Following on from one of the conclusions that can be drawn from the thread on Bernard Keane’s critique of the Rudd government’s involvement with bankers – that there’s a growing perception that the long term implications of “emergency” economic decisions haven’t been well considered – I was intrigued to read a report about a car parts supplier in Adelaide:
The Government is “actively considering” a joint submission from the Adelaide exhaust system and shock absorber manufacturer Tenneco and the Australian Manufacturing Workers Union that it provide accredited training and also pay the wages of the company’s 600 workers for days the company is forced to halt production.
I think we’re seeing an increasingly corporatist trend in economic policy, and what’s rather intriguing is that the usual voices of neo-liberal orthodoxy aren’t running around the shop demanding “let the free market rip!” (unless I’m missing something). Perhaps that’s because these sort of moves appear widely supported by big business.
If the Tenneco plan goes ahead, it puts some flesh on the government’s rhetoric about the need to preserve skills through a downturn due to the underlying shortages in the labour market. It might also be argued that directing wage subsidies to those already in skilled full time employment is preferable to targeting retraining and labour market measures to those same workers if and when they’re on the dole.
But it’s also legitimate to raise a number of questions – about the viability of such businesses, and the bouyancy or otherwise of labour markets for workers with such skills, and probably more close to the actual point – whether these sort of schemes would only be available in manufacturing. I think that’s probably the case, and I think this has more to do with the Rudd government’s strong preference for support of the manufacturing industry than anything else.
I’m not sure it’s just about the unionised nature of such firms, either. I don’t think anything similar would be contemplated for unionised cleaners for instance, or child care workers, at the lower end of the private sector income food chain. It may be that a case could be made for this sort of program in the public interest, but ought it not to be made according to the actual reasons for selectivity, and the equity (as well as efficiency) justifications and implications set out?
There’s currently a well-hidden inquiry underway, open for a couple of weeks, on the administration of about A$1.2 billion in Green Car Initiative (part of the A$6B car industry bailout).
I’ve collected various links and what appear to be major points of the rules for the largesse (here), which seems to be geared to keeping the big and provably dumb players in the industry at the expense of smaller more innovative emerging companies.
I’m not up to producing a decent critique to send to government, but perhaps you, or other readers are.
“the viability of such businesses”
A car parts manufacturer in Adelaide, FFS. It’s hard to think of any business with less of a future. This must be entirely about marginal seat retention.
I’m sure Adelaide marginals are a factor, but the whole “I’m not interested in being PM of a country that doesn’t make things” thing is obviously also a factor. But I’m more interested in discussion of the other questions I’ve raised than the politics – which is fairly obvious.
Mark – job and skills retention has been an increasing focus of industry policy. I wouldn’t be surprised if a fair few firms remember how difficult it was to rebuild their workforces after the rampant job shedding of the early and mid 90s, done under cover of “re-enginerring” and similar management-speak rubrics. It makes more sense to invest in the people you already have, similarly it makes sense for government support in this area (rather than unemployment benefits, certainly).
Your conclusion about the emphasis on the manufacturing sector is also on the mark and simply continues a fairly long Labor tradition of support for the sector.
phil@vbb, I think we’re pretty much agreed here. What I’m interested in, though, is the degree to which it’s appropriate to restrict public support for skills retention to particular industry sectors and/or firms. It’s there I think there’d be some benefit to discussing the issue with regard to its actual premises rather than having it spun just as “saving jobs”.
Re target sectors, it depends whether you buy the ‘manufacturing is different and/or special” argument. Plenty don’t, and you know all the theory behind why they don’t. I’d argue that to preserve the higher-yielding ability to design widgets and take them through to production, we need a certain amount of production on shore. In other words, we need to keep trying to drive better relationships between research, development and production and to do that you need well skilled representatives of all phases of manufacturing. Doesn’t mean we need to make all our own washing machines or whatever.
“Saving jobs” may miss the point of the exercise but you can say it in 5 seconds, which is the only criterion for public discourse (more’s the pity).
