Welcome to Netrider ... Connecting Riders!

Interested in talking motorbikes with a terrific community of riders?
Signup (it's quick and free) to join the discussions and access the full suite of tools and information that Netrider has to offer.

If not a deficit now, when would the Government go into one?

Discussion in 'The Pub' started by pringa8, Feb 5, 2009.

  1. This is for all those arm chair economists out there, cause I dont know. I have a feeling the public has been brainwashed into thinking deficit automatically means bad? Now I'll start off saying I know bugger all about economics, but during an economic crisis like this, isn't it better for the government to spend to boost the economy, rather than just try and keep a surplus? I mean, isn't a surplus for the raint days, and isn't it pouring outside? Getting into a deficit managed to get me into a house ok! And wouldn't tax cuts just result in the government therefor collecting less tax revenue?

  2. It all depends on how the money is spent.
    If spent wisely with safeguards in place and the stimulus works then the economy nudges forward, if not then you get stagnation.
    So far it's way it's too early to tell but we are better placed here in oz than anywhere else.
  3. Ross Gittins from "The Age" has a pretty good explanation of just what you are asking. Here...

    relevant extract:

    Worrying about the budget going into deficit is like being told a friend has been killed in a car crash and then inquiring about the fate of the car. At such times there are more important things to worry about. National government budgets are a means to an end, not an end in themselves. They're intended to act as a kind of shock absorber. When the economy turns down because businesses and households cut back their spending, the budget is intended to move into deficit automatically because this has the effect of cushioning the economy's fall.

    Conversely, when the economy is booming because everyone is borrowing and spending, the budget is intended to move into surplus automatically because this has the effect of