This is one paragraph you won’t forget reading. From Russia Today (RT), it describes the state of affairs down under:
‘Federal Treasurer Chris Bowen, speaking on the newly-released economic report, said the Australian economy is undergoing ‘economic transition’ and ‘not a crisis’. Bowen predicts weaker economic growth, increased unemployment, and more government debt on the horizon.’
How do you know when you’re in a crisis? When the government tells you you’re not in a crisis.
The only funnier paragraph we’ve read recently was the preceding one: ‘Australia will post a budget deficit of $30.1 billion for the fiscal year, a gross miscalculation from its May estimate of $18 billion, but the government promises to stay on track.’
Call that ‘on track’? Imagine if Telstra’s board behaved like Rudd’s cabinet. ‘We’re running at a 40% greater loss than expected, but don’t worry, we’ll keep it up’.
It only gets worse if you dare peeking into the future. Here’s the outlook according to RT: ‘The forecast 2014-2015 deficit has surged to $24 billion, up from the previously $10.9 billion. The government has vowed to curb the deficit for the 2016-2017 period.’
They’ve given up on promising a surplus and ‘vowed to curb’ a rapidly growing deficit. Why the vowing? Why not just do it?
As one of our university lecturers was fond of remarking, ‘The Labor party couldn’t run a hot dog stand’. We’re not sure what Tony Abbott can run, but it’s not a country. Still, we hope he wins. It’s less fun criticising his policies when he’s only in opposition.
Unfortunately, all this political meddling translates to a miserable reality on the ground. Employment fell by around 10,000 in July, while the unemployment rate held steady. That only makes sense if people left the labour force. Sure enough, the Australian Bureau of Statistics has the labour force participation rate dropping from 65.3% to 65.1%.
Only Roy Morgan Research says the opposite to the ABS. Unemployment, measured by the percent of the workforce in work, is at 10.1%, up 0.4% from last month. And the Australian workforce rose, not fell, by 110,000.
In other words, you can make the numbers sing any song you like. Which song you choose usually depends on your political persuasion.
The Australian Financial Review’s leading lines on Tuesday give you a hint as to who they’re barracking for:
‘Retail spending has fallen to its slowest growth rate since July 2000, new car sales for July were lower than…expected, and activity in the services sector reached its lowest level since the global financial crisis.’
And you thought the Daily Reckoning was pessimistic.
So what’s the solution to the doldrums? The National Australia Bank chief executive reckons Australia needs to borrow more. Cameron Clyne even said so with a straight face: ‘Australia has a debt problem: we don’t have enough.’
Debt is only good for one person — the banker. What the NAB CEO really means is that Australia needs to get borrowing to invest money in productive projects:
‘If we continue to have the debate that suggests that all debt is bad, and not a debate on the productive use of debt, we will simply not be able to fund the infrastructure this economy needs to thrive into the future.’
Of course, if there were any productive investments going, NAB would jump on them to begin with. The fact that NAB needs the Australian government to get involved tells all. Remember, bankers do not take upside risks in projects when they lend. They get their fixed rate of interest either way. The only risk to a banker is default. And the Australian government is the least likely borrower to default. Telling it to ‘borrow more!’ makes perfect sense…from the bank’s point of view.
Apart from that, a quick peek at Australia’s pace of borrowing reveals another flaw. It turns out that the country is borrowing even faster than Europe’s famous PIIGS.
We’re in third place when it comes to the pace of borrowing since 2011. Only debt crisis ridden countries like Slovenia, the UK, Spain, Portugal and Ireland can keep up with our surplus-promising politicians.
The direction is clear — we’re heading for the same debt doldrums that Europe is in. As far away as we may be from the same kind of crisis, that doesn’t bode well for our future.
Remember, Australia is at its most prosperous with a mining boom and no recession for 21 years. If our government can’t run a surplus now…
Looking back the Europeans and Americans couldn’t believe they hadn’t run surpluses during their boom years. We’re making all the same mistakes.
Of course, politicians and bankers who want the government to borrow and spend would point out that, according to the chart, Australia is really in the company of countries currently implementing austerity. The UK and Spain’s politicians are implementing harsh budgetary measures, after all. Aren’t they? Not according to the chart! But the papers say they are…hmm.
It’s funny when politicians believe each other’s rhetoric, isn’t it? They really should know better.
Even if the NAB CEO got his way and the Australian government began spending and borrowing even more, where would they spend it? Perhaps in their legal defence of the last bout of borrowing and spending.
The Australian is reporting that 65 companies are bringing legal action against the Australian government for its mismanagement of the insulation debacle. Rudd’s personal involvement is set to cause controversy, as he allegedly ignored the warnings of the dangers of his program. The story goes that the 65 companies lost more than $100 million, and many operators lost their life savings after going into debt in anticipation of the revenue the program should’ve delivered. After the program was cancelled, the revenue never emerged, so now the group wants to recover damages.
Rudd points out he did make amends. His solution to the problems of his disjointed and disastrous cash splash was a new pair of cash splashes called the Insulation Industry Assistance Package of up to $500,000 per business or applicant, and the Insulation Assistance Package of up to $3000 for workers affected.
Economists often point out that once a government program is put in place, further programs are required to clean up the mess. This is a beautiful example and is just the sort of story that explains the budget blowout.
You’ll be able to have your say about all this on September 7th. Just kidding; one vote won’t make a difference. And the result won’t matter much either. They’re all politicians after all.
The next time we write to you, it will be from where Kevin Rudd and Wayne Swann grew up — south-east Queensland. As Melbourne’s winter frost loosens its grip on our bones, its spring pollen begins to tickle the end of our nose. So it’s off to the tropics for a few months where the grass is greener and pollinates less.
Until then, sneeze you later.
for The Daily Reckoning Australia
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