Well as a card carrying member of the AMWU, here is their position (although it seems a touch out of date in that the American loan cowboys hadn’t killed the world economy yet).
http://amwu.org.au/content/upload/files/leaflets/Auto-inquiry-summary_080520.pdf
I’m not sure I agree with a lot of it, but hey, so what, I’m still in manufacturing and at least someone is on my side.
Rudd’s response really in this case seems rather ill thought out and quite bizarre. We in manufacturing would much rather have a long term and stable plan for the future as opposed to some knee jerk can of worms because of the global downturn. It’s been a lack of planning and neglect that has seem manufacturing jobs evaporate in Oz for years.
Those comments sorta sum up my concerns. I can see some strong arguments for supporting the manufacturing sector, but surely we need to do it properly – and work out what we are aiming at by doing it – rather than on the run adhockery.
Let me list the ways in which this is bad policy:
1 – The benefits of on the job training for workers are shared four ways: a part of the benefit accrues to the employer; a large part to the employee; part to future employers of the employee, and a little to broader society. There is simply no case for the government funding all of these training costs as the government subsidy will be much greater than the externality.
2 – If there is a case for the government subsidising part of the cost of training/skilling staff, that argument applies to all sectors of the economy, not just one component of manufacturing.
3 – Australia’s automotive sector already receives more government subsidies than just about any other sector in Australia – these subsidies should be reduced, not increased.
4 – Economies are characterised by structural change. As resources shift out of the auto sector, they shift into other more productive sectors – subsidies to the auto sector slow this process down (but don’t stop it altogether) – the decision to offer such subsidies is a decision to slow the growth of other more competitive sectors. It would be much better to retrain automotive workers for work in other growth sectors than throw good money after bad.
5 – Such policies run counter to the government’s environmental goals. The automotive sector is a larger than average user of fossil fuels – a subsidy to that sector is effectively an carbon subsidy!! As for the argument that Australia’s automotive sector is being assisted to become greener – that is ridiculous – the cars that will be produced will be more emissions intensive than European cars already on that market – we simply have no comparative advantage in this area.
As for the reasons that what you call neoliberal forces aren’t jumping up and down. I can give you a few reasons. First, big business enthusiasm for economic liberalism has always been conditional – Australia’s corporate sector loves nothing more than a government subsidy, or regulations that protect their profits. Second, the economically liberal constituency in Australia is actually pretty small. It no longer really exists within the ALP. The true economic liberals lost influence within the Liberal party long ago. The electorate has never been enamoured with economic liberalism. Opponents to corporatism are now only found amongst the Productivity Commission, parts of the APS and a few think tanks.
I’m an economist that finds the evidence that governments have an important role to play in correcting market failures in sectors such as finance, health, education and the environment. I see no convincing argument that this applies to the automotive sector in Australia, which has been given decades of subsidies to adjust to the demands of open competition. Such support is the opposite of progressive and in the attempt to prevent inevitable adjustments in the economy, does the workers and regions that need assistance being reoriented toward more sustainable futures an enormous disservice.
Yet another example of throwing evidence based policy out the window.
One more quick point. If you accept that there are and should be limits to how much the government spends, then you have to ask yourself where those finite resources can best be used. If you undertook a social cost benefit analysis of all the options for increased government expenditure, I reckon you would put large “training” subsidies for auto sector a long way down your list – indeed, I would expect such a policy not to pass a social cost benefit test at all. Alternatively, if the aim of policy was to minimise the net loss of jobs during the coming recession (assuming there is one), then I doubt that this policy would be part of that net job loss minimisation strategy.
All of these efforts when we are lacking 13,000 nurses / related health care providers?
Perhaps this is difficult in the breakdown between state and federal responsibilities but funding for health training will have positive outcomes for many areas where staff are not available in the required numbers.
When does the education revolution start again?
