EDITORIAL THURSDAY 13.11.08.
There were a few clues to the forthcoming review of taxation to be found in Treasury Secretary Ken Henry’s address to the National Press Club this week. While not giving too much away, Dr. Henry identified the complexity of our tax and transfer system as one of the major factors under consideration. This complexity presents as both the sheer number of taxes which exist in the system, and the compliance obligations which come with those taxes. He described the complexity itself as acting like another tax in that it provides a drag on the economy, although it does so while making no contribution to revenue.
While much of this complexity impacts upon business, it also applies to individuals with relatively simple tax affairs. It has previously been suggested that personal income tax returns could, in many cases, be dispensed with altogether, with a flat figure work related expenses deduction applied across the board. At the same time, the interaction between tax and welfare payments also suffers from complexity and high effective marginal rates, which mean that for every dollar of extra income an individual loses a high percentage as a combination of taxes and lost welfare payments.
Simplification of personal taxes would save us all a lot of wasted time and the expense of a tax agent, but it’s the arena of business taxes which provides the opportunity to really give a boost to the economy, which in turn would benefit us all. There has been a push to reduce company tax for quite some time, and that may well be on the agenda. But Dr. Henry specifically mentioned the role of tax arrangements in promoting foreign investment, at the same time as discouraging the shifting of profits offshore to avoid taxes.
It has also been reported that, although Dr. Henry did not specifically discuss dividend imputation, there may be a case for removing it. The suggestion is that imputation offers foreign investors no benefit while also discouraging Australian companies from investing offshore as foreign profits do not qualify to be offset against the tax on dividends. It is a complication, but the obstacle is that our entire superannuation system has been built around the mechanism of imputation, not to mention the Mum and Dad shareholders who have built a portfolio with an eye on tax effectiveness.
Dr. Henry made it clear that this “root and branch” review of taxation which has been ordered by the government will not be merely a “pruning and shaping” exercise. It would be safe to assume that when the review is complete, the recommendations will be substantial. It is also reasonable to view the current economic turmoil as an opportunity to rebuild the system virtually from the ground up to make it fairer and more efficient. While we have been promised tax reform in the past, it is reasonable to expect that, this time, we will get genuine reform. From the clues we have so far, it certainly seems that is the intention of Dr. Henry and his review panel.
What remains then is for the government to deliver on its commitment.
Thursday, November 13, 2008
Wednesday, November 12, 2008
NSW Mini Budget Offers Pain Without Purpose
EDITORIAL WEDNESDAY 12.11.08.
The New South Wales mini budget has confirmed once again that the government simply doesn’t understand what it’s doing. Filled with fear at the idea of a billion dollar budget black hole, they have desperately clutched at straws to fill that hole and return the budget to surplus as quickly as possible. The trouble is that it won’t work.
The role of government as a money manager is two fold. First, it must manage its own money responsibly to ensure that it can continue to function and provide the services upon which the community depends. Second, it must manage the economy so that the community can prosper. One is not more important than the other, and both are interconnected.
This mini budget is doomed to fail on the basis that it has been drawn up to address the first responsibility and boost the budget bottom line, at the expense of the second responsibility by increasing taxes and charges while cutting spending and investment. The fundamental flaw in this approach is that the added drag on the economy will serve to undermine the ability of the community to pay those increased taxes and charges.
While the government might seek to blame their circumstances on the Global Financial Crisis, the truth is that they were already in trouble and the global situation has only amplified it. More importantly, the impact of the global situation on the broader community is the very reason why the government should be more focused on boosting the economy than boosting their own revenue. That way, a stronger economy will provide them with stronger revenue anyway.
Instead, we have the exact opposite. At a time when the Federal Government is trying to pump money into the economy to prop it up, the New South Wales Government is trying to suck more money out of the economy to prop itself up. Yes, there are enormous challenges for New South Wales, and the Global Financial Crisis has made it more difficult. But that is the very reason why the State Government should be investing in road and rail infrastructure, public transport, and providing real incentives to the property and construction sector, not with handouts, but with abolishing ridiculous and excessive levies and charges.
