Long reach, potentially empty pockets

Consumers learnt an important lesson during the global financial crisis. Borrowed money has to be repaid. The question is whether governments have learned the same lesson as they embark on a range of spending programs without revealing who really pays.

Before the examples, the answer to that who-pays question is obvious: you. Now consider the debts being incurred on your behalf.

The National Broadband Network is the most obvious government adventure that is virtually guaranteed to cost far more than the $43 billion promised, and with construction starting without anyone being told the true size of the household connection fee, or monthly charge.

The approaching carbon tax, which now has the support of Australia’s biggest company – BHP Billiton – will be passed on by companies paying the tax to all Australians, but the size of the bill is a mystery.

The first flush of the higher costs associated with generating electricity via alternative and renewable power such as from wind turbines is starting to be felt, but will rise sharply in future years.

There is a pattern emerging. It’s not pretty, and it’s not all to do with environmental matters. It’s more about the government picking up where consumers left off, running up bills on its credit card confident that someone else will pay some time in the future.

Before the financial crisis it was consumers and homebuyers, especially in America, who spent beyond their means. They simply lacked the recurrent income to service their debts, or they were suckered in by special deals, such as sub-prime mortgages.

Today, thanks initially to the economic kick-start provided by stimulus spending, government has caught the spending habit, confident that it has a bottomless source of recurrent income called tax and compulsory fees on its services.

The broadband network, which some people see as an essential service, will require a massive number of customers to service its cost, and that will only be done by (a) charging high fees, or (b) forcing every internet consumer in Australia to buy what the government is offering on its national cable network, or (c) banning any rival service, especially those offering low-cost wireless connections that avoid using the government’s cable.

Fingers crossed that the NBN works because right now it looks more like a classic con trick with the government marketing a grand scheme to win popularity while no-one actually knows the full cost of the experiment.

Concern about where we’re heading with bold changes to the way the country works arrived for Bystander in what can only be called a ‘light-bulb moment’.

Replacing a light bulb is one of life’s more simple chores, and once was cheap. Today, because we have made a compulsory switch to so-called long-life light bulbs the price has more than doubled, and if you buy the best, tripled, for a comparable bulb.

The theory is that the long-life bulbs will last longer, use less power, and be more environmentally friendly. The problem with those claims is waiting for the proof.

The broadband network, the carbon tax, and the popular drive for green power are light-bulb moments in waiting – we know they are coming, we just don’t know precisely when, and we don’t know the cost.

If you look back a few years this was standard consumer behaviour. Buy what you wanted and worry about the cost later.

Now it is the government that has caught the spending bug, which, as will be discovered soon enough, still leaves the bill with you.

Tourism crisis

Another area of government spending that lacks a viable business case is tourism marketing.

The debate over whether an American talk show host, Oprah Winfrey, should be paid to visit Perth is the catalyst for taking a close look at an industry in crisis.

Tourism bosses, naturally, want the government to write out a fat cheque to encourage the visit and, hopefully, generate an increase in publicity for WA and a rise in the number of foreign tourists.

Destroying that argument is the ever-rising Australian dollar, which is killing any hope of an increase in the in-bound tourism trade.

Put another way, we have become too expensive for foreign visitors, and we remain a victim of distance – we’re too far away, and what’s here is separated by thousands of kilometres.

The only growth area in tourism today is Australians going overseas, armed with a fistful of Aussie dollars that are close to parity with their US cousins, and valued almost 60 British pence, roughly double the exchange rate of a few years ago.

The government will find it hard to cut spending on in-bound tourism because it provides a large number of (low-paying) jobs, and permits government ministers to attend tourism conferences in exotic foreign destinations.

But, a hard-nosed look at what’s being spent marketing Australia to foreign tourists will find that any benefit is being lost on foreign exchange costs.

Under the thumb

Subscribe, or not subscribe, that’s the question many investors are asking as the $5 billion float of Queensland Railways heads their way.

There is, at this stage, no clear answer to that question because the prospectus will not be released until October 10.

But, if you’re looking for early warning signs about why a wise investor will steer clear of the QR float they can be easily found, such as:

• QR will remain under the thumb of the Queensland Government through its retention of a 25% to 40% shareholding.

• There will be a shareholder cap that prevents anyone, other than the Queensland Government, owning more than 15% of the company.

• The Queensland Government is spending $15 million marketing the prospectus, which, if it were good enough, would sell itself.

It’s early days in the public life of QR, but given the close government control, which implies extreme difficulty in cutting costs when required, it might be a float best avoided.

A nice drop

There is hope on the horizon for the Australian wine industry that is being hit hard, like tourism, by the high dollar.

In Asia, demand for premium-quality wines is soaring as shown in the latest wine auction estimates which are tipped to hit a record $US200 million this year thanks mainly to Chinese buying of the best French reds.

In time, Asian demand will spread to Australia, but only for high-quality products, which probably means we will produce less, but better, wines to (a) catch the market for premium wines and (b) be able to carry the exchange-rate cost.

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“Sometimes we may learn more from a man’s errors than from his virtues.”

Henry Wadsworth Longfellow.