Which sectors would they be? Until mid 2008 Australia was rapidly transforming into a resources-only economy with a few financial services thrown in. Now those sectors are shrinking rapidly and will likely do so for several years. Where are the new productive sectors?
It beggars belief Australians still believe there is a chance we can avoid recession. After the NSW housing bubble popped in 2003, all our growth has come from the resources sector. All the buyers of our resources in Asia are now in deep recession or (if you believe official Chinese figures) slowing down rapidly. The other major world economies are basketcases (US, UK) or also in deep recession (EU). Australia has a chronic current account deficit and staggering levels of private debt that can no longer be funded by borrowing overseas. Something has to break.
It doesn’t. Like everything else it was to be funded out of the mining company tax receipts. That money has vanished.
“the economically liberal constituency in Australia is actually pretty small. It no longer really exists within the ALP”
Lindsay Tanner has always claimed to be an economic liberal. He is a senior cabinet member who if true to his convictions would be throwing his weight aeound over this.
It might also be argued that throwing a rock through a window is good for the economy. It’s still wrong.
If it makes you feel better Mark, I’ll say it. Let the market rip!
The point I’d make is that even if you buy the argument that the manufacturing sector – and, particularly, complex engineered systems like vehicles – are important, nobody has ever made a convincing case that the car industry is any more important than the other manufacturing industries we’ve been happy to let die over the last few decades.
Step back a bit. Even without the global slowdown, car manufacturing worldwide struggled with massive overcapacity. The global recession makes the level of overcapacity truly absurd.
What possible hope in those circumstances do the least efficient plants of the least efficient manufacturers have? And that phrase is an accurate description of Oz’s car industry. This is just pissing our money up the wall, folks.
You can get a decent argument whether “industry policy” in general is always a Bad Thing. But really dumb industry policy is definitely always a Bad Thing.
Actually Carbonsink, the mining sector’s share of industry gross value added is only fractionally higher than it was in 1974 – at 7.9% – and even if we include two components of manufacturing (petroleum, coal and chemical; non-metal mineral products) – the share is less than 10% – hardly a resources only economy!!! The finance and insurance sector’s share, and property and business services share has increased much more significantly. Health and community services and telecommunications have also increased their share. The Australian economy is more diverse and complex than you think.
On the topic of the mining sector shrinking rapidly – that is fanciful. Commodity prices have fallen significantly but are still much higher than they were in 2002. Moreover, the reason for the fall is a global aggregate demand shock that while prolonged, will still be temporary. In the medium term, demand for Australian commodities from developing countries like China will be very strong, in line with their high potential growth rates.
As for the recession, I said “if” because there is always uncertainty surrounding forecasts. The Australian economy almost certainly recorded positive growth in the December quarter. Beyond that, it would be remarkable if Australia avoided recession, but it is not impossible. Besides, I was basing my remarks on the ASSUMPTION that a recession would occur, to illustrate my other points.
If only Senator John Button were alive and kicking butt in cabinet.
What do you think he’d ask and do?
Labor Outsider @ 17:
No, it seems we provide financial services, business services and property services to each other as well! Woo hoo! Yay Australia!
Where is the Australian Nokia, Samsung or Apple? Ask a foreigner to name just one good or service we produce in this country that has global recognition? Nothing. Nada. Zero. We’re a quarry. Nothing more.
So please tell me, if the Australian economy is so fabulously diverse and resilient, why is it we have a private debt bubble that cannot be sustained without overseas borrowings? Why is it we have a chronic current account deficit that did not improve despite the best terms-of-trade in a generation?
BTW, John Hewson has a piece in Business Spectator today that tells it how it is: It’s worse than Rudd thinks
Carbon – have you seen what is happening to Samsung and Nokia in the current downturn? Global industrial production is heading down the toilet at the moment. The Australian economy is outperforming both the Finish and South Korean economies and is much more diversified than either of them. But sure, you continue to advocate subsidies for so-called national champions. Do you remember the aftermath of the tech bubble? Before that, people such as yourself were most upset that Australia was a consumer of ITC goods rather than a producer and that we were somewhow missing out on big opportunities – what they didn’t understand was that it was more important to use such technologies well, rather than to become yet another producer in a sector already saturated. ITC producing countries suffered deep recessions because of that excessive specialisation.