The obstacle is that this would require the courage to accept a budget deficit and to take on appropriate debt to provide the infrastructure which would in turn provide the framework to encourage more investment in the state. The Government talks about taking the tough decisions, but that is not what they have done. They have in fact taken the easy way out and dumped the cost on Mum, Dad and the kids.
The New South Wales mini budget has confirmed once again that the government simply doesn’t understand what it’s doing. Filled with fear at the idea of a billion dollar budget black hole, they have desperately clutched at straws to fill that hole and return the budget to surplus as quickly as possible. The trouble is that it won’t work.
The role of government as a money manager is two fold. First, it must manage its own money responsibly to ensure that it can continue to function and provide the services upon which the community depends. Second, it must manage the economy so that the community can prosper. One is not more important than the other, and both are interconnected.
This mini budget is doomed to fail on the basis that it has been drawn up to address the first responsibility and boost the budget bottom line, at the expense of the second responsibility by increasing taxes and charges while cutting spending and investment. The fundamental flaw in this approach is that the added drag on the economy will serve to undermine the ability of the community to pay those increased taxes and charges.
While the government might seek to blame their circumstances on the Global Financial Crisis, the truth is that they were already in trouble and the global situation has only amplified it. More importantly, the impact of the global situation on the broader community is the very reason why the government should be more focused on boosting the economy than boosting their own revenue. That way, a stronger economy will provide them with stronger revenue anyway.
Instead, we have the exact opposite. At a time when the Federal Government is trying to pump money into the economy to prop it up, the New South Wales Government is trying to suck more money out of the economy to prop itself up. Yes, there are enormous challenges for New South Wales, and the Global Financial Crisis has made it more difficult. But that is the very reason why the State Government should be investing in road and rail infrastructure, public transport, and providing real incentives to the property and construction sector, not with handouts, but with abolishing ridiculous and excessive levies and charges.
The obstacle is that this would require the courage to accept a budget deficit and to take on appropriate debt to provide the infrastructure which would in turn provide the framework to encourage more investment in the state. The Government talks about taking the tough decisions, but that is not what they have done. They have in fact taken the easy way out and dumped the cost on Mum, Dad and the kids.
Tuesday, November 11, 2008
Victims Of Deceit
EDITORIAL TUESDAY 11.11.08.
The modern technology of DNA testing seems to have opened a Pandora’s box when it comes to the question of paternity. Now that it is possible to determine whether or not a man is the biological father of a child that he is told is his, the awful truth has emerged that some men have been deceived and exploited. Further complicating the matter has been the introduction of a legal framework over the years enforcing the payment of child support money, which is only right and proper, but when it turns out to be based on a false claim, then the situation becomes complicated.
It has recently been made legally possible for men to claim back child support money paid for children subsequently proven not to be theirs. So far, 18 men in New South Wales have done so. Hundreds more know they are not the biological father and may also have a claim. It is also likely that thousands more don’t know, and may never know.
Now it seems reasonable for money paid under such false premises to be repaid by the women involved, and that has been the finding of the court in some cases. But this is where it gets complicated. Women’s groups are reported to be outraged, and claim that it is the children who will suffer. Matters are further complicated by the fact that in many cases the children have been brought up thus far believing a particular individual to be their father, and even some of the men themselves have formed a parental bond which carries real emotional significance regardless of the circumstances.
So how do we untangle such a mess?
First, if a government agency has determined that a man should pay, then that agency should carry the liability to reimburse the man. Second, the woman should be liable to the agency for any false claims made. Thirdly, the question of who is responsible for the welfare of such children needs to be made clear.
I suspect that these outraged women who claim that the children will be the ones to suffer, are probably the very same women who proudly assert that a woman’s right to choice is sacrosanct. If we accept that, as our society seems to have done, then it logically follows that women also carry the responsibility. It seems to me that men have been given no right to choice in this matter, until now. If a single woman falls pregnant, our society recognizes her right to choose whether to have the baby or not, but the man has no such choice.
The case of Queenslander Ken Rogers resulted from what was described as a drunken fling. He had no ongoing relationship with the woman, and no contact with the child, and yet paid $71 000 over a decade until he discovered the child is not even his. Now that the court has ordered that he be repaid the money, it might well be true that the child will suffer as a result of the financial impact on his mother, but stop and ask: whose fault is that?
