Edition 119 – Cash Splurge

Last night, Scott Morrison handed down his third budget. Apparently, times are good. The budget will be back in surplus in 2019/2020 for the first time since 2007/2008. And, rather than pay down some of the credit card debt that successive Governments in this country have run up over the past ten years, it was deemed prudent to issue tax cuts to all taxpayers earning up to $90 000 per annum from 1st July, 2018 – even though we are still in the red!

Now, I’m all for tax cuts. Gee, I’m even at the head of the queue when it comes to people who believe that I’m paying too much tax, let alone feeling that what I’m paying for is not spent that wisely by the government anyway. However, to truly consider the issue, you need to look at the overall picture and parallel it with that of a business.

If a business had racked up losses for nine years, their bankers would be asking what is happening?

If, in the tenth year, the business still made a loss, only for those directors to declare a dividend, the bankers would go beyond asking what is happening? I’d suggest they’d be saying that taking a dividend when they are owed so much money is completely impudent behaviour and would be putting the account on watch.

If you happen to read the budget papers, and I know that many of you consider having your finger nails removed would be far more enjoyable, you’d notice a very important figure. One that concerns me and should concern every Australian.

You see, in the next 12 months, the Australian Government expects to pay interest on its borrowings in the amount of $14.5 billion – on gross Government debt of $578 billion.

Over the four year forward estimates, that figure is expected to tally a whopping $51.3 billion.

To put that in perspective, $51.3 billion over four years will buy you:

1. More than 25 public hospitals at $2 billion each.
2. Over 2500 public primary schools at $20 million each.
3. Almost 1300 public high schools at $40 million each.

What this means is that paying interest means Governments can’t invest in Infrastructure projects. The same infrastructure projects that create economic growth, stimulates business and employs people – all of which creates taxation revenues for the Government. Do you get the circularity of the whole process?

In business terms, it is the equivalent of not being able to invest in new plant and equipment or a new location simply because you have spent the past nine years borrowing from the bank to fund everyday expenses in your business.

Would you consider that prudent? Would your bank?

I’ve made this pitch before and I’ll make it again. There are too many people in our Federal Parliament who are lawyers, bankers, political apparatchiks or union heavies.

Few of them, if any, have any experience in running a family business.

Very few of them have gone to bed at night worrying about cashflow and whether they can make this week’s wages bill.

Few of them have had to hound their customers for money that is owed to them for 90 or even 120 days – often by large businesses and government themselves.

It appears that none of them live in the real world – the world of family business that generates more than 50% of all employment in Australia and almost two-thirds of global GDP.

For, if they did, they may be a little more careful and responsible with the way they spend the nation’s finances – which, at the end of the day, is not their money anyway.

This Week’s Tip

“The faster you pay back debt, the faster you’ll have more money at your finger tips to invest, grow or pay yourself dividends. It will also give you back a greater sense of control over your business.”