and booted Newman to the kerb.

The unions won, but Queensland lost.

Somehow the people thought they could have it all.

Re-employ bureaucrats. Keep the assets. And somehow the ballooning debt levels and declining credit rating would take care of itself.

The Australian Financial Review, 14 June 2016:

The Queensland government will raid public service superannuation funds and hit up government-owned corporations for $10 billion to plug a post-resources-boom budget hole.

While Mr Pitt used his second budget to promise combined surpluses of $3.2 billion over the next four years, the state’s total debt will continue to surge towards $80 billion by the end of the decade, the same level forecast by previous governments.

In June last year, Queensland Treasurer Pitt ‘promised’ a combined surplus…hmmm, I wonder if former Treasurer Wayne Swan had a helping hand in crafting this budget statement.

Even with the ‘promised’ surplus, Queensland’s debt is on an upward trajectory.

And this was after Pitt raided the public service super fund to the tune of $4 billion to pay down debt and fund infrastructure spending.

To bring you up to date, this is from The Courier Mail only a few days ago (26 April 2017):

The cash-strapped State Government will have to impose a public service hiring freeze for two years to avoid blowing its expense forecasts and risking a credit rating downgrade.

Analysis of Treasurer Curtis Pitt’s Budget projections has revealed the $1.2 billion extra forecast for employee expenses until 2018-19 would be soaked up by pay rises.

The employee cost crunch has been exacerbated by the Labor administration’s public service spending spree.

Queensland is no different to any other state or nation. Once the people have been given something, it’s very difficult to take it away in a democratic society. Entitlements are for life; woe betide anyone who dares to even suggest otherwise.

What’s happened in Queensland is being played out across the world in all indebted local, state and federal governments.

No politician, with an eye on the next election, is going to voluntarily take the hard decisions necessary to rein in debt and deficits.

They will ‘pick the pockets’ of easy targets, but no real spending reform will be undertaken.

Therefore, it will be imposed on the electorate by market forces.

These forces are brutal, and inevitably lead to a backlash.

We saw this last Friday in Brazil. Protestors brought the country to a standstill. From ABC News, 28 April 2017 (emphasis mine):

Protesters lit buses on fire, blocked roads and clashed with police on Friday during a general strike that brought transportation to a halt in many cities across Latin America’s largest nation.

The strike was to protest major changes to labor law and the pension system being considered by Congress, but it was also a raw display of anger by many Brazilians fed up with corruption and worried about the future amid a deep recession and rising unemployment.

Even considering changes to labour laws and pensions evokes a hostile reaction.

Brazil and Greece might be extreme examples of corrupt governments that overpromised and under-delivered. However, the lesson in all this should not be lost.

Indebted and cash-strapped governments cannot continue ‘the gravy train’ indefinitely.

At some point, hard — and what might seem heartless — decisions need to be made.

Australia is one of the most indebted countries in the world.

The standard of living we’ve grown to believe is our entitlement is under threat from global forces that pose a very serious and imminent threat to wages and employment growth.

We are in a very precarious position. One that is made even more dangerous because our economic fortunes are tied to another nation with a bigger debt problem than us…China.

If you think people will not take to the streets in Australia, like they have in Brazil and Greece, then let me remind you of the street marches against the Newman Government in 2012. These will look like Sunday school picnics compared with what I think is in store.

It is too late in the day for the government to take remedial action to buffer us from these impending market forces. You must take personal responsibility (something society seems to be averse to doing these days) for your own financial situation.

Pay down debt. Increase cash levels. Remain patient.

And if you’re interested in a modern take on the Pied Piper fairy tale, go watch the Labour Day parade.


Vern Gowdie,
Editor, Markets & 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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