There is probably no point in saying this, as I doubt you will understand – but the fact that Australia has net liabilities with the rest of the world does NOT mean that the economy is unsustainable. Australia has run current account deficits for most of the past 100 years. Unlike the US, where the savings-investment imbalance in recent years was largely driven by insufficient national savings, the Australian imbalance was largely due to extremely high investment needs. It makes perfect sense to borrow from overseas to fund temporarily high investment needs. Effectively, the expectation of higher future income means that you partially borrow from the future, so that consumption is smoothed over the entire period.
The reason the CAD remained large during the recent episode was because: a) increasing mineral production meant increasing investment in capacity and infrastructure – much of the capital for that comes offshore – so you import now to increase production later; b) the high terms of trade raised domestic incomes, and with the high exchange rate, raised incentives to consume – part of which is in the form of imports. The trade balance will improve over time.
As for citing John Hewson – how much credibility do you think he actually has on economic affairs? Do you really think that the government isn’t receiving advice from both Treasury and the RBA on the nature and scale of the challenges and risks out there?
There is plenty of room for Australia to raise its infrastructure spending and to improve the quality of Australia’s health services and education system – but to suggest that the Australian economy is somehow necessarily doomed and in an unsustainable position is an exgageration, and requires a very selective interpretation of events and data. The government are in the process of putting together another stimulus package at the moment. As discussed in another thread on this blog, there are a number of options, each with their strengths and weaknesses. When we see the package, we can assess its adequacy then.
As for Australia’s broader structural weaknesses – most policy makers are concerned about the low rate of underlying productivity growth in recent years – one thing is for sure though – it won’t be corrected by raising subsidies to Australia’s automotive sector!! Services, while perhaps not tangible to you, are becoming more important over time – and offer much more scope for a country like Australia to add value and develop comparative advantages, than traditional manufacturing – which has become highly commodified over the past decade or so.
Perhaps, if you are genuinely interested in understanding Australia’s strengths and vulnerabilities, you could ask some open questions, rather than pretending that you have a deep understanding of Australia’s economy.
One more point to illustrate the silliness of your foreigner goods/service test. I could name a number of Italian brands with global recognition – but that doesn’t make the Italian economy successful overall – in fact, the opposite is true – in part because they are so busy subsidising unproductive parts of their economy. Ask an Italian living in Italy how happy they are with their governance, the difficulty young people have in finding a job, the corruption, and the enormous public debt hanging over their heads. I bet they would rather have our problems than theirs.
Hear hear LO, the Oz economy doesnt get enough credit in terms of its diversity.
Although there’s something amusing (and disturbing in a way) worth mentioning about the CAD.
Most of the current account deficit comes from the net income deficit, and a large part of the NID comes (or rather came) from domestic banks borrowing on the international capital markets, and a large part of that borrowing (usually a majority for the last decade or so) was all about funding domestic mortgages.
I fully understand the hows and why’s of that and the fact that it was a rational outcome all things being equal, but it is a pretty funny and absurd reality that we got ourselves into with housing values.
In essence, Australia was borrowing from foreigners to buy our own land!
A lot of absurd things happen with economies around the world, but that is a cracker.Not only because we did it, but because our housing values were some of the most expensive in the world to boot!
Thanks PO
You are right, in a sense. The NID is basically the net income flows to foreigners that Australians pay because our foreign liabilities are greater than our foreign assets (and growing over time). This is not just the interest on debt, but also includes the return from foreigners’ direct and portfolio investments in Australia. Over the past decade and a half, credit growth in Australia has outpaced domestic money growth – the resultant deposit gap meant that foreigners supplied around 20% of Australian credit. Not all of that credit growth has been for housing – business credit growth until recently was extremely rapid as well – but housing represents the bulk of it. Note, Australia was just one of many developed countries where this has been the case in recent years – basically countries with very high savings rates decided to invest some of those savings in countries like Australia. Note also that most of Australia’s private foreign debt is hedged.