Even if you forgive the mother for making a false claim, whether deliberate or not, it certainly isn’t the fault of Mr. Rogers, the innocent victim of years of deceit.
The modern technology of DNA testing seems to have opened a Pandora’s box when it comes to the question of paternity. Now that it is possible to determine whether or not a man is the biological father of a child that he is told is his, the awful truth has emerged that some men have been deceived and exploited. Further complicating the matter has been the introduction of a legal framework over the years enforcing the payment of child support money, which is only right and proper, but when it turns out to be based on a false claim, then the situation becomes complicated.
It has recently been made legally possible for men to claim back child support money paid for children subsequently proven not to be theirs. So far, 18 men in New South Wales have done so. Hundreds more know they are not the biological father and may also have a claim. It is also likely that thousands more don’t know, and may never know.
Now it seems reasonable for money paid under such false premises to be repaid by the women involved, and that has been the finding of the court in some cases. But this is where it gets complicated. Women’s groups are reported to be outraged, and claim that it is the children who will suffer. Matters are further complicated by the fact that in many cases the children have been brought up thus far believing a particular individual to be their father, and even some of the men themselves have formed a parental bond which carries real emotional significance regardless of the circumstances.
So how do we untangle such a mess?
First, if a government agency has determined that a man should pay, then that agency should carry the liability to reimburse the man. Second, the woman should be liable to the agency for any false claims made. Thirdly, the question of who is responsible for the welfare of such children needs to be made clear.
I suspect that these outraged women who claim that the children will be the ones to suffer, are probably the very same women who proudly assert that a woman’s right to choice is sacrosanct. If we accept that, as our society seems to have done, then it logically follows that women also carry the responsibility. It seems to me that men have been given no right to choice in this matter, until now. If a single woman falls pregnant, our society recognizes her right to choose whether to have the baby or not, but the man has no such choice.
The case of Queenslander Ken Rogers resulted from what was described as a drunken fling. He had no ongoing relationship with the woman, and no contact with the child, and yet paid $71 000 over a decade until he discovered the child is not even his. Now that the court has ordered that he be repaid the money, it might well be true that the child will suffer as a result of the financial impact on his mother, but stop and ask: whose fault is that?
Even if you forgive the mother for making a false claim, whether deliberate or not, it certainly isn’t the fault of Mr. Rogers, the innocent victim of years of deceit.
Monday, November 10, 2008
Last Roll Of The Dice For NSW Government
EDITORIAL MONDAY 10.11.08.
Twas the night before the New South Wales Mini Budget, and all through the house not a creature was stirring, not even a louse…. Er, I mean politician. Sadly, this is no fairy tale, and the taxpayers of New South Wales ought not expect much from the Government in the way of gifts. This mini budget was announced by a Government with a massive shortfall in its revenue even before the true extent of the Global Financial Crisis became known.
Confronted with the failure of the plan to privatise electricity, there was really no choice but to revise the budget. The problem is that while the economic downturn is depriving the budget of revenue, any commensurate reduction of spending will inevitably contribute to the downward drag on the economy. Even worse than that is the very real prospect that any reduction in spending will also result in a reduction in services.
It has already been revealed that the Government intends to cut $500 million from the health budget, even though the Health Department is already indebt and struggling to pay its bills. Services are already being cut with bed numbers reduced and specialist wards closed to try to make ends meet. Even if $500 million in savings could be found in the bureaucracy of the Health Department, that money would be better spent on boosting actually medical services rather than disappearing back into the budget bottom line.
Equally, the plan to increase property taxes might sound like a Robin Hood measure to tax the wealthy to help the poor (New South Wales Government), but if the disastrous experience of the exit stamp duty experiment is any indication, there’s a good chance that what little property market investment remains will be killed off.
In New South Wales, the construction industry is supposed to be one of the prime economic drivers, and as such should be a prime candidate for a boost. Of course, it is property and transaction taxes which provide a significant percentage of Government revenue, so it might seem like a good idea to increase them to help boost the budget bottom line. But if there are no transactions, there is no revenue. Cutting property and transaction taxes, on the other hand, should help to stimulate the sector, producing increased activity and therefore increased tax revenue.
