It’s now official, since the budget, economic confidence has plummeted. But who is to blame – government or opposition?
For a couple of weeks there the news was unofficial – just straws in the wind. Turnover in the video store was down, but then it’s an industry in decline, so not a very good data point.
But a friend in fashion retail was also reporting the same trend, but then, the weather has been unseasonably warm, so no-one is buying winter fashions.
Then the motelier down south reported that business had been very slow for the last two weeks, so of course she had rooms available. Well, warm weather ought to help her, and its not an industry in decline, so a better data point.
Then Allianz came to my rescue (according to the ads helping out is all part of the service) with the results of a survey they commissioned from Newspoll.
The level of optimism about the future of the economy has slumped following the Federal Budget, falling to a score of 2 on the Allianz Future Optimism Index. This continues a consistent trend of post-Budget pessimism, even though the latest Budget is widely regarded as the ‘toughest’ since 1996.
On the face of it, it appears that Australians just don’t like Federal Budgets, regardless of the political colour of the government that delivers them or the level of fiscal stringency involved.
However, Allianz’s optimism survey reveals that it is not the case that all Australians don’t like Federal Budgets. In fact, post-Budget falls in economic optimism are largely driven by voters that do not support the Federal Government of the day. This is because the overall optimism result disguises significant differences in sentiment based purely on Federal voting intentions.
Commenting on the results, Allianz Australia Managing Director, Niran Peiris, said “Allianz commenced the optimism survey in late 2010 and the results have fluctuated and varied according to age, gender and State of residence in various ways. However, post-Budget falls in optimism do not appear to be driven by an across-the-board change in sentiment among all Australians. Now we have had a Federal Election since the survey commenced, we can see that Federal voting intention is often a key factor in economic optimism, particularly in response to a Federal Budget.”
Yesterday I saw a news report of Senator Penny Wong blaming Tony Abbott for the decline in confidence by “trash talking” the economy. Can’t find the piece today, but it’s been a recurrent phrase of hers for years, yet the research shows that the decline in sentiment is driven by Labor voters.
How is it that Labor voters are listening to Tony Abbott?
Or is it opposition leaders who drive sentiment down, not governments?
I think the truth lies somewhere between. If the government had told more of the truth – this is a mild budget, meant to gradually bring us back into surplus, without making too many changes – and the opposition fessed-up to the mess they have gotten us into, instead of pretending a porcine economy is OK – then sentiment would be much higher.
Sure, spending could be down a bit, as people anticipate pulling their belts in half a notch, but we’d know that businesses would have the confidence to invest knowing that things are back on track.
And it’s investment and innovation that drives economic growth in the end.
I think the blame and the talking down of the economy, lies with the government.
And it isn’t just the talk at work here, but budget measures designed to cut deeply into discretionary spending.
Electricity charges i.e., are going up again, and way beyond inflation!
And those that can pass on the new costs, (govt imposts/new taxes) will, with resultant higher rents and charges, and an even smaller discretionary spend!
Making the economy wind back, like a snowball in reverse, or cause and effect at work!
The budget enunciates starkly, as nothing else could; let the better off keep their unearned entitlements!
Clearly the age of entitlement is only over, for those already with the least.
Government debt just wasn’t that high, and if welfare for the rich had been attacked instead?
Well, we could have not only eliminated the deficit, but created a modest surplus as well.
The economy has patently been placed in the hands of incompetent Ideologues, whose desire to foster elitism and advantage for the already privileged, is already creating cause and effect outcomes in the economy!
And the rest of the problem is a government, unable to get out of its own way, or a problem of their making!
Given there no way to reverse, when you’re shackled and locked in an ideological straight jacket, of your own making!
If anyone needs courage of conviction, then it is now!
Blocked supply, would force this government to an election, and a huge change of economic direction!?
Otherwise, don’t complain, given those hiding behind blame shifting/useless finger pointing; and or irresolution, are also part of the current problem or predictable economic downturn!
I mean, look, the cash splash, like it or hate it, boosted the economy, as cause and effect working, as designed!
It follows therefore, that a cash slash, will do just the opposite, and as intended!?
Hard to believe I know, but there it is!
If you want some ides on what could have been done differently, there’s no need to look further than Graham’s last blog on tax!