However, what all of that means is up for debate. One line (that favoured by Carbon and Steve Keen) is that much of this borrowing has been for unproductive purposes and will prove unsustainable. House prices will fall dramatically, foreigners will pull out, the exchange rate will collapse, and Australians will be forced to once again live within their means.
Another interpretation though is, along the lines of my earlier comment. Financial liberalisation allowed Australian households access to the credit they were previously denied. The increase in the terms of trade and greater confidence in the future meant that many households wanted to bring forward their consumption – some of which they put into housing. Housing appears relatively expensive compared to other countries, but overall there is a shortage of housing (as evidenced by the increase in rents in recent years). In short, there is no need for a major re-adjustment.
I think the truth lies somewhere between these two extremes. The decline in the Australian household saving rate was probably predicated on too optimistic a view of asset price growth and future income prospects. This implies a gradual increase over time as households consolidate their balance sheets. Government policy has also given to favourable a treatment to housing investments and not done enough to boost overall supply. These things probably imply that house prices will not grow in real terms for some time and may fall moderately for a couple of years. But I’m not convinced that a dramatic deleveraging is necessary. However, there is a great deal of uncertainty about that and it depends on what happens to the economy overall over this period.
Back in the 1980s, people were even more obsessed with the CAD – then it was the Japanese that were running enormous surpluses and acquiring assets. Indeed, they still are, more or less. But surely the relative experience of the two countries over that period should convince people that the CAD=bad – CAS=good dichotomy is too simplistic.
“Ask an Italian living in Italy how happy they are with their governance, the difficulty young people have in finding a job, the corruption, and the enormous public debt hanging over their heads.”
Which bit of Italy? Northern Italy is rolling in it, plump, busy and prosperous, while Naples remains the largest open toilet in the Mediterranean and Sicily remains Sicily.
And gee, a populace unhappy with their governance, a tense labour market, corruption and enormous public debt. Now what country does that remind me of? Pretty much all OECD members for starters.
LO – it all reads nicely but the model advanced is based on growth and I think there are some parts of the community which are becoming resistant to this.
You can borrow from the future and grow productivity and fund acquistions when everything is going forward but not now.Credit still appears to be frozen and governments are talking of ever greater bailout funds to resupply credit .
Soon unemployment will head towards 7-8 % and I think many people who until this time in their lives ( say most people under 35) haven’t faced the threat of unemployment or a serious decline in economic activity will reduce their consumption and further stall any recovery in activity.
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How are the politicians planning to act if unemployment hits 10% – or are they assuming that if we all think positive thoughts and jawbone the upside things must get better?
As you mention the actual result will be somewhere between two extremes but I’d give more chance to the risk of a severe deleveraging unfortunately.
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Labor Outsider:
Mate, quit it with the condescending bullsh*t. Its completely unnecessary. Play the freaking ball.
At what point did I support subsidies for Australia’s automotive sector? Where did I single out Italy as an example for Australia to follow?
And yes, dammit, I’m upset Australia is not a producer of ICT goods and services. Sure its important to consume ICT, but surely a diverse and globally competitive economy should be able to produce some ICT and sell it to the world as well?
Possum: RE: CAD: Good point about our overseas borrowings being used to fund our domestic housing bubble. What happens when that source of cheap money disappears combined with a thumping global recession and widespread job losses? I would contend that housing prices must fall, housing shortage or not.
RE: Steve Keen vs the optimists:
Ummm … wasn’t it this “financial liberalisation” that got us into this mess?
