Monday, April 22, 2013

Australia's Economic Sugar High

All bets are now off.

With Labor's last Federal Budget up and coming in a few weeks, we're now hearing trickles on the grapevine that revenues have collapsed even more so than originally anticipated.

Take for instance the carbon tax.

Labor decided to link Australian carbon credits to that of Europe's - it was expected that credits would be trading at at least $9, and preferably higher.

They're currently trading at $3.

This has resulted in a $7.5 billion black hole in our Budget.

Obviously the ponzi scheme hasn't lived up to its expectations - and it may well be early days in our carbon trading foray, but for the time being, the cold is blowing in.

Furthermore, Treasury projections have been grossly off the mark on this one, and how they could mess up the prediction of the market in Europe, where economic austerity is all the rave right now, is beyond my comprehension.

Why even link any of our economic prosperity to the basket case that is Europe in the first place?!

For something that was supposed to be about lowering pollution emissions, it has quickly become evident that the carbon tax, or carbon pricing, was really a ham-fisted attempt at tax and economic reform.

All in all, the Budget is expected to run at a $20 - $25 billion deficit, which is far off the teeny tiny $1.5 billion or so worth of surplus promised by Treasurer Wayne Swan last year.

"The fundamentals are strong," Mr Swan would often chime in, and continually bragged that they would be bringing back a surplus.

Surpluses are of course a treasurer's proverbial wet dream. It's a way of displaying economic prowess, and gives the government bragging rights over the Opposition, who are obsessed with surpluses.

Unemployment too has been rising, and now sits at 5.6% - considering how the government reaches its figures on unemployment, with working one hour a week being considered 'employed', the real figure is much higher - probably closer to 8 or 9%, but even that is speculative.

Yours truly has been on the dole cue for so long now, that recently Centrelink have plumb given up even taking my reporting form - I no longer even have to apply for jobs, and am probably counted as being 'employed' because I did some volunteer work earlier in the year.

On my last vist there, the woman was completely uninterested and didn't even bother to ask to see my jobs form, which I thought was a strict requirement - I had to foist it upon her, lest I later be accused of not 'looking for work'.

I didn't receive a new form - I can only surmise I am now 'employed' and am no longer contributing to the unemployment statistics - glory be!

In the early half of the Rudd government in 2008, the full effects of the Global Financial Crisis were in full effect - as such, the government enacted economic stimulus packages, to the tune of about $30 billion, and effectively pumping all of the surplus from the previous Howard government into the economy.

At the time, this was a good idea - it maintained and even boost employment levels in Australia, given that people had more money in their pockets for discretionary spending to the tune of a $900 or $1000 payment, pink batts were raining down, and school halls were being built everywhere.

It helped Australia avoid recession and kept us in good economic shape compared to just about every other western country on the planet.

Of course, it has only delayed the inevitable, and while it was economically prudent, Keynesian economics and 'pump priming' can only go so far.

The businesses and areas of the economy that should have failed under the normal circumstances of capitalism were propped up - the correction, the recession itself we were trying to avoid, never happened.

The economic sugar high is now wearing thin; our Australian dollar is staying high due to our relatively 'high' interest rate (compared to other nations) of 3%, and this is forcing businesses such as Holden to lay off swathes of workers as they find it difficult to compete in the global market with our inflated dollar.

Holden as one example has received a total of $2 billion in grants and subsidies from the government, yet still fail to compete against smaller and more efficient imported vehicles.

This has had the knock-on effect of the government bleeding tax revenue, as business is not as profitable as expected - for too long now Labor have tried to gloss this over, by continually stating the aforementioned line of the fundamentals being strong.

Oh, but all of a sudden, we now face 'unusual' economic times. Unusual? How bizarre.

The economy now teeters on the premise that the mining sector will remain strong - any contraction in the Asian market, namely China, will result in even further revenue write-downs.

A conundrum, especially given the fact that the mining tax, which is really just a watered down, lip service tax in comparison to its original Rudd government incarnation, has fallen grossly short of projects.

The upcoming Budget in May will most likely be a 'caretaker' government-type of Budget, as Labor already knows they have little chance of being elected come September; there will be little chance to extract any political capital from it now, given that it will have to be a particularly tough Budget.

Of course, we can look forward to the kitchen sink being tossed out once the Liberals hand down their first Budget of the decade next year.

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