Alan B. Goulding.
Comment by Alan B. Goulding — May 30, 2014 @ 9:50 am
If an economy grows it needs more money to function.
The only source of more money in the community is government deficit financing. The deficit needs to grow at least as fast as the economy.
Any move towards a positive budget outcome will reduce economic activity. Slides from about 49 on in Dr Stephanie Kelton lecture to the Field Institute in Canada, delivered in November 2013 shows the fiscal space available to any sovereign government.
http://www.fields.utoronto.ca/video-archive/2013/11/221-2524
I have figures for fifty years that shows that Australian Governments have seldom operated in the sustainable area.
Banks only create loans and then have them paid back with interest charges. Interest charges only move money from the spendable income of employees in all sections of the economy to employees in the service sector and to the upper crust via bank profits and dividends.
Comment by John Turner — May 30, 2014 @ 12:31 pm
Sorry John, but that’s just not accurate.
Yes sure, the economy can only produce just so much money, but growing the economy is as simple as sending that money through as many LOCAL hands as is possible, thereby increasing economic activity, and consequent money supply.
It just doesn’t help, if that money disappears offshore, to circulate and percolate through a foreign economy.
And this is happening as we import more and more manufactured goods; and more and more of our oil, (91%,) with a capital outgoing of 26 billions plus per.
And this while we virtually stand on trillions worth of vastly superior stuff!
We have an option of creating social credit as opposed to importing money as foreign capital welded to foreign control and profit repatriation.
As you say John, banks can and do create money, and just by manipulating the credit and debit ledger!
A friend of mine, a former bank manager, told me, his heart was constantly in his mouth during the 80’s, following head office instructions to loan more money!
To the point, where his bank, had loaned out 41 times more money, than it held in cash, assets or deposits!
And then we wonder, why banks are making record profits on record profits!
Every western style economy rests on just two pillars, capital and energy!
And we have traded that away and control, for a few crumbs from the rich man’s table.
We have the choice to create a debit and credit ledger of our own.
We still have the printing presses, and huge untapped resources to back new money with.
This borrowed from ourselves money, could be used to build income earning infrastructure, or develop our own still undeveloped resources!
I mean, your tax return still comes as a reserve bank cheque!
And one of those is accepted anywhere, and is good as any other piece of printed currency!
As for backing resources?
Why, we may well have hydrocarbon resources to our immediate north, to rival or eclipse the entire Middle East!?
Some reef systems are virtually dependent on oil slicks to survive, or as important nutrition!
Simply saying it may or may not be there, flies in the face, of the evidence that states, [oil dependent coral deposits, and massive mystery oil slicks,] there is huge deposits of both oil and gas to our immediate north.
Our response, lock up vast areas of the coral sea, and then waffle on about what may or may not be there?
Whatever is there, will produce four times less carbon than what we currently import, and at significant cost to our own domestic economy!
As I said, we have the option to create our own credit and debit ledger?
We have more resources than any bank, but particularly our people!
And once we have created the income earning infrastructure or developed this or that resource, we can cross out the debit entry and create a new entry, on the credit side of the ledger, as represented by the new income earning infrastructure, or income earning development!
Banks with virtually no cash, do exactly that with mortgages?
The government made a compelling case for debt reduction, but squibbed on the necessary reform that would have not only balanced the budget, but created a modest surplus!
An outcome in absolutely everybody’s interests.
An outcome that would have handed back a billion a month, and seed money, to back our own infrastructure and or resource development.
Unsettling outcomes further north, demand that we not only bring in budget surpluses, grow the real economy; but seriously hike up our defense spend!
We have plenty of potential enemies elsewhere, without stupidly dividing and placing Aussie against Aussie, when practical pragmatism, literally demands we cooperate, as corporate Australia, for vastly better national outcomes!
Can’t died in a cornfield over a century ago!
And only a fool will voluntarily decide to give away those two pillars that support the economy!
We can do noting about the allegorical spilled milk? But we can chose not to spill anymore of it, just so fat cat foreigners, can lap it up!
These same entities, are exporting so much of our coal and iron ore, that they are driving down prices.
Not that it matters much, as most of the untaxed profits are repatriated!
The only thing we currently control, is export licences, and maybe we need to think again, if only to harbor some of these resources for ourselves, and the rainy days that surely confront our future!