I also believe the truth lies somewhere between the two extremes, but naturally I lean more to Steve Keen’s view of the world than the optimists. On the positive side our banks didn’t engage in the “financial liberalisation” you speak of to quite the same extent as the US/UK, and our housing market is probably under supplied (incidentally there was no oversupply of housing in the UK, and it didn’t save their housing market). On the downside, our level of personal indebtedness is worse than the US/UK, and our house prices peaked at a higher level than most other countries.
Seeing as you don’t care for Hewie, how about some Kohler?
The crisis is just beginning
Carbon
The example of Italy was merely to point out that internationally recognised brands are not correlated with economic success. It is a non-issue.
On ICT – Australia has a population of just over 21 million people – it cannot produce all goods and services efficiently – why should Australia try to enter that market when it has no comparative advantage in their production and there are many other lower cost players already? Where are we going to add value? ITC production in Australia would have required tariffs and subsidies (higer taxes) and left us much more exposed to the 2001 recession, and the one coming.
On financial liberalisation – poor regulation of certain innovative financial products in other countries got us into this mess. That does not mean that all financial liberalisation and innovation are bad!! Prior to the early 1980s, it was extremely difficult for many households to access credit, the terms were harsh, and the margins of incumbent banks were enormously high – credit was effectively rationed – I think we are much better off now.
I don’t care whether it is Hewson, Kohler, or anyone else saying it – they are simply pessimistic about the outlook for Australia. You are clearly also fairly pessimistic, which makes you inclined to agree with those commentators that have a similiar outlook.
IMHO there are a lot of risks to the Australian outlook, but it is not at all clear that the pessimistic position is the most likely. House prices are determined by both demand and supply. There is a much larger under-supply in Australia than the UK and recenet immigrants to the UK from eastern europe are much more likely to leave than those that have immigrated to Australia. The problems in the UK banking sector are far more severe than in Australia – and hence they have been more affected by the credit crunch. Australia’s public debt, at near zero, is much lower than the UK, where they will most likely run a budget deficit of close to 10% of GDP this year and next. Their economy is also much more dependent on the financial sector than ours, and I think overall the Australian economy is better regulated and better run.
Take those Kohler quotes. It sets up a straw man. The implication is that you either think the outlook is sunny (and you are deranged) or the outlook is awful (and you see the light). But there is a whole continuum of outcomes for the Australian economy. I can believe that China will slow, the terms of trade will deteriorate, house prices will fall a little in real terms, credit will be less available than before, the unemployment rate will rise noticeably, etc – and still think that this downturn will be less severe than the early 1990s recession. It is a matter of degree.
Murph
I haven’t argued that there is no need for deleveraging. I think some adjustment is necessary as household consumption decisions were probably predicated on too optimistic a view of the value of their assets and their future income growth.
That said, deleveraging can occur without the unemployment rate increasing to above 10%. To generate that outcome (an increase of 6 percentage points from today’s rate) would require the worst downturn in Australia since the depression. I simply don’t think that is likely.
Remember, policy contributed significantly to the early 1990s recession – there was basically a need for disinflation, which required extremely high real interest rates. In addition, the binge in commercial property and lax commmercial lending makes the current Australian epsisode look positively conservative. This time around, there is simply more room for policy makers to act counter-cyclically and the economy overall is more flexible than it used to be.
I’d just like to see someone on this blog spell out the case in a lot more detail of why they think the outlook is so awful, and why policy won’t be able to do anything to alleviate it.
…. I dunno, but watching the 7.30 report just now on the StormFinancial financial storm puts the lie to that. It sounded to me like people who shouldn’t have been allowed ( yes, yes, I know, how anti-libertarian and ilLiberal of me) to be directly exposed to margin lending calls were. It’s far from being the only case of unsophisticated punters being taken to the cleaners (by vendors in the finance, insurance, property and business services sectors you seem to be putting forward as separating us from being a resources dominated economy) is it? Sounds like we’ve had a fair bit of poor practicionering of the regulating arts here at home, non?
