Budget 2014

It's been a year since I last posted here at the 2013 budget time. Seeing this post is budget oriented it's fitting to start at 2014 budget and go forth from here. Currently our Debt is sitting at $320 billion net and when John Howard took over from Labor he took over a Net Debt of $105 billion. So we are 3 times worse off than when John Howard took office.

As we all know, it took 10 years for the Howard government to pay off the debt that the Keating government had left and when Rudd took office Howard handed over a government with $20 billion cash in the bank.  In other words Howard left the country in a very healthy position to weather any storm such as the GFC which occurred in 2008.

Howard sold off assets such as Telstra and various others in an attempt to pay off Labor’s debt, but Abbott has not indicated selling off any assets although he did say that the budget was the beginning and not the end and there is more pain to come.

We are currently paying off $12 billion a year in interest payments or $1 billion per month which could have gone back into the economy.

Even though the current debt is much higher than when Howard took office, the measures the current government have taken is much softer than what the Howard government implemented in their first budget.

Whilst we are constantly told that our debt is small when compared to other countries by those who put us into this debt position, I simply cannot buy this argument.

For me what is troubling is the trajectory that we were on. We were heading into much more debt without even an acknowledgement by the previous government that we had a problem. This was dangerous territory.  If we do not acknowledge that we have a problem then no one is even looking for a solution.We are also told that we needed to stimulate the economy to ensure that people kept their jobs during the GFC.  I think most people accepted that we needed to stimulate the economy but I think most people were upset by the waste, inefficiency and poor implementation whereby we will be leaving a debt that our children will have to pay off.

We could have spent half the money for double the stimulus and effect if things were managed much better.  I believe that is what the Australian electorate demanded and consequently, removed an extremely poor government to achieve.

The Federal budget pretty much left property investors alone. Whilst there was a push by some towards eliminating negative gearing to save $8 million dollars a year in tax benefits it seems that the message has been loud and clear that public government housing only accounts for around 4% of investment properties. Should they disincentivise property investment by removing negative gearing we would see the government having to shoulder the weight of providing a much larger percentage of properties for tenants. This would in effect cost the government much more than the $8 million dollars a year it is forgoing in negative gearing benefits.

So thank goodness there was some clear thinking shown around negative gearing.

However negative gearing is only one piece of the jigsaw puzzle when it comes to the property market and many other factors such as jobs, interest rates, confidence, supply, etc. have far greater effect on the property market than negative gearing.

We need to have a growing economy which leads to increased revenues for the government.  As businesses do well and are able to hire more people and create more jobs, our standard of living is improved. This will ensure the property market is stable and continues to grow steadily.

As the mining boom only provided around 2% of our economy and job prospects and as it transitions into a production phase from a construction phase we need to stimulate the other 98% of the economy that provides the majority of our economic growth and job prospects.

We have never supported property investments in mining towns despite the great rents and as the mining boom subsides many more people will be stuck with properties in mining towns that they cannot sell. We will continue to see these properties drop in value.

There were tax cuts of 1.5% for companies, (except big companies) which is an incentive for companies to invest more and hire more people which should increase economic activity and reduce the unemployment rate.

However we have probably seen the middle class shoulder a large percentage of fixing the budget with the elimination of many family tax benefits, whilst the wealthy has been asked to pay a 2% levy on income above $180,000. Whilst I believe this budget was a step in the right direction (i.e. at least it acknowledged we had a debt problem), I believe the Abbott Government has a long way to go in fixing the budget and getting our economy going.

They still have to get the support of the other parties and by the way the dialogue is at the moment I think Abbott will have his hands full in convincing the others that this is a Budget in the national interest.

Only through a strong economy can we have a strong country and only through a strong country can we look after those in need and the average Australian’s hope to have a better standard of living.