With GST revenue also falling because of the economic slowdown, there is a valid argument to suggest that the Commonwealth should do something to bolster State revenue. No relief can be expected on that front for two reasons. First, the Commonwealth has its hands full with its own problems. Second, given the record of mismanagement in New South Wales, it is unlikely the Commonwealth would trust them with the money. Right now, the New South Wales Government is on its own.
This is that last roll of the dice for the New South Wales Government. It is their last chance to rescue their political fortunes. Unfortunately the combination of their own mismanagement and the impact of the wider economic crisis has left them ill equipped to do so. Instead, it appears that they will act to prop up the budget bottom line rather than the State’s economy. If that’s the case, it will be another victory for short sighted thinking over the long term prosperity of the State.
Twas the night before the New South Wales Mini Budget, and all through the house not a creature was stirring, not even a louse…. Er, I mean politician. Sadly, this is no fairy tale, and the taxpayers of New South Wales ought not expect much from the Government in the way of gifts. This mini budget was announced by a Government with a massive shortfall in its revenue even before the true extent of the Global Financial Crisis became known.
Confronted with the failure of the plan to privatise electricity, there was really no choice but to revise the budget. The problem is that while the economic downturn is depriving the budget of revenue, any commensurate reduction of spending will inevitably contribute to the downward drag on the economy. Even worse than that is the very real prospect that any reduction in spending will also result in a reduction in services.
It has already been revealed that the Government intends to cut $500 million from the health budget, even though the Health Department is already indebt and struggling to pay its bills. Services are already being cut with bed numbers reduced and specialist wards closed to try to make ends meet. Even if $500 million in savings could be found in the bureaucracy of the Health Department, that money would be better spent on boosting actually medical services rather than disappearing back into the budget bottom line.
Equally, the plan to increase property taxes might sound like a Robin Hood measure to tax the wealthy to help the poor (New South Wales Government), but if the disastrous experience of the exit stamp duty experiment is any indication, there’s a good chance that what little property market investment remains will be killed off.
In New South Wales, the construction industry is supposed to be one of the prime economic drivers, and as such should be a prime candidate for a boost. Of course, it is property and transaction taxes which provide a significant percentage of Government revenue, so it might seem like a good idea to increase them to help boost the budget bottom line. But if there are no transactions, there is no revenue. Cutting property and transaction taxes, on the other hand, should help to stimulate the sector, producing increased activity and therefore increased tax revenue.
With GST revenue also falling because of the economic slowdown, there is a valid argument to suggest that the Commonwealth should do something to bolster State revenue. No relief can be expected on that front for two reasons. First, the Commonwealth has its hands full with its own problems. Second, given the record of mismanagement in New South Wales, it is unlikely the Commonwealth would trust them with the money. Right now, the New South Wales Government is on its own.
This is that last roll of the dice for the New South Wales Government. It is their last chance to rescue their political fortunes. Unfortunately the combination of their own mismanagement and the impact of the wider economic crisis has left them ill equipped to do so. Instead, it appears that they will act to prop up the budget bottom line rather than the State’s economy. If that’s the case, it will be another victory for short sighted thinking over the long term prosperity of the State.
Friday, November 7, 2008
As Easy As ABC
EDITORIAL FRIDAY 07.11.08.
The insolvency of ABC Learning Centres is a clear example of the folly of taking a perfectly good business and destroying it by using it as nothing more than a vehicle to generate a short term cash return rather than long term value. The rapid expansion of the business came at the expense of an equally rapid expansion of its debt. As more cash flow was required to feed more debt, more debt was required in turn to generate more cash flow. As we have seen this will work well for a time, as long as the cash flow continues to grow and the credit continues to be cheaply available. In this way it is possible to quickly build an enormous structure, but the problem is that the structure is hollow. Any intrinsic value in the business is counterbalanced by the debt obligations.
