Cabinet presented with no end to deficits in our lifetime 91

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No end to deficits in the next decade… That’s the picture apparently presented to the Cabinet two days ago by Reserve Bank Governor Glenn Stevens and the new head of Treasury John Fraser.  In his first presentation to the Federal Cabinet in the eight years he has been in his role, Mr Stevens and Mr Fraser are being reported as having delivered a rather dire message that we may never see the budget in surplus again if the government’s spending cuts, being blocked by Labour and the Senate fail to get passed.  The Daily Telegraph is reporting these dramatic words today.

The SMH reported that Joe Hockey talked down the meeting with the two economic leaders.  “We talked at length about the challenges, but also reaffirmed our commitment to the plan ahead, which is jobs, families, small business and how we can grow prosperity.”

But it is said in the media that they together presented 20 slides, demonstrating a budget that, without reprieve through significant cuts would worsen, and even with annual growth rates of 3 percent would be in a dire state in ten years time.

Their projections apparently showed deficits until 2025, but now assume further deficits even beyond the 10-year outlook without structural reform to the Budget.

Mr Stevens is believed to have warned about revised global economic growth figures, having come directly from his Reserve Bank Board Meeting which offered a 0.25% interest rate cut.

In economic statements to the media, Treasury has revealed that the average family will now be saving $190 a month due to the combination of the scrapping of the carbon tax, lower petrol prices and the new 25 basis point cut to interest rates.

It showed that the fall in petrol prices amounted to an equivalent cut to the family budget of a 60 basis point cut to interest rates.  But this is not a cut to the budget that will ripple through to the bottom line.

In his speech this week Glenn Stevens highlighted the board’s concerns:

“In Australia the available information suggests that growth is continuing at a below-trend pace, with domestic demand growth overall quite weak. As a result, the unemployment rate has gradually moved higher over the past year. The fall in energy prices can be expected to offer significant support to consumer spending, but at the same time the decline in the terms of trade is reducing income growth. Overall, the Bank’s assessment is that output growth will probably remain a little below trend for somewhat longer, and the rate of unemployment peak a little higher, than earlier expected. The economy is likely to be operating with a degree of spare capacity for some time yet,” he said.

The Government, is its fight to remain stable appears to have moved away from its fiscal cutting stance.  The AFR reports:

The Abbott government has ¬abandoned the search for big May budget savings, will not meet its ¬forecast 2018 return to surplus and is privately acknowledging collapsing revenue means it is highly unlikely to offer tax cuts at the next ¬federal -election.

The dramatic dumping of ¬long-standing goals came as a two-day meeting of the federal cabinet heard a gloomy update from Reserve Bank of Australia governor Glenn Stevens and Treasury secretary John Fraser.

There has been a major shift in ¬economic rhetoric from embattled Prime Minister Tony Abbott and ¬Treasurer Joe Hockey in recent days, to a focus on “growth and jobs”.

This is not just Australia’s fight.  The rest of the world is dealing with high deficits and slow growth and has been for some time.  Many have cut their budgets to shreds and are creeping their way back to positive fiscal circumstances.  Even China in the last couple of days has come out and cut its banks reserve requirements hoping to free up capital for the banks to lend out.  There are some who suspect the capital outflows out of China is reducing internal investment and impacting banks rather heavily at the moment.  But it’s clear… no one nation has it easy.

So this raises a challenging topic, which we need to discuss with dignity.  Is it fair to future generations not to make resolutions to cut our national spending now, whether that be for political success or a lack of further social pain?  Ot should we spend everything we have to drive growth at a cost to the future taxpayers?


Rebecca Wilson

Rebecca Wilson is the founder and publisher of Starts at Sixty. The daughter of two baby boomers, she has built the online community for over 60s by listening carefully to the issues and seeking out answers, insights and information for over 60s throughout Australia. Rebecca is an experienced marketer, a trained journalist and has a degree in politics. A mother of 3, she passionately facilitates and leads our over 60s community, bringing the community opinions, needs and interests to the fore and making Starts at Sixty a fun place to be.

  1. 6 REPLY
    • how could it do otherwhise nbn left only partly funded ndis totally unfunded gonski partly funded ..tell me how ANYONE could fund these huge schemes .without borrowing ????

    • The NBN was to be funded thus “The $27.5bn Government component of the NBN is funded by debt, through the issuing of Australian Government Bonds. That is, the Federal Government offers our AAA-rated bonds to investors, at an interest rate of about 4% (depending on the term).

