21/06/2013 - 16:07

Get used to that shrinking feeling

21/06/2013 - 16:07

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We can expect more cutbacks at state and federal levels, as governments shed staff to save costs.

We can expect more cutbacks at state and federal levels, as governments shed staff to save costs.

ANYONE planning a career in government, whether as a politician or civil servant, ought to think again because Australia has reached a point that might be called ‘revenge of the taxpayer’.

Last week’s decision by the state government in Western Australia to cap wages and force 1,200 employees out of their jobs via voluntary or involuntary redundancies was a prime example of a change under way across the world.

Similar cutbacks in government-funded work are occurring everywhere as an end is called to the artificial stimulus of economies after the 2008 GFC.

Fun while it lasted, the stimulus probably did some good in staving off a full-blown global depression, though there is a school of thought that says we should have taken the medicine then rather than prolong the pain.

What’s happening now is the inevitable realisation that governments don’t make money – they merely extract it from taxpayers working in the profit-generating parts of the economy and redistribute the loot, generally in a very inefficient manner.

There’s no point in listing the waste that has occurred in Australia over the past five years, it’s enough to merely remember the pink batts fiasco and the building of unwanted school halls, which is where billions of dollars were flushed away.

Taxpayers around the world are tired of government pretending it knows how to make business decisions; and politicians are getting the message, even if late in the day and purely because they want to be re-elected.

Rather than vote for people who propose spending more on government programs, the new reality is that politicians who propose to spend less (and tax less) will grow in popularity.

In the US that change has resulted in Congress forcing the Obama administration to trim its budget and cut taxes, a process that is actually starting to have a positive effect on business confidence in that country.

In Australia, a process of cutting back has started at a national and state level, with most state governments cutting employment levels and the national government forced to cut back on programs once considered political winners, but which now seen to be unaffordable.

Slicing deeply into the thick layer of civil servants employed to administer multiple layers of climate change laws is an example to what happens when government (a) runs out of money, and (b) dares not go back to taxpayers for a top up.

Politically, the federal government has been caught at the wrong time by the changing mood of the electorate, having spent money it thought would be raised by the mining and carbon taxes and now having to back-track because the cupboard is bare and the only way to pay for its promises is to increase debt.

At a state level, the WA government is in the fortunate position of having just won an election, which is the perfect time to make the tough decisions governments can make at the start of their term, before easing back in the year before the next election.

The challenge for all governments is that their five years as the leading spenders in the world means they have also become the leading debtors, with huge borrowings that must now be repaid.

It’s the repayment schedule that will cause government as big a headache as angry taxpayers, because global interest rates are no longer falling, they’re rising; not yet in Australia, but the interest-rate trend in the US is up, and the rest of the world will follow.

In a way, what’s happening is part of the return to normality after the big scare of 2008. But getting back to a system where business makes business decisions, rather than government, will not be smooth even if it is correct.

Race to the bottom

In Australia, part of the adjustment process to the new normal is creating a fascinating and widespread game of race to the bottom.

The most obvious part of the game is the dollar, which, despite the occasional bounce, has dropped by around 10 per cent over the past few months, a fall that will add to the problems of the federal government because the cost of servicing its international debt will be rising as it tries to cut back on spending.

Other parts of the game include the stock market, where prices have been falling sharply since late April, admittedly with the odd rise as enjoyed by the dollar, but down sharply nevertheless.

Interest rates, too, have been tumbling, though for how long is the question because they are already at crisis level, and the upward move in US rates will be setting a new base for the rest of the world.

Lower commodity prices, declining levels of capital investment and falling terms of trade with the rest of the world are other examples of the deteriorating situation

How much of this trend is driven by politics and how much by underlying economic fundamentals is an interesting question, and one we’ll know the answer to as we get closer to the September 14 polling day.

If, as seems likely, there is a change of government, then much of the uncertainty driving the game of race-to-the-bottom will disappear, and might even start to fade well before the election.

Hopped away

Western Australia, as everyone who lives here knows, is different for many reasons. Isolation from the rest of Australia is a factor shaping the state.

Facing west rather than east is another factor, as is historic indifference best illustrated by the 1940s debate about the controversial Brisbane Line, a vague proposal to only defend Australia south of a line drawn between Brisbane and Melbourne – with WA to be surrendered in a possible Japanese invasion.

What happened back then is now happening in commercial terms, with Qantas effectively abandoning international services out of Perth, leaving Emirates and other Middle Eastern and Asian airlines as the best way to get to the rest of the world.

In a way, Qantas has drawn up its own version of the Brisbane Line.


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