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The Forum > Article Comments > The big election myth - is the economy strong? > Comments

The big election myth - is the economy strong? : Comments

By Valerie Yule, published 24/10/2007

Almost all voters believe that Australia has a strong economy, but the full picture may tell a different story.

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Mac “analogy, or simple arithmetic.”

If the debt was “public debt”, incurred by government in the name of taxpayers, you would be right.

As it is, the debt is private and coincidentally, my debt:asset ratio (5:1), approximates the national average (500 billion to 2.6 trillion).

I am not responsible for the private debt of third parties and they are not responsible for my debt.
It is wholly appropriate to consider the national private debt as a magnification of an individual private debt. What you have failed to appreciate is this

My capacity to pay down that debt to nothing within 2 years.

The problems arise when short term debt is used to finance long term need (what brought Alan Bond’s empire crashing down back in the 1980’s). it is like buying a house with a bunch of credit cards, the available funds might be plentiful but the comparative interest rate are destructive.

Bushbred “but much of our overseas debt trouble surely must relate to the lack of production of our own rolling stock?”

You might well be right.

“Possibly you are too young to realize … was produced by HV Mackay, Sunshine Victoria”

In the 1980’s I did work, briefly, for an agri-implement manufacturer in Sunshine Vic, not far from the Sunshine / Massey Ferguson site. That is where my reference to Button’s Bounty payments was sourced.

There is always more that we could do to be more self-sufficient however, the history I observed in Sunshine and many of the other “manufacturing operations” I have been associated with in Australia is a pitiful lack of entrepreneurial flair combined with an inability to see beyond the local market and a capacity to excuse poor performance on anyone else standing, suppliers, customers etc.

I note, the capacity of farmers to demand local market loyalty whilst buying tractors and cheap implements from Russia, etc.

Being a firm supporter of free-trade and anti-protectionism, I would surmise, these days, a successful market supplier has to have a longer term strategy and plan than most Aussie “entrepreneurs” are prepared to envision, let alone commit to.
Posted by Col Rouge, Monday, 29 October 2007 7:01:08 PM
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“But it's still an example
of government intervention in the market, and it would cost significant amounts of money.”

Nope, its giving back to exporters what was taken in tax from them in the first
place, so levelling the playing field. How many countries apply an employment
Tax?

Given the low level of manufactured exports and everyone crying that we need
manufacturing industry to export, why are we charging them extra taxes?

Then we have Govt officials going around handing out infrastucture grants,
marketing grants and various other grants, to those industries which they
deem suitable. Scrap all those grants, then let companies and their
customers decide how best to spend their available Dollars. Some might
want to increase r&d, some might want to increase marketing, etc. This
is the thing, Govt doesn’t know better, Govt usually gets it wrong.

Its simple really, if you want manufacturing exporters to compete
on global markets, don’t tax them extra.

Given the low level of manufactured exports, clearly its not going
to cost so much either.

Its pointless bleating that we need tariffs, that we need Govt to invest
here and there, when we don’t even get the fundamentals right,
like placing extra taxes on companies employment, to impede
their ability to compete globally.
Posted by Yabby, Monday, 29 October 2007 8:35:24 PM
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You suggested a "tax rebate" for exporters. That implies to me that the rebate would not apply for non-exporters. Or are you saying we currently place a specific tax on exporters?

BTW, if you are arguing against infrastructure grants, then you're taking an even more extreme position than the IPA, who at least grudgingly admit that government spending towards infrastructure that benefits multiple businesses is usually justified (Alan Moran claims to be "relaxed" about the spending on the synchrotron in Victoraia).

As far as grants towards "industries deemed suitable" - if governments in virtually every country in the world all agree that areas like rewewable energy, nanotechnology, biotech etc. etc. are worthy of extra spending to help get them off the ground, then what hope would we have in Australia if our own government decided it knew better, and opt for an "every man for himself" status quo?
Further, government grants should quite specifically be towards activities that are *not* expected to see an immediate return in profit - i.e. scientific research, prototype development etc. etc.
An activity such as marketing or final product development is very much expected to be profitable, so there should be no difficult obtaining funding from banks or venture capitalists.
Posted by dnicholson, Tuesday, 30 October 2007 6:31:40 AM
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Long term debt on the current account is mostly funded in Au$ and is purchased on the open market. The fact that this is being bought at the present strong exchange rate would indicate the confidence that the foreign bankers have in the Aus economy.

If the debt were to become less attractive, the exchange rate would drop and the foreign bankers would lose out in a big way. (As they have profited with the rise in the dollar)

As a large portion of the debt is long term (10yrs+) the people who are putting their money on the line seem not to share the pessimism of this thread.

This subject is dealt with comprehensively in http://www.rba.gov.au/rdp/RDP2007-02.pdf
Posted by Shadow Minister, Tuesday, 30 October 2007 8:30:15 AM
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Wiz, companies that manufacture for the local market, will have
an advantage over imports, in terms of logistics, no need for
a commission agent, local loyalty etc. etc. What we see in
Australia is that most manufacturing companies find it easier to
stick to local, as they are competing with each other, in terms
of the playing field. The global economy is all too hard.

What I am saying is that if you want Australian manufacturing
exports, don't tax them extra, to impede their progress. That
is effectively what we are doing, with an employment tax.
Other Australian companies might pay it, but I don't know of
too many countries around the world which impede exports with
an extra tax.

To level the playing field for aspiring exporters, when they compete
on the global market, what I am suggesting is that they get back
the tax that was imposed on them, on the export component of their
production.

In terms of grants, both State and Federal Govts dish them out
to various companies. Basic research, as is funded for CSIRO etc,
is another issue. I know companies that have received grants
to build infrastructure, sometimes classified as "innovation"
Companies can apply for marketing cost reinbursments, all sorts
of other lurks and perks, if you know how to screw the system.

If you search through all the State and Federal agencies, you
will find all sorts of funding dished out by various committees,
for what seemed like a good idea at the time. In the real world
I've seen huge amounts of these sorts of funds, pissed up against
proverbial walls, by those expert enough to know how to lobby
Govts for money.

Yet I also know of excellent Aussie companies, who paddle their
own canoes, achieve what they have on the basis of merit, yet
their are impeded by things like payroll tax.

The market and consumers are better able to decide
which companies have merit, then Govt commitees.
Scrap all those various grants to companies, spend that money
on eliminating tax on exports, if you want an export industry.
Posted by Yabby, Tuesday, 30 October 2007 2:06:41 PM
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Col Rouge, again.

I can't see how you can take the ratios in the total debt as a guide, as I pointed out this data is the sum of A&L for many separate enterprises, some are highly geared. These are the weak links in the chain. The belief that private debt is insulated from the rest of the economy and that public debt is undesirable is an ideological position. The market sometimes behaves irrationally,and has far from perfect knowledge, that's why we need the big bad government as regulator. We're all in the middle of an uncontrolled experiment, let's see what happens. There is one development that I can confidently predict however, if Labor becomes the government the Murdoch press and the Liberals will be very quick to emphasize our massive foreign debt.
Posted by mac, Wednesday, 31 October 2007 8:05:51 AM
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