      The NBN however, will provide a return of about 7%. This means that (once the network is operational), the NBN will begin repaying those bonds at a higher rate than what Government is paying on the debt. By 2034, the entire Government investment (including the interest) will have been repaid by the users of the network, leaving the Government owning a valuable asset (the NBN network) and no associated debt. Big users of the network (those who choose the high speed and high volume plans) will contribute more towards repayment of the debt, and actually subsidise those on smaller plans.

      Taxpayers don’t really have anything to do with NBN funding. It is users of the network who will pay to build it, whether they are taxpayers or not.” source;

    • The NDIS was to be funded thus; What is the levy?

      The Government will increase the Medicare levy by half a percentage point from 1 July 2014. This will take the Medicare levy from 1.5 per cent of taxable income to 2 per cent. The change to the Medicare levy will raise around $3.3 billion in the first year, and $20.4 billion between 2014-15 and 2018-19, when the full scheme comes into place. Every dollar raised by the levy will fund DisabilityCare. Revenue from the extra levy will be paid into the fund, which will only be drawn down to meet costs for DisabilityCare.
      How will the levy impact me?

      For someone earning around $70,000 a year, this will equate to around 96 cents a day. Low income earners will continue to receive relief from the Medicare levy through the low income thresholds for singles, families, seniors and pensioners. The current exemptions from the Medicare levy will also remain in place, including for blind pensioners and sickness allowance recipients. source;

      1 REPLY
      • Thankyou Lesley. That explains a lot that I couldn’t fathom. Why was/is this not generally publicised? The LNP has always insisted the ALP had not funded these things, but it seems it was fully funded, or have I got that wrong?

    • My understanding was that Gonski was to be funded through the normal school funding arrangements. The LNP has however, decided not to proceed fully.

  2. This being the case, we should cease immediately any and all donations to other countries. Just because there are other countries who are in financial hardship does not mean that it is ok for Australia to follow. We should ensure that our own back yard is healthy and very tidy before we look over the fence.

    4 REPLY
    • Can’t be done even though I agree wholeheartedly. I looked after my dad for 9 years and I used to say why give money to overseas countries when we should be looking after our own. Well he was a bright man when it came to politics (staunch labor voter). And he said it’s like this…. We are about 20 million people with 300 million sitting on our doorstep to the north. If we don’t help them they could take this country easily. No contest.

  3. I know the debt has doubled since Labor was in Government, but I also know that business confidence is down and people are not spending. If they inject less money into the economy it will stall and we will go into a recession ( I think we are in now) or worse a depression. The poor spend all of their income, the rich only spend a small amount and hoard the rest. Seems to me they need to be taxing the rich more and leaving the poor alone

    3 REPLY
    • Hoard is a harsh and judgemental word. Perhaps encouraging and educating all people to prioritise spending to reduce waste in order to establish a saving habit may be more beneficial.

  4. What have we got to show for the LNP doubling the debt? not much and now they want to place the burden on the elderly and the disabled and the unemployed. Not right, not fair..we are not buying it

    3 REPLY
  5. The reason Australia survived the GFC is that we “spent” our way out of trouble with things like the school building program. That is we borrowed to provide facilities that do and will continue to provide improvements to our kids school environments. The Government’s portion of the overall Australian economy is only a part of the issue. Take the family budget. Most budgets run in deficit because we borrow large sums, in the form of a mortgage, to provide a family home. This deficit lasts for decades. As we pay off this debt, some of us might borrow again for a holiday or investment property with a view to preparing for our long term retirement. So running on a deficit in itself is not a significant problem provided the debt is managed and in the case of the Australian economy, represents a small proportion of GDP. Australia has a deficit but Australia also has the lowest debt to GDP in the western world and certainly the envy of the world. The focus is by politicians trying to score points and now we are facing ideologically driven policies that are challenging our way of life for little benefit for the “now” or as a debt burden on “future generation”.

    5 REPLY
    • David in reference to the school halls, I vote at the local Primary school and oddly enough I enjoy going there, it was my old Primary School, the only thing that has changed since I was a child is the new school Hall they got under the ALP. I talked to the headmistress, she told me it has been a blessing, many parents do not pick their children up till very late in the day till after work and now they have somewhere warm the children can play in till mum and dad arrives..and it has so many other benifits for the kids..sorry for the rant

    • Yes, Libby, and there were only a couple of hall problems in NSW. it was blown up out of all proportion to prove a government incompetent, which managed to get though a hung parliament, most of its legislation.

    • I tend to agree with David, most Australian households do run with debt, it is long term and it is managed.I don’t believe cutting the basics like health and pensions are the answer.On one hand the current government informs us we are in dire straights financially then spend? Even blind freddy would question this. Taking into account the fiscal troubles of some overseas countries, The slowing of China’s growth, to be expected. Then yes, we do need a sound economic reigning in, we need new industries to promote job growth. But to date I haven’t seen any solid plan to bring economic growth to Australia.

