Really?

Two items caught my eye in The Australian.

First:

A Treasury report has warned that corporate Australia is blaming a decade of political instability for contributing to an investment slump, as Scott Morrison issues a call for businesses to fuel the new investment boom in the health and ­education sectors.

The Treasury report cites a range of factors contributing to weak business investment that are based on global factors, high hurdle rates for investment ­lending which were largely out of government control.

“The psychological impacts described as the ‘scars’ of the GFC on business decision-makers, are deeper and more extensive than we had originally expected,’’ the Treasury report says.

But it also canvasses what it claims is sovereign risk over ­rapidly changing policy and ­political uncertainty at all levels of government.

Then this:

Remember the utter disregard for public money? Remember Gonski, National Broadband Network, National Disability Insurance Scheme, stimulus packages, racking up massive debt and little to show for it? 

These are not unrelated issues. In 2013 the incoming government should have cancelled Gonski, the NBN, the NDIS, and every other government spending program that was completely unaffordable. Not re-jigged, re-imagined, delivered quicker and cheaper than was originally promised. Cancelled.

Instead the incoming government committed to a massive expansion of the government that would have required tax revenues to remain at historic highs to be fiscally responsible. Since then it has scrabbled to raise more revenue with new taxes and re-interpretations of old taxes.  Now why would anyone want to invest in Australia when they face an unknown but increased tax burden in future?

The “scars” of the GFC persist because the wounds have yet to be closed, yet alone healed. When the budget is still in deficit and the debts incurred during the GFC yet to be paid off it’s a bit premature to be taking about scars.

Some gratuitous advertising: channeling my inner Steve Kates I wonder if Treasury even understand why the “scars” are more extensive they had expected? I suspect not, but there is a very nice explanation as to why this is happening in Chapter 14 of Steve’s Free Market Economics.  Long story short. Government spending does not and cannot substitute for private spending. This is because economic resources are not homogenous. Increased government spending (ostensibly to make up for decreased private spending) does not restore the economy to where it was before, but rather distorts economic activity and further displaces private activity.  Steve explains this story in a few diagrams and it explains the economic malaise we have observed over the past decade much better than the “psychological impacts” that the Treasury appears to blame.

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24 Responses to Really?

  1. Baldrick

    Don’t forget, government revenue has doubled since the hey day of the Chinese boom in the early 2000’s, yet we have levels of record debt and the only solution of successive governments is to tax more and spend more.

    What does ScoMo think would excite any corporate business from investing in Veneztralia?

  2. herodotus

    The financial malaise is only part of the story. Idiotic policy setting range over the whole voodoo-climate-industry-business-sjw topography. We await the Summer of Power Crises & Psychological Impacts with some trepidation.

  3. entropy

    the essential problem is the pale, greasy haired, black suited, generational ghouls in Treasury think the government controls a market economy. They keep interfering, adding costs and regulatory burdens, and then wonder why investment is going elsewhere.

  4. RobK

    Like Herodotus said:
    Add the RET and other government imposts in so many areas, environment, IR, tax, to name but a few.
    It’s akin to the image of a cat playing with a half dead mouse for the government to ask business for investment. Hopeless.

  5. John Constantine

    Comrades, we progress towards a disability economy, limited only by privatisation capping the glorious amounts of free ruinables electricity we can pour into our unstoppable Ponzi scheme.

    Why wouldn’t unlimited credit be provided to fund this?.

  6. H B Bear

    No surprise to see an economic dill like ScoMo being lead around by the nose by the Wombat Whisperer’s disciples in Treasury. Health and education costs are expenditure, however it is no surprise to see the Lieborals falling into the language of the Left. Both are growing at around twice CPI, largely government funded on the taxation of genuinely productive sectors of the economy. Education standards continue to fall despite per capita funding around 40% higher than 5 or 10 years ago. Health is just a black hole.

    I continue to advocate backing any increase in health and education expenditure out of GDP growth because you know most of it is simply being pissed up against the wall.

  7. Elizabeth (Lizzie) Beare

    Yes. We are on Wrong Way, Go Back.
    On a collision course with renewables.
    Driving a debt laden, overburdened truck.
    With over-excited learner drivers on board.
    Investors got off at the last stop.
    And Treasury thinks it is all psychological!

  8. Snoopy

    In 2013 the incoming government should have cancelled Gonski, the NBN, the NDIS, and every other government spending program that was completely unaffordable. Not re-jigged, re-imagined, delivered quicker and cheaper than was originally promised. Cancelled.

    How?

  9. John Constantine

    Anybody thinking about investment has the governments own guidelines to follow.

    Progressive investment to Stalinise the place will be guaranteed and subsidised.

    Demand destruction is required to reduce the productive economy to levels that can be powered by windmills.

    We see that Gray’s online has the biggest liquidation of Australian industrial equipment ever, as they clean out the car industry factories this month.

    We see that the State is hellbent on dynamiting the coal plants, so they can never be fixed, we see the State is hellbent on bulldozing irrigation infrastructure so it can never be fixed and re-used.

    Metal smelters are aware that the State can only meet their electricity demand destruction requirements by importing metal, not smelting it here.

    The State must import liquid fuels instead of refining them here.

