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The Forum > Article Comments > Does Australia have a 'political crisis'? > Comments

Does Australia have a 'political crisis'? : Comments

By Don Aitkin, published 3/2/2015

One cause is that our politics is almost completely adversarial, and another is that the electorate does not understand the realities of our political economy. We have become too used to annually increasing wealth.

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David, you don't have any economic savvy! If our exports aren't selling for a good price that doesn't mean taxes will have to go up, it means our dollar will have to go down.
Posted by Aidan, Wednesday, 4 February 2015 8:05:26 AM
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Don I know you must feel it is a pretty thankless task, trying to impart just a few basic facts of life to the handouts forever brigade, but please don't tire, & give up.

We desperately need some articulate & sensible folk to keep pumping out the message of the truth. I do admire your fortitude in continuing.
Posted by Hasbeen, Wednesday, 4 February 2015 11:02:10 AM
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The best reforms have always come from labor, you don’t have to be one sided to make reforms, but for some reason the libs always push the same barrow. Liberal type of reforms are permanent policy.

They have an agenda that the workers must be held at base level and the rich get richer. Howard was doing ok until he got in front of himself and attacked the worker. Abbott’s agenda is precisely that.

We need middle of the road govt; which Turnbull would most likely represent, Reform comes over time and not overnight. Scare tactics have run their race, and is hollow rhetoric
Posted by 579, Wednesday, 4 February 2015 12:40:20 PM
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dan,

I think you're having a lend of us :) Okay, you've sucked me in: if income from exports drops, governments receive less tax revenue, state governments receive less revenue from royalties.

And if governments receive less revenue, like if mineral exports sell for lower prices and mining companies pay less tax and royalties, governments - State and federal - have less ready funds to spend on expenditure which they are committed to, perhaps by previous governments.

So they have to either borrow from overseas banks (future debt, with interest) or print more money (risking inflation) or sell bonds (future debt, with dividend payouts), etc.

So any extra spending programs, no matter how wonderful and worthy, saving koalas from bushfires or baby dolphins from nets, etc., have to be put on hold. Hence loss of electoral support.

None of that is helped by incompetence at the top.

I hope this has been of some value, Aidan.

Joe
Posted by Loudmouth, Wednesday, 4 February 2015 8:13:03 PM
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Joe, the situation is not quite as you describe, and the differences are important.

The relationship between printing money and inflation is not as most people think it is. Assuming current Australian conditions (including a floating currency, an effective taxation system, practically no sovereign debt, and a central bank that pays interest on reserves) printing (and spending) money would only be slightly inflationary where there's unemployment and underemployment. It would be more inflationary where there's full employment, though not hyperinflationary. In fact because the RBA pays interest on reserves, its effects (including its cost) wouldn't be very different to selling bonds - so if you think I'm wrong about printing money, please assume selling bonds is what I'm advocating.

If like if mineral exports sell for lower prices and mining companies pay less tax and royalties, governments have three choices: stimulate the economy, do nothing, or try to balance the budget.

Stimulating the economy is by far the best option. The main two ways of getting more money into the economy are for the government itself to spend more, and cutting interest rates so the private sector can afford to spend more. Where interest rates are already low, the former method is far more effective than the latter. Either way, it reduces the short term value of the dollar. Exports will become competitive again and the balance of trade will level out. Imports will (in the short term) be slightly more expensive, but at least people will have work.

Trying to balance the budget in this situation is futile. The cuts required to do so will put a large number of people out of work, and they'll react by spending less, so business profits will fall even more, so government revenue will fall even more, so more cuts would have to be made, but the further cuts would also result in falling revenue from income tax and company tax, so more cuts etc etc. So Austerity invariably results in economic decline.

And doing nothing would eventually result in one of the above situations, though it would take a bit longer.
Posted by Aidan, Thursday, 5 February 2015 1:46:41 AM
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