ABC is far from alone in this. Already we have seen the so called “financial engineers” such as MFS and Allco fall by the wayside. Merchant bankers Babcock & Brown and even the previously glamourous Macquarie Group have been punished by the market for their indescretions. Macquarie has proven to be more resilient than the others, in part because it had already changed its business structure to ensure it is well capitalized, and partly as a fortunate beneficiary of the Government’s banking guarantee. Even so, Macquarie’s share price is a pale shadow of what it was a year ago.
At a time like this it’s also worth recalling the failed private equity takeover of Qantas. If that had gone ahead, as Geoff Dixon and Margaret Jackson had recommended, the subsequent debt burden placed on the company could well have destroyed it in current circumstances. The point is that such debt funded expansion or acquisition will always carry a high degree of risk compared with equity. While conditions allow, such high risk will often result in high rewards. Now that conditions have changed, the true extent of the risk is becoming apparent.
The important point to all of this is that these practices, labeled as “financial engineering”, have absolutely nothing to do with the actual operation of a business. A business can be perfectly viable on its own terms, but it can be destroyed by having its value hollowed out as more debt is taken on to fund either a change in ownership or a rapid expansion. In the case of ABC, the individual childcare centres are in most cases perfectly good businesses, despite the fact that the corporation which owns them appears to have been pillaged for the purposes of a quick buck.
The Government has now committed to spend $22 million of taxpayers’ money on keeping the operation running. The argument is that childcare has become an essential piece of community infrastructure, integral to the ability of the economy to function. There is plenty of truth to that notion, which then prompts the question: is it wise to allow a single company to acquire so much market share in an essential service without greater prudential regulation?
It seems obvious now that the answer is “no”. At the very least it is to be hoped that the Global Financial Crisis might ultimately lead to a change in the way debt financing is both employed and regulated, especially in the provision of essential services.
The insolvency of ABC Learning Centres is a clear example of the folly of taking a perfectly good business and destroying it by using it as nothing more than a vehicle to generate a short term cash return rather than long term value. The rapid expansion of the business came at the expense of an equally rapid expansion of its debt. As more cash flow was required to feed more debt, more debt was required in turn to generate more cash flow. As we have seen this will work well for a time, as long as the cash flow continues to grow and the credit continues to be cheaply available. In this way it is possible to quickly build an enormous structure, but the problem is that the structure is hollow. Any intrinsic value in the business is counterbalanced by the debt obligations.
ABC is far from alone in this. Already we have seen the so called “financial engineers” such as MFS and Allco fall by the wayside. Merchant bankers Babcock & Brown and even the previously glamourous Macquarie Group have been punished by the market for their indescretions. Macquarie has proven to be more resilient than the others, in part because it had already changed its business structure to ensure it is well capitalized, and partly as a fortunate beneficiary of the Government’s banking guarantee. Even so, Macquarie’s share price is a pale shadow of what it was a year ago.
At a time like this it’s also worth recalling the failed private equity takeover of Qantas. If that had gone ahead, as Geoff Dixon and Margaret Jackson had recommended, the subsequent debt burden placed on the company could well have destroyed it in current circumstances. The point is that such debt funded expansion or acquisition will always carry a high degree of risk compared with equity. While conditions allow, such high risk will often result in high rewards. Now that conditions have changed, the true extent of the risk is becoming apparent.
The important point to all of this is that these practices, labeled as “financial engineering”, have absolutely nothing to do with the actual operation of a business. A business can be perfectly viable on its own terms, but it can be destroyed by having its value hollowed out as more debt is taken on to fund either a change in ownership or a rapid expansion. In the case of ABC, the individual childcare centres are in most cases perfectly good businesses, despite the fact that the corporation which owns them appears to have been pillaged for the purposes of a quick buck.
The Government has now committed to spend $22 million of taxpayers’ money on keeping the operation running. The argument is that childcare has become an essential piece of community infrastructure, integral to the ability of the economy to function. There is plenty of truth to that notion, which then prompts the question: is it wise to allow a single company to acquire so much market share in an essential service without greater prudential regulation?
It seems obvious now that the answer is “no”. At the very least it is to be hoped that the Global Financial Crisis might ultimately lead to a change in the way debt financing is both employed and regulated, especially in the provision of essential services.
Thursday, November 6, 2008
Welcome to the 21st Century
EDITORIAL THURSDAY 06.11.08.
