The funding shortfall for approved infrastructure projects has raised concerns that unless a greater portion of national savings can be accessed, some of the 15 rail, road and ports projects announced by Wayne Swan as Tuesday night’s budget centrepiece may never be built.
Oh dear. Ask yourself a simple question. When was the last time you saw a government do something efficiently and well, on time and on budget? Okay, I'm sorry, we don't have that much time for you to try and answer that, so let's press on.
Here are just some of the risks in this plan. First, to tempt the super funds to do more than they’ve done, the Government will have to offer special inducements - which means taxpayers must foot the bill.
Second, using super funds for government projects exposes the government to extra political risks if the investments go sour. That’s voters’ super savings that may be lost, and in many cases these are the funds being managed by industry funds run by the country’s most powerful union and Labor figures. All the more reason for governments - especially Labor ones - to use taxpayer money to prop up unprofitable projects.
But this is what happens when you embark on a crazy spending spree even though you don't have the money to pay for it.
All the billions of dollars that Howard and Costello squirrelled away to put the country's finances on a long term secure footing, (despite their own irresponsible spending on buying votes with middle-class welfare), has either been spent already or is due to be spent in the next few years. Half of the $22 billion infrastructure spending announced recently comes from this money.
And typically of K R Puff'n'Fluff much of what has been promised wont even happen until after the next election. Only $1.7 billion will go to infrastructure projects in 2009-10 and $3.05 billion the year after, (which kind of undercuts the claims about the urgent need for this spending).
But the total cost of projects announced is $80 billion.
Paid maternity leave? Probably great politics. But again, how are we going to pay for it? Rudd knows he can't afford it now, so this is also deferred until after the next election. The woman pictured in a newspaper cradling her baby while saying what a good idea it was apparently hadn't worked out that her child will be three or four years old at least before the scheme gets up and running.
Increasing pensions? Okay, my mum is a pensioner and I know it isn't easy on the money she gets and society is probably of the view that this is something that just has to be done. Fine. But let's not kid ourselves that this isn't going to lock in huge increases in recurrent government spending forever, because it will.
That's the point Tony Abbott tried to make before being shouted down hysterically. As I read him though, he wasn't saying don't do it, but rather if you are going to do it, do it with your eyes open and with no illusions as to what it means for our financial bottom line.
But the opposition had played politics with pensions beforehand and in some ways got what it deserved.
Now, what I am having trouble with in understanding all of this is that on the one hand we have the government telling us that the global financial crisis isn't going to affect us as badly as most other places, and that our economy is going to return to strong growth - over 4% a year - in just a couple of years, and yet on the other is spending like a drunken sailor.
But if Treasury's predictions are so rosy, why do we need to rack up hundreds of billions of dollars worth of debt in the first place?
I don't buy this "we'll be growing at over 4% a year in a couple of years" line (the long term trend is around 3% by the way), and that this is somehow going to restore the budget to surplus within a relatively short period of time.
This debt burden spells a horror second term if Rudd is re-elected with his Government pledged to keep annual spending growth below 2 per cent in real terms for many years, an improbable task that, if delivered, will smash welfare entitlements, impose a scramble for scarce resources and eliminate tax cuts for years in a setting where interest rates will be increasing.
So nothing adds up here. Rudd bemoans the collapse in government revenues and responds by ramping up government spending.
Tens of billions of dollars in cash giveaways, maternity leave, increased pensions, massive infrastructure projects and the biggest military build up since the Second World War (though again much of that is in a future where Labor may not even be in government anymore).
As Costello remarked recently, this is indeed a "holy mystery" were the government says it can both save and spend at the same time!
It took a decade for the previous government to pay off the $96 billion debt left by Paul Keating. The current government projects total government debt coming in at $188 billion.
But I reckon you'd have to be of a very optimistic disposition to take this and the other Treasury forecasts at face value.
There are a series of "heroic" assumptions underpinning the official numbers. Not only that the economy will be again growing strongly in two or three years' time, but also that the government can successfully restrict any new net spending to only 2%.
And pigs might fly.
I suspect total government debt will be more in the $200-$300 billion range.
Enjoying those low interest rates at the moment? You wont be in a few years time. The pressure on the government to finance this debt and the interest being charged on it will force it into the market to compete for availabe funds and the simple economics of demand and supply will force up the cost of money, ie interest rates.
Here's what
Barack Obama has just acknowledged about the truly frightening levels of debt that he is creating in the USA, with deficits reckoned not in billions of dollars, but trillions:
President Barack Obama, calling current deficit spending “unsustainable,” warned of skyrocketing interest rates for consumers if the U.S. continues to finance government by borrowing from other countries.
Well der.
But it doesn't make any difference if you are borrowing from other countries or not. The simple act of governments competing for the available pool of funds will force up the cost of money.
Though we could start printing more money, like the Bank of England is now doing. Hey, it worked for Zimbabwe!
Alright, to finish up. I thought Paul Murray was on the money in this morning's West Australian about the failure of Malcolm Turnbull to really zero in on the budget's manifest weaknesses.
Turnbull's nightmare might only be beginning though. Costello has all but said he is staying in parliament, launching his own quite flash
website on budget day. It is clearly marked as the website of Peter Costello
MP, the member for Higgins.
Surely there's only one reason why Costello has decided to stay in politics?
And did anyone else notice K R Puff'n'Fluff's defence of the budget by noting that ratings agencies like Standard & Poors had given it the thumbs up?
The very same ratings agencies he said in his intellectual tour de force in The Monthly just a couple of months ago were complicit in the global financial crisis?
"Dependent as they were on the banks for their revenue, the agencies were hopelessly conflicted by the lure of big profits in return for easy ratings."
All politicians have the ability to change tack at a moment's notice but, really, this guy is something special! There is a particularly shameless quality to it.
Not surprising though. This is the man who, early on Melbourne Cup day in 2007, said he didn't really have much interest in horse racing, but only a few hours later was telling the very same journalists that he was a "mad punter from way back" and then proceeded to name horses in the race, clearly having been coached to do so.
Most in the media however dutifully averted their eyes from this nakedly dishonest opportunism and pretended it didn't happen.
Finally (yes, I mean it this time) - Howard goes on the offensive:
I hated his middle-class welfare and the resultant churning it entailed, but compared to Rudd I do miss him.
Posted via email from Garth's posterous