A conclusion which dovetails uncomfortably with something someone was saying on another thread about how bad a public investment Operation Wickenby has been -
I’m starting to think the boffin layer of the public service, (where I was under the delusion that expert advice for policy development and implementaion comes from), is far from being our best and brightest, a haven of mavens. Reading the example of how the inefficiency dividend imposed on the ATO is likely to result in a 10 fold reduction in collection performance, doh, completes the picture of dysfunction in high places.
Not that I’m suggesting we outsource everything out to KPMG et al, or that they’d be any better at anything other than selfservingnesses. And I admit that being in Queensland, seeing with Queensland Health for instance just how counter-productive departmental bureaucracies can be when they put their group-mind to it, colours my glasses very darkly.
Danny – I didn’t claim that there hadn’t been abuses here – just that to date, they haven’t been of a scale to threaten the stability of the financial system. So far, arrears rates on prime loans have remained extremely low and the sub-prime mortgage market is extremely small in Australia. There are obviously pockets of distress in places like western Sydney, but they remain small as a proportion of the total. The RBA estimated that there were only 17000 Australian households more than 90 days in arrears on their mortgages in their last Financial Stability Review. Margin lending for equities is and always has been risky – quite a few investors are realising that now. While consumer protection legislation is necessary and lenders need to assess the creditworthiness of borrowers, you can’t completely protect people from their dumb decisions.
Labor Outsider, you are entitled to your opinion, but I struggle to believe that Australia will avoid a serious recession when every major economy is in recession, and all of major trading partners are in recession, including China according to some.
Sure we are better positioned than some, but are we really so different that we can avoid recession and no-one else can? What makes us so special?
Carbon
I didn’t say that Australia would avoid a recession. There is a lot of uncertainty. What bothers me most is the assumption that it is obvious that Australia will suffer a deep recession. I will give you a few reasons why the most likely range of outcomes is between small negative growth (a moderate recession) and small positive growth:
1 – the trade weighted exchange rate has depreciated by nearly 30% in the last few months – this will help net exports
2 – the Australian banking system is better capitilised than its counterparts overseas – the credit crunch will therefore be milder
3 – The high nominal interest rates before the crisis, together with the consistent budget surpluses, mean that there is much more room for policy to assist the recovery
That said, the risks are clearly on the downside and very bad outcomes are possible. Also note, that even if there is only zero growth, that still implies falling per-capita incomes and a rising unemployment rate – there will be pain ahead.
We won’t know for some time whether my scenario plays out, or the Hewson/Keen/Kohler scenario does. We can chat about it again in a year’s time.
Well I can vouch for 1. If the AUD was still at 98c I would have laid off several more staff by now.
I keep hearing point 2. We’ll see just how well capitalised they are in coming months.
To quote Chris Richardson, I reckon the budget is buggered already. I read someone today forecasting a $40B deficit in 09-10
The increase in the budget deficit is a good thing in the current environment – it will help support demand – the important thing is that the commonwealth deficit can increase in Australia without rating agencies downgrading our debt.
Sure, we all agree a big deficit is inevitable and a good thing, but the “consistent budget surpluses” of recent years aren’t just lying around ready to be spent, they’ve been locked up in the Future Fund to fund public servant superannuation (supposedly).
I don’t believe that for a minute myself. I reckon the Future Fund will be well and truly raided by the end of this little “downturn”, and frankly, if the rest of us can’t fund our retirement now, so why should public servants be any different?
Well it doesn’t really make any difference to the public servants – its guaranteed by the government and many are on defined benefits – they’ll get paid the same amount for retirement regardless of whether or not the current governments put away enough for it in the future. Its about how much debt we want to leave for future generations.
Carbon, they don’t have to be hanging around waiting to be spent – the important point is that the tiny amount of public debt in Australia makes it easier for the government to borrown in capital markets without causing investors to get too concerned about our ability to repay. Simple. As for the future fund, Chris is right – it is a defined benefit plan – they will get paid – the question is whether you set funds aside now (the point of the future fund) or have to deal with the full burden out of current revenue once all the public servants entitled to their pensions have retired.