The election of Barack Obama to be the next President of the United States provides a turning point in not only American history, but world history. It’s not just because he has made history as the first black President, although that has attracted a considerable amount of acclaim. Although that landmark is significant, it is the opportunity for genuine change and renewal in the United States, for itself and for its place in the world, which is of greatest importance.
The past eight years of the George W. Bush administration has been in every way a hangover of the 20th Century. His time as president has been marked by the prosecution of a war that had its seeds planted during the Ronald Reagan and George Bush Senior years. That war is in many ways a case of the son taking up the unfinished business of the father. Beyond that, the Bush Presidency has represented the ultimate pinnacle of the influence of the Bush family in American affairs going all the way back to Prescott Bush and his infamous connection to the Nazi party as a Director of the Union Banking Corporation in the 1940s.
The foreign policy of the United States in recent decades has become increasingly interventionist and increasingly unilateral, at a time when the rest of the Western World has been searching for greater unity and stability. The reputation of the United States has suffered because it has turned its back on the United Nations despite having been instrumental in its creation after World War Two for the specific purpose of circumventing war. The United Nations may be far from perfect, but it should be the role of the United States to strengthen that body, not undermine it.
W’s economic policies also owed much to those of Ronald Reagan, and at least in part the fallout from the present Global Financial Crisis can be traced back to those policies. The blind faith in the ability of the markets to self regulate has led to the inevitable result of unfettered greed being punished by those same market forces as the other primal driver, fear, tears apart the house of cards built upon hollow investment vehicles representing assets of no intrinsic value.
The election of Barack Obama is a turning point in world history because it provides the United States of America with an opportunity to restore its reputation as a world leader rather than an international bully. An opportunity to restore its own economy through investment in nation-building at home rather than military destruction abroad. An opportunity to look to the future rather than to be mired in the remnants of an imperfect past. An opportunity to once again truly embody the spirit and ideals of the founding fathers of the world’s greatest democracy, who wrote in their Declaration of Independence of the universal right to “life, liberty and the pursuit of happiness”. An opportunity to once again stand for the ideals of freedom, democracy and justice for all.
This is the moment of endless possibility, the opportunity for national transformation, the real beginning of the 21st Century in American affairs. All that remains is for the new President to actually deliver the change he has repeatedly promised. I wonder if he can.
The election of Barack Obama to be the next President of the United States provides a turning point in not only American history, but world history. It’s not just because he has made history as the first black President, although that has attracted a considerable amount of acclaim. Although that landmark is significant, it is the opportunity for genuine change and renewal in the United States, for itself and for its place in the world, which is of greatest importance.
The past eight years of the George W. Bush administration has been in every way a hangover of the 20th Century. His time as president has been marked by the prosecution of a war that had its seeds planted during the Ronald Reagan and George Bush Senior years. That war is in many ways a case of the son taking up the unfinished business of the father. Beyond that, the Bush Presidency has represented the ultimate pinnacle of the influence of the Bush family in American affairs going all the way back to Prescott Bush and his infamous connection to the Nazi party as a Director of the Union Banking Corporation in the 1940s.
The foreign policy of the United States in recent decades has become increasingly interventionist and increasingly unilateral, at a time when the rest of the Western World has been searching for greater unity and stability. The reputation of the United States has suffered because it has turned its back on the United Nations despite having been instrumental in its creation after World War Two for the specific purpose of circumventing war. The United Nations may be far from perfect, but it should be the role of the United States to strengthen that body, not undermine it.
W’s economic policies also owed much to those of Ronald Reagan, and at least in part the fallout from the present Global Financial Crisis can be traced back to those policies. The blind faith in the ability of the markets to self regulate has led to the inevitable result of unfettered greed being punished by those same market forces as the other primal driver, fear, tears apart the house of cards built upon hollow investment vehicles representing assets of no intrinsic value.
The election of Barack Obama is a turning point in world history because it provides the United States of America with an opportunity to restore its reputation as a world leader rather than an international bully. An opportunity to restore its own economy through investment in nation-building at home rather than military destruction abroad. An opportunity to look to the future rather than to be mired in the remnants of an imperfect past. An opportunity to once again truly embody the spirit and ideals of the founding fathers of the world’s greatest democracy, who wrote in their Declaration of Independence of the universal right to “life, liberty and the pursuit of happiness”. An opportunity to once again stand for the ideals of freedom, democracy and justice for all.
