More debt now
Speculation about liberal leadership is rife in the papers with rumours that we somehow want Peter Costello running things, the man famously described as ‘all tip and no iceberg’.
A return to Costello would be surprising because Howard/Costello led this country into a massive debt fuelled bubble in which investors were lured into borrowing money at low interest rates in order to buy shares and real estate – often supported by tax incentives such as negative gearing. Housing prices blew up into some of the world’s most unaffordable which was construed by many as ‘growing wealth’. Meanwhile Australia’s external debt blew out to over $800 billion by 2005 (1) with a current account deficit around $50 billion per year. We spend more than we earn.
When Howard was elected in 1996, household debt stood at around 60% of disposable personal income. By the end of 2007 it had grown to a whopping 160% of disposable personal income. In other words it is entirely unaffordable and hence unsustainable so a ‘correction’ is in the offing.
For comparison the profligate US personal debt had grown to 135% of disposable personal income.
There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved.
~ Ludwig von Mises: founder of the Austrian school of economics.
This issue has two poles – the levels of debt and the amount of disposable income that households actually have.
Paying for our multiple levels of government and their various excesses leaves households with little choice but to borrow to pay for essentials leading to a ballooning of debt.
With government eating up nearly 50% of a PAYE earner’s income plus lifting other prices by a hefty amount to cover high business taxes and compliance costs. Australia has one of the world’s highest business tax rates as a proportion of GDP.
It looks as though Howard and Costello’s economic boom was really debt fuelled growth and their government’s failure to invest our wealth into higher productivity and superior infrastructure has left Australia in a very vulnerable position. Howard’s strategy of putting higher education into the private sector left many students with huge HECS debts and deterred many from entering higher education ushering in our current shortage of doctors, nurses, programmers etc, thus reducing our ability to be competitive. Blowouts in bureaucracy and regulation have created compliance costs of over $86 billion per year (3), over $4,000 for each and every Australian, and have slashed business productivity and innovation.
State governments have also contributed by failing to invest in useful infrastructures – Tasmania’s public transport system is an easy to understand example. According to many reports, the state of the nation’s ports is pretty poor and much of the port supply infrastructure is inadequate – rail and road – again due to state government insouciance. In Hobart we’re even thinking of dumping the port to make way for hospitals and hotels.
The overall effect is for Australian governments at all levels to be eating up householders’ incomes with constant increases in rates, taxes and charges, while shifting costs of critical services off government budgets into the private sector (e.g. education, water, power). At the same time their lack of care in developing and maintaining our infrastructure, coupled with their productivity destroying regulatory methods is diminishing our trade performance.
Of course, there have been plenty of big pay rises for politicians and senior bureaucrats.
Instead of recognising their part in our difficultires, the government appears to believe that creating bigger government and paying into private sector organisations is somehow helping the over loaded taxpayer and disadvantaged citizens.
After my Scottsdale sojourn (2) I was pleased to hear that Premier David Bartlett said the Government was doing all it could to help those affected by the closure - about 70 ‘casual’ workers who got nothing except a dismissal it seems.
Here’s what the government said it is doing to help those affected:
•$33,000 to an employment service provider
•$105,000 to hire a a full-time economic development officer for the Dorset Economic Development Group.
•$100,000 for a feasibility study.
•Another feasibility study of transport support between George Town and Launceston.
•Recognition of prior learning so that workers’ existing skills can be recognised towards a qualification.
•A hotline to target prospective employers who can offer jobs to former mill workers.
Nearly a quarter of a million dollars to be spent but how much for ‘those affected’?
- Dying of hunger? No problem, we’ll help by hiring some new staff in the food Ministry!
Despite the pain being suffered by taxpayers, these types of ‘initiative’ are appearing everywhere.
Bigger government - higher taxes – lower levels of performance – ‘cargo cult’ donations to the private sector – cost shifting from government to private sector.
The most glaring example of these directions is the federal government’s proposed ‘emissions trading scheme’. No-one is asking questions like ‘should the government be doing marketing for the private sector (the ‘where the bloody hell are you’ campaign springs to mind)? Should taxpayers money be donated to large corporations?
Instead our a now impossibly large and ponderous government, filled with internal ‘silos’ many at war with each other, dominates political thinking and distorts representation with self-interested ‘initiatives’ that keep Australia stuck into the methods and errors of the past.
Various journalists have been arguing that Kevin Rudd needs to create a story…some theme that connects his various ‘initiatives’ so as to explain them coherently to the public.
This idea is straight from Hollowmen on ABC (4) and presents the need for a ‘story’ as coming after strategies have been decided. This approach typifies the efforts of managerialists who seek to make sense of unconnected and unco-ordinated activities.
From the perspective of working out what to do to create a better future, it is entirely the wrong way round. The story should come first, and it’s a story based around what we want for our future.
Leadership implies being in front which further signals knowing where you are going. From that follows the idea that, if we’ve got a good idea of our destination then we can work out how to get there.
Put another way, with a vision of what the desired future would be like, we can devise strategies to bring that vision into fruition. We can communicate our ideas about that future and why we need to do whatever to bring it into existence.
The Hollowmen on the other hand, are driven by the notion that perceptions are all that matters, and that those perceptions can be created by linguistic and administrative manipulations. Whatever really happens can be explained away later with ‘spin’.
Which is it to be?
Watch this space.
Mike is a complex systems consultant, change facilitator and executive and management coach.
OUR systems of government and finance are unsustainable. We’re sinking into uaffordable debt, losing our competitive edge and putting too much of our money into unproductive government. Something has to happen to correct these conditions and it needs to happen very soon. Of course, there’s little chance of action from our various governments until, and unless, they can recognise that there’s a problem.