We who make the rules, and issue the licences, can allow ourselves to issue currency or letters of credit, and then use those basically worthless instruments, to build or develop what we please.
And ours would be worth vastly more, than that which kicked off the iron ore industry in this country, I assure you!
The only unbreakable rule. These investment entities must earn an income!
No pink batts or school halls!
What you have highlighted here John, is Governments from both sides, so mired in the struggle politic; is they can’t raise their head or expectations, above the merely mediocre!
When what we need is a bipartisan parliament, that replaces self serving political expediency, with nation building pragmatism!
And wouldn’t that make a pleasant and long overdue change!
Alan B. Goulding
Comment by Alan B. Goulding — May 30, 2014 @ 3:01 pm
Hello again Graham,a thought provoking Article as usual, with some similarly interesting and guarded comments. I really enjoyed Harold Levien’s Thursday OLO piece, as would Janine. He must have been working on it for some time. Some interesting things about Harold, I discovered, none the least being that he was an unsucessful Labor candidate in the 1950 NSW State Election in the seat of Vaucluse. No surprises there. What was interesting in that particular Election was that Rex Connor held his seat of Wollongong-Kembla, but one Gough Whitlam was an unsuccessful candidate in the seat of Sutherland
Robin Askin held his seat.
Chris Derrick
Comment by Christopher Derrick — May 31, 2014 @ 4:11 pm
Alan B G
Sorry John, but that’s just not accurate.
Yes sure, the economy can only produce just so much money, but growing the economy is as simple as sending that money through as many LOCAL hands as is possible, thereby increasing economic activity, and consequent money supply.
re above;
Your understanding of money seems to me to be somewhat limited.
All of the pink batt and school building money, was simply the Commonwealth Government instructing the Reserve Bank to increase the account balances of those suppliers of labour and materials that the government used for those tasks as the accounts for those tasks came in. Those account balances became incomes and profits (or savings)for those who did the initial work or supplied the initial material. What did not end up in savings or profit was re-spent and the process was repeated until ALL of the money the government created to fund the original activity ended up as savings, (some bidding up the value of capital assets) but all ultimately increasing the reserves that the financial institutions (banks) hold in the Reserve Bank. Those reserves are just account figures (key strokes), similar to the key strokes made initially by the Federal Government.
Printed notes are a very small part of the available spending money.
The private banks do not create money. They create debtors and creditors which exactly balance one another. The banks do overnight balances with one another and to maintain the stipulated reserve ratios the reserve bank acts as lender of last resort at the overnight rate set by the Reserve Board at their monthly meetings.
Comment by John Turner — May 31, 2014 @ 5:22 pm
John Turner, our economy/Govt produces almost no money bar a few coins. Most of our money gets created as debt by foreign Central Banks.
When even our inflationary money gets created as debt any advantages in growth are quickly negated.
All our banks are almost 50% owned by the HSBC,JP Morgan and Citigroup. Their cash rate of 2.5% must come from OS Central Banks and half of these profits return OS. So we only get a quarter of this money creation scam which represents our productivity ? That very select quarter are bank share holders and our Govt. This system is unsustainable. All other arguments are pointless and futile.
Govt banks are the solution.
Comment by Ross — May 31, 2014 @ 6:43 pm
Well John, you’re right, our money supply is just the consequence of a few key strokes, a few more could literally double it overnight. [Quantitative easing.]
However, I wasn’t suggesting that as an outcome, but agree with Ross, and the need to reclaim the capital support pillar, that supports our economy, rather than leave it in the hands of foreign speculators, foreign hedge funds, etc.
Further, I’ve seen examples of social credit at work for decades, only ruined by foreign speculators and or foreign control.
Where we were paying tax; those benefiting from social credit, were returning home, to be sure, they had their share or dividend/commonwealth, handed to them!
Our economic prospects were ruined, much like the way our vehicle building industries were ruined, when automotive engineers were replaced by bean counters at the helm, and oil companies bought up effective control!
We have all the requisite elements, to make social credit work for us.
We have a comparatively small population and quite huge resources!
That’s all we really need, aside from leaders who finally put the people and or the nation ahead of theirs or select vested interests first!
Some of our resources could be left where they lay, and used like our own personal Fort Knox!
