Edition 273 – The Numbers

Last night, the Treasurer, Josh Frydenberg handed down his third budget and this Government’s eighth. In a bold statement, the Treasurer placed an emphasis on using the twin pillars of rising employment and falling welfare dependency to drive the budget bottom line.

His mantra is to get people back into work through a combination of targeted incentives for employers, an increased emphasis on training the long term unemployed and pump priming the economy via key infrastructure initiatives.

Australia has weathered the COVID storm better than most countries throughout the world, from both a health and financial perspective. The stunning example of this was that in March 2021, the Government actually ran a surplus, at a time when other countries around the world are grappling with not only containing the virus, but ballooning deficits.

My concern is that if times are much, much better right now than what anyone envisaged twelve months ago, then isn’t now also the time to outline a detailed plan for paying back the enormous credit card bill that successive Governments in this country have run up since 2008?

If a company has a rough year due to adverse business trading conditions or, heaven forbid, a pandemic, then it needs to draw down on its reserves to keep funding operations.

Conversely, when business is good and, let’s face it, there are plenty of businesses that right now are saying they’re having a bumper year, then that’s the time to generate profits, pay tax and build the cash and capital reserves for the future.

In my opinion, the same goes for countries. With:

  1. Unemployment currently at 5.6% and with the aim to drive it into the high 4% range.
  2. More people in employment than ever before.
  3. An economy that is actually bigger than what it was pre COVID in 2020.
  4. Government tax collections at record highs.

doesn’t that suggest that, from the perspective of running the business of Government, that times are good, profits are up and that we should be running surpluses much sooner than anticipated in the budget papers.

Whilst a low interest rate environment appears to be the justification for big spending at the moment, the fact remains that at some stage, the debt has to be repaid, which invariably will be the burden for today’s children and grandchildren, the more we kick the can down the road.


This Week’s Tip

In 2006, when the Howard Government repaid the entirety of it’s debt bill, a conversation was commenced around whether the Commonwealth of Australia would need to raise debt via Government Bonds in the future.
How times have changed

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