This is the moment of endless possibility, the opportunity for national transformation, the real beginning of the 21st Century in American affairs. All that remains is for the new President to actually deliver the change he has repeatedly promised. I wonder if he can.
Wednesday, November 5, 2008
Economic Outlook Still Gloomy Despite Interest Rate Cut
EDITORIAL WEDNESDAY 05.11.08.
Just As everybody was starting to feel good after the Reserve Bank of Australia delivered a larger than expected interest rate cut, Treasurer Wayne Swan has poured cold water over the party. The RBA announcement yesterday was widely welcomed as good news, with the expectation of relief for homeowners and business operators. Today, the Treasurer has revealed the Mid Year Economic and Fiscal Outlook projections, which don’t inspire quite so much good cheer.
While the interest rate cut is good news for people struggling with loan repayments, it’s a double edged sword. For example, retirees who might have been smart enough to move money out of equities and into cash will now see their returns reduced again. On top of that, the fact that the RBA is repeatedly delivering larger than expected reductions in the official cash rate could be interpreted as indicating that economic conditions are worse than we thought and therefore warrant a more extreme response. Today’s report lends weight to that idea.
Wayne Swan has warned that the Global Financial Crisis has created a $40 billion hole in the Federal Budget. The projections indicate that economic growth will continue to slow, and unemployment will continue to rise. Now, while some optimists are hoping that there will be a turning point in the early part of next year which will see the economic sunshine pouring in once again by 2010, the Mid Year Outlook indicates that unemployment will still be increasing in 2010. If that’s the case, the economic slowdown will be with us for some time yet, rather than somehow miraculously turning around in the next couple of months.
Despite the seriousness of the situation, it remains true that Australia is better placed than almost any other country to survive the crisis. Even if the official forecasts prove to be optimistic and the pessimists who predict recession turn out to be correct, the Government has the capacity to cushion the blow with a combination of welfare and economic stimulation measures. The Government has a budget surplus, a substantial cash reserve, and no net debt.
That’s reassuring because if the doom merchants are right, interest rates, employment rates, property prices, and business profits all have a lot further to fall before the crisis is over.
Just As everybody was starting to feel good after the Reserve Bank of Australia delivered a larger than expected interest rate cut, Treasurer Wayne Swan has poured cold water over the party. The RBA announcement yesterday was widely welcomed as good news, with the expectation of relief for homeowners and business operators. Today, the Treasurer has revealed the Mid Year Economic and Fiscal Outlook projections, which don’t inspire quite so much good cheer.
While the interest rate cut is good news for people struggling with loan repayments, it’s a double edged sword. For example, retirees who might have been smart enough to move money out of equities and into cash will now see their returns reduced again. On top of that, the fact that the RBA is repeatedly delivering larger than expected reductions in the official cash rate could be interpreted as indicating that economic conditions are worse than we thought and therefore warrant a more extreme response. Today’s report lends weight to that idea.
Wayne Swan has warned that the Global Financial Crisis has created a $40 billion hole in the Federal Budget. The projections indicate that economic growth will continue to slow, and unemployment will continue to rise. Now, while some optimists are hoping that there will be a turning point in the early part of next year which will see the economic sunshine pouring in once again by 2010, the Mid Year Outlook indicates that unemployment will still be increasing in 2010. If that’s the case, the economic slowdown will be with us for some time yet, rather than somehow miraculously turning around in the next couple of months.
Despite the seriousness of the situation, it remains true that Australia is better placed than almost any other country to survive the crisis. Even if the official forecasts prove to be optimistic and the pessimists who predict recession turn out to be correct, the Government has the capacity to cushion the blow with a combination of welfare and economic stimulation measures. The Government has a budget surplus, a substantial cash reserve, and no net debt.
That’s reassuring because if the doom merchants are right, interest rates, employment rates, property prices, and business profits all have a lot further to fall before the crisis is over.
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