Australian Budget Oct/Nov 2020

(20/11/2020)

So here we go again. This time, Budget night wasn’t the first Tuesday in May as it always has been, but October. I won’t cover the details, because those are available in the press and more importantly, the Government Budget Papers and overview. Depending on which side of politics, or economics you sit on, you’ll either grade it ineffective, or effective. The Thursday response by the opposition will no doubt raise some pertinent issues, along with their usual chest thumping ALP/socialist/fabian views. To note, there are two other ideologies to consider, the neo-liberal which is anti Keynes and is akin to the LNP, and finally the pure libertarian. Sure, not one single group is 100% right, as truth is relative [to the ideology that you support], but by understanding where they are coming from, you’ll easily spot the real winners and losers, as well as a few pearls of wisdom that can be used to analyse the next budget. Further, the state of NSW just had a budget, of which it too was highly keynesian, giving each adult $100 in $25 tickets to spend at the shops.

History

When you compare the past three major recessions in Australia, (1990s, 2008, 2020) a few key differences are highlighted. Firstly, interest rates (RBA Cash rate) were higher in the first (1990) and progressively decreased, as did inflation. Secondly, the first two had smaller contractions, -1.3, -0.5, -7, respectively. If we graded it, the recession we had to have was more than 5 times lighter than Covid-19; and Covid-19 is 14 times more challenging than the GFC. So the GFC’s 53 billion fiscal stimulus, when evaluated, didn’t save Australia from recession, it was our trading, and the “stimulus cheques” harmed our economy.

Looking to the history of the economists, you see the crowd favourite of interventionists, Keynes, who supports large scale fiscal stimulus. The counter was his classmate, Hayek who believed that Keynes was not an economist. Hayek had his critics, Mises and here we enter liberal economists and the likes of Milton Friedman. The third economic model is the marxists, who are essentially socialist keynsians. So why are journalists, commentators and the public so wedded to fiscal stimulus? Is it that we choose the easy way out? Fiscal stimulus does to a degree increase confidence, but brings with it the risks of lingering debt.

Economics in the for “dummies” literature is defined as the science that studies how resources are efficiently employed. The Neoclassical views of Friedman, Hayek and Mises clash with Keynes’ increased and extended application of Government bureaucracy, but not as complete as marxist economic theories. So your economic policies of preference come down to how much control should government have over the economy. Libertarians will aim for less government control, marxists for near full or complete control and Keynsian’s aim for substantial control, for an undetermined time. So economics can be viewed as a measure of authoritarianism.

2020 Oct/Nov LNP Budget

The Liberal and National Party (LNP) in Australia has proposed a budget that applies the Keynsian fiscal stimulus, but is well received by the business community to raise confidence, support business and grow the economy. The opposition is wary of supporting business, some would argue that their focus is on climate change or making promises of more government subsidies direct to citizens, like 90% off childcare. The press seems to focus on issues from the past, aiming to score points for the left, recently, they attacked the Prime Minister about aged care. Most of the remaining press focussed on the winners and losers. While journalists strive to be unbiased, when it comes to politics or economics, journalists inevitably lean one way or the other. NSW passed $100 vouchers to be given to everyone over 18 as 4, $25 vouchers. Suffice to say that this kind of spendthriftery is going to cost the state $16b in deficit in this year alone.

Budget deficits

It is evident that “ceteris paribus”, all things being equal:

• when economic activity reduces, it reduces the size of the economy and income that can be generated by the government in taxes. So why spend more?
• when government spends more, and the government income isn’t forecast to rise, government debt will increase. So why borrow?
• when government debt rises, the costs of running government increases for at least one generation. So why not let the markets self correct?