    • yes june we do have debt for a house but what happens if we live beyond our means year after year and bridge the gap year after year with our bank card .what do you think the end result will be ?????june i must be lucky my pension has not been cut has yours.also do you understand that we have 30 bucks an hour pay here and our compeditors have 30 bucks a month can you please give us some industries we can compete on the world stage with these figures…… we have priced ourselves out of world markets except for farmers who are living hand to mouth to compete

  6. These posts on this website are starting to sound more and more like The Courier Mail, if you think you will convince Pensioners to lie down and accept this budget..your wrong..we won’t. Instead we will vote this Government out

    7 REPLY
    • Thanks for your feedback Bindy – if you read the article we reference four sources of information, none of which are the courier mail… we always sit on the fence politically. It will no doubt always be read with a persons own political bias and emotion in mind. This is a conversation article.

    • Bindy, so go vote the Liberals out and the government will not have the money to pay your pension, then see how well off you are.

    • if the rich paid their taxes as they should we wouldn’t have a deficit! The rich just paying 1% more tax they would still be rich but we would have cash to spare and more!! Time they paid their dues unstead of us slogging our guts out fr years and then being told we are leaners when we take a small pension!! Also pack in the pollies having their huge pensions and perks aftert they reire! What a drain on finances that must be!

    • So Bindy ! What have you lost ? Our parents are pensioners , and while we are senior citizens ( well and truly ) we are still working . Our parents have lost nothing ! Tell us what you will lose , without repeating what Labor have spread around .

    • Why dies everyone believe the rich don’t pay taxes ? It’s more the dole bludgers , people pretending to have permanent injuries , teenagers having kids for the money , people expecting to have everything for free .
      Big companies don’t make money , people DONT have jobs , it’s a pretty simple mathematics ! And we are one of the highest tax paying countries . When you earn a certain amount your tax goes up . If we had just half of my husbands tax each month we could have been retired now . In saying that we are not rich , we just earn above the average wage But because we have to pay more tax than the lower wage earners , we will work longer . So I think it fair to say we should be the ones complaining .

  7. I agree with David Bate and worry at the lengths this government is willing to go to try to force their budget cuts through. Scare tactics work on some and this is what they count on to be reelected. Like others here say its time they actually stopped letting the big end of town get away with tax dodges etc and if we are in so much strife stop sending our money to other countries, use some common sense and stop giving them self’s such massive pay rises and perks ( do we need to pay for their air fares etc when they earn such high rates of pay? What do they spend their wages on? Normal Aussies have to pay their way so should they) stop wasting money on trying to impress the world stage like the excessive amounts spent on the G20 in Brisbane. That was done while they told the sick, elderly, disabled etc they were getting to much and had to accept cuts. Don’t believe this story sorry because this government lie to much to protect their own mates without thought to the real people of Australia or indeed our land itself.

    3 REPLY
    • how much have pensions been cut???? how much has thedisability pension been cut ???we have 1.5 million working age australians on dole and disability WORKING AGE IS it possible that a fair few of those are rorting the system .i know many pensioners that are.whydo we have a hissy fit because a govt is doing what it should always do make sure our money is going to people who are entitled to it ..after all its taxpayers money not the governments .

    • When it comes to controlling the money the government can say what they want to do with it , parliament can pass it or reject it , but the reserve bank actually controls the flow of money in the system instead of watching the treasurer and government , take more notice of Reserve bank movements .

    • Graeme Condely if this government get their budget cuts through then there will be cuts to age pension to schools etc as you know but the disabilty has already been changed causing unfair disadvantages to many, all to maybe catch a few. Sorry but I do not beleive that all in a group should be judged by the actions of a minority no matter what group it is. Nor should one type of pension or benefit be singled out from the rest after all there are people rorting the system in all of them. I agree that the money should go to those that need it not taken away to line some big mining company etc pockets because that’s what is happening. I am on a disabilty pension but for over 45 years refused to give in to that and I paid taxes all those years but not super as there was no such thing. Don’t tell me I don’t have a disability! and I am not rorting the system so why has anyone the right to insinuate that because I get disabilty I am? It’s nice to see you ignored the other points I made, just jumping on the band wagon screaming about disability pensioners ripping of your taxes.
      If it’s any interest to u I like thousands of others would love to be given the chance to at least have part time employment but you never get a chance. I used to train staff, do front end control, payroll etc but I have a disability so seems not fit in a bosses eyes. If you haven’t walked in someone’s shoes don’t judge. After all one day it could be you being judged so unfairly.

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