    The State must import coal processed vegetable oil instead of crushing it here.

    The State must import coal processed dairy products instead of having local dairies.

    The State must import coal processed meat, instead of having local intensive agriculture.

    The State must import coal powered egg products even.

    Anybody looking at investing can see that only Stalinist rorts and import terminals have any future, and funny enough we see the ports and associated import terminal monopolies are being sold by the State to keen foreign interests.

    Comrades.

  10. Defender of the faith

    If you spend any time talking to an investor they will say that thexrisk in an Australian portfolio is its lack of diversity. That is, the listed equities are disproportionately in finance and resources. Plus of course the property market in general is overinvested as are infrastructure assets.
    Mining goes with the neighbourhood but finance excess the direct consequence of compulsion that drives about $120b a year into funds management and generally into an excessive degree of asset trading.
    This on my opinion is a cancer.

  11. Rabz

    In 2013 the incoming government should have cancelled Gonski, the NBN, the NDIS, and every other government spending program that was completely unaffordable. Not re-jigged, re-imagined, delivered quicker and cheaper than was originally promised. Cancelled.

    Yep – all perfectly sound reasons for pointing out what a total dud Abbott was.

  12. Crossie

    The “scars” of the GFC persist because the wounds have yet to be closed, yet alone healed. When the budget is still in deficit and the debts incurred during the GFC yet to be paid off it’s a bit premature to be taking about scars.

    Yes, the national economy’s wound is still bleeding and Malcolm’s government keeps prodding it with a spear every time it stops.

  13. EvilElvis

    When you get fucked over at every step and level by privately investing in almost anything in Australia, it’s a miracle there’s any at all!

    Best legislate to introduce an ‘investment levy’. ScoMo can be trusted and the government is agile and innovative!… FFS

  14. Just Interested

    Two problems for the so-called centre right government of the last half decade.

    Firstly, it has had two dud leaders -one who wanted to be loved by everyone and who could only communicate in slogans and the second who not only really appears to really want to be a member of the ALP, but also alas has failed to meet his Potential Greatness.

    Secondly, stopping boats aside, the two major parties have more or less identical policies on everything, with one thinking that Just Being A Bit More Efficient Than The Other Mob is enough to win elections.

    The electorate has worked out that a social democratic approach to society issues isn’t really working – yet that is all the major parties offer. It is looking for different solutions. Whilst some solutions are more palatable than others, the search is clearly on.

    The realignment of Australian politics, as appears to be happening in the UK and New Zealand, can’t happen quickly enough.

  15. stackja

    Just Interested
    #2541558, posted on November 3, 2017 at 8:41 am
    Secondly, stopping boats aside,

    ALP will let boats in. LNP won’t. This is the reason not to vote ALP.
    AC is being too quiet.
    PHON? Maybe.

  16. Mark A

    stackja
    #2541565, posted on November 3, 2017 at 8:50 am

    Just Interested
    #2541558, posted on November 3, 2017 at 8:41 am
    Secondly, stopping boats aside,

    ALP will let boats in. LNP won’t. This is the reason not to vote ALP.
    AC is being too quiet.
    PHON? Maybe.

    Keep saying that. Wonder why?

  17. John Constantine

    Invest in property, because it has tangible certainty?.

    The Stalinist local councilor that gotcha’d and blindsided the rural property owners of Ararat shire with an overnight 50% rate rise, then mocked the investors in the public gallery with the Stalinist victory cheer:

    “suck it up princesses”.

    Just done enough deals this week to get elected Mayor of the shire and remove the old non-Stalinist mayor from the council.

    Suck it up, investors.

    Comrades.

  18. Crossie

    The realignment of Australian politics, as appears to be happening in the UK and New Zealand, can’t happen quickly enough.

    The Queensland state election had the potential to start the process.

  19. Elle

    A great piece of analysis on the economic economy.

  20. max

    Government cannot make man richer, but it can make him poorer.
    Ludwig von Mises

    Government does not produce even one bushel of wheat or even one barrel of oil. Government can only take from those who are productive and give to the beneficiaries of the politician’s choice. When government spends money for social programs, economic stimulus programs, or fight wars, it must either tax,borrow or print the money— there is no other way to get it.

    There are some exceptions, of course, such as when the government sells stamps to collectors or carries our mail with gross inefficiency, but the overwhelming bulk of government revenues is acquired through taxation or its monetary equivalent.

  21. True Aussie

    Sinc you forget about ending government funding for universities and putting a moratorium on immigration. There is no point in only going half way.

  22. Norman Church

    This outcome was tiresomely predictable for anybody with even a rudimentary understanding of economic and political history. Smallish group, I have reluctantly concluded.

    As well as ignorance, I blame the rise of the political class for whom neo-Keynesianism and dirigisme will always hold an irresistible attraction.

  23. Rob MW

    “……as Scott Morrison issues a call for businesses to fuel the new investment boom in the health and ­education sectors.”

    That’s classic Sinc. A call for even more crony capitalism ? I’m wondering how on earth private investment is supposed to invest in government public monopolies. Perhaps paying more & more & more tax is a private investment that public monopolies can list on the stock exchange. Shit !!!!!

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