Edition 68 – Why Revenue Must Exceed Expenses

Last night, Australia’s Treasurer, Scott Morrison, handed down his second, and this Government’s fourth budget, for the financial year commencing 1st July, 2017.

The is the ninth budget in a row where the government has run a deficit. The cumulative effect of those deficits is now, in my opinion, starting to drag down the future economic prosperity of our nation.

To put things in perspective, have a look at this table:

2017-18 2007-08 Variance $ Variance %
Receipts $433.4 bn $294.9 bn + $138.5 bn + 47.0%
Less:
Expenses $459.7 bn $271.8 bn + 187.9 bn + 69.1%
Equals:
Surplus/Deficit ($26.3 bn) $23.1bn

In the last ten years, the combination of the Rudd, Gillard, Rudd, Abbott and Turnbull Governments has increased its revenues by 47.0% – but has overseen an increase in its expenses by 69.1%.

The cumulative effect of that is that we have gone from a Slight Net Debt Position in the 2007/08 federal budget of $14bn to a Massive Net Debt Position of $458bn – in ten years. Yes, that’s right. In 2007, our Federal Government had virtually no Debt. If you remember back, we had a conversation in Australia in 2006 about whether or not the Federal Government would continue to issue Government Bonds. Oh! The good old days.

Now, people argue Government isn’t a business – it’s task is to provide services. My reply to that is yes – but it needs to have an income stream to be able to do that. If it spends more, it needs to raise more. It can raise more by:

  1. Increasing taxes.
  2. Selling assets.
  3. Borrowing.

There is a very sober lesson for family businesses in last night’s Federal Budget, and in the combination of the last ten years of Federal Budget.

If you increased your revenues in your family business by 47.0% in the last ten years, but your expenses had increased by 69.1% over the same period, you would most likely be in serious financial trouble by now.

If you owed your bank more than your annual turnover, the bank would not be that happy at this point.

Unless you were incompetent, you would have done something about it by now. Reviewed your expenses, looked at your business model, sought external help to analyse just what is happening in your business. One year is a hiccup. Two years is a concern. Anything beyond that is a pattern. I’m into looking at patterns.

As owners of family businesses, we should never follow the direction of a government that can’t keep its financial house in order.

As owners of family businesses, we generate wealth and create an economy out of risk taking, prudence and sound financial management – amongst other things.

Maybe it is time that someone who knows how to run a family business helps get the financial house back in order.


This Week’s Tip

Banks look for patterns in the financial performance of a family business. What would your bank say about your family business?

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