Or exploited and exported, to create a veritable Fort Knox or a sovereign fund, investing its returns in new energy products; traditional, and the new alternatives!
We have boundless opportunities for real growth in personal/national wealth and profitability, that doesn’t have to include carpet bagging, debt laden, foreign speculators, or members of international cartels, who acquire large energy reserves, then mothball them, or operate them in such a way, as to exclude the owners of those same resources, from any further involvement.
Thus we lose the resource, and most of the income or taxes it could earn for us, in exchange basically, for some crumbs from the table, modest resource rent tax.
And so asinine, when there is nothing but our own self imposed ideological straight jackets, that prevent us developing these resources ourselves, and indeed, emulate those currently extracting maximum profits, just by utilizing expert contractors, to kick start energy projects.
We have the choice to develop our own resources, and reap all of the available benefits, rather than let others tie them up as virtual land banks, or over exploit them to simply drive down prices.
We own enough energy assets, not to be paying through the nose for energy!
Which by the way, is the other support pillar that supports our economy.
We need a change of direction, given doing what we’ve always done, gets us what we’ve always got.
We are far too dependent on raw material exports, when just with a change of direction, and the ripping back of our economic sovereignty!
Then we can once again become the masters of our economic destiny; rather than foreign carpet baggers, or their local agents, or those who can’t see beyond immediate personal gratification?
Much like the fools who traded their co-ops and control, for largely illusionary short term benefits, and now complain to all and sundry, they can no longer earn a decent living running dairy or sugar farms.
These people/trusting fools had many other options, just one of which was value adding, and seeking new markets, such as are now appearing in the emerging economies!
As we do, just by reforming and vastly simplifying our tax system, and lowering the local price of energy, to the point, where large high tech manufacturers, have no other choice but to relocate here, along with the 95% of corporate Australia, who have offshored their operations!
Simply because, we have too many in positions of power, who won’t or can’t consider others, a better outcomes as cooperating entities; and or, just thinking outside the box, John!
To reiterate, doing what you’ve always done, just gets you what you’ve always got!
And today, that seems to be less and less for more and more Australians!
Alan B. Goulding.
Comment by Alan B. Goulding — June 2, 2014 @ 11:16 am
Well, the voters have recognised the true nature of the Coalition budget, an intensification of the class war under the fig leaf of solving a non-existent crisis. What an exquisite dilemma for Abbott and accomplices, they can either admit that there’s no real crisis or continue with their phoney ‘austerity’ campaign. The Coalition’s obsession with budget surpluses is toxic.
Comment by RussellW — June 4, 2014 @ 11:37 am
During the last world war, the money hungry and costly states, became persona non gratis?
All tax collection fell to the federal govt as well as all capital outlays!
Why?
Well because it was just so much more efficient, than putting up with the middle men road blocks in the path of real progress, that are what the states are?
If we could just dissolve them, we could save around 70 billions per, without losing so much as a single service!
And what is the current budget deficit, 40-50 billion?
Imagine, in just one year, and under emergency rule, we could not only end deficit spending, but build a sovereign fund, by around 20-30 billions PA! I mean, and i. e., we could roll out a fully paid for rapid rail, along the entire east coast seaboard, in 4-5 years, much of which could serve huge low cost housing developments 4-5 years out from that, and reap huge economic benefit from both.
And indeed, other even more visionary projects, not much further out, like say, myriad nuclear powered power stations and a semi submersible nuclear powered shipping fleet.
Following that, an inland shipping canal, completed and serving us, well before the turn of the next century!
This real and quite massive economic progress, is what clinging on to anachronistic ancient state governments are costing us; and the longer we hang on to them, the longer we will need, to seriously upgrade our non performing, non mining economy, if ever!
Sadly, we will likely need another world war, to accomplish that, and with all power temporally in Canberra’s hands, make that a permanent feature!
And with just one govt to answer to rather than 9, we could finally and simply crack on with a host of sensible reforms, that would vastly improve the common lot!
Makes one almost pray for an enduring multinational conflict doesn’t it?
I mean, if only there were another way to dissolve state governments, like say, a citizens’ initiated referendum!?
Alan B. Goulding.
Comment by Alan B. Goulding — June 4, 2014 @ 5:11 pm