The short answer is, the media, the opposition (in a democratic nation) and to a degree, charities. Like in the Dickens classic, Oliver Twist, they’ll all be clamouring “Please sir, I want some more!” in reference to more tax dollars. As I’ve eluded to in earlier pieces, and above, your preference for economic policy is ruled by the breadth of your reading on economics, political affiliation or ideology, stage in life and how affected you are by the existing downturn. Either way, my opinions are my own and while I view short term fiscal stimulus as reasonably effective, the best way to move forward is to make as much of the cost centres, redundant.

Unfortunately, the political cycle is short and budget deficits and debt in these “rona” times will increase, and we’ll be paying it over decades. The good news is the lower interest rates mean that it will be cheaper than yesteryear, but nonetheless, costly. I’d equate the current stimulus packages of state and federal government like a Wedding reception, super expensive, makes you feel great, troubling to implement and afterwards you’re left substantially out of pocket and with a massive hangover. But it sure was a great day and night. Short term gain for long term pain.

The way forward?

Yes, I believe in a liberal economy that creates an environment for capitalism to thrive, much like the Scandinavian countries, which are often upheld as socialist meccas. I’d like to bring a key factor into the Scandinavian argument, which is that they are smaller countries, with smaller governments, less land to provide infrastructure for and have reasonably strong work ethics because of their harsher climate. Anecdotally I agree, that cooler climates provide better economic outcomes, as in warmer climates, you’d prefer to swim at the beach or laze in the shade. The traditional views are that here in Australia, we live well, but could do better for “equality”. I’d argue, the only way forward is to build a legal framework, checks and balances, and excite the media with the idea of a freer society that will create more competition, development and innovation. Most in Australia would agree that the USA is better for entrepreneurs. So why can’t we?

I’d argue that in Australia, we’re stuck in a near totalitarian state because of the excessive demands of the media to have an egalitarian society on all aspects that the media calls for. No doubt exists to centrists, the media today is just a bunch of left wing feminists that bang the drum of climate change like a football hooligan. The way forward should be in promoting the Equality of Opportunity as opposed to the Equality of Outcome as most of the media holds. Equality of outcome is for all intents and purposes, marxism by another name, and as anyone who reads history knows, leftist ideologies do not work anywhere or in any era.

At one stage I wrote a paper on the different negotiating styles of males versus females and how that factored for approximately 2% of the purported “gender pay gap”. When studies have been conducted on a large enough population, factoring for education, experience and reducing it purely to gender, the supposed “gender pay gap” was between 2–3%. I’ll happily provide anyone the research, but in short, it’s a fallacy. If feminists truly wanted equality, they’d focus on getting more females to work as garbage collectors, concretors, brick layers, scaffolders etc. Instead, feminists only want the positions of power and focus purely on female domestic violence victims, while crowding out male DV victims and issues which deal with a larger proportion of males than females, at the same time, silencing anyone who raises male issues. Yes, if you truly want equality, let’s strive for equality of opportunity, for everyone.

In short, the way forward in my opinion is to have LESS GOVERNMENT rather than more, as that increases individual freedoms and responsibilities, puts more money into the pocket of the consumer and allows them to better decide how to spend their own money, for the greater good. I remember the state election, asking who wants less taxes, and as this was in the CBD, more often than not, the answer was “YES”, which scared the living hell out of me. Only totalitarians want more power for government, who are just like you and me, only get paid more, and it is almost certain that very few ever read the bills that they have to vote on. Unfortunately, the only way that we as voters have any power, is during election times, when politicians come out and purport to listen, promise hot air if elected and then go back to their ivory tower. The only solution is to cease voting for the larger parties and find smaller, more libertarian parties, as opposed to special interest parties.

The direction of the increase debt, and decreasing liberties that will continue to be cut if the majority keep voting for the totalitarian parties, is entirely up to you. Uninformed voters can be won over with plenty of easily digestible facts and information, but overly indoctrinated voters are much more difficult, much like the flat earthers in the 1400s. In short, I’d suggest to read up on the economics of Hayek rather than Keynes, they psychological phenomena that Jordan Peterson spells out and pondering why a libertarian approach is more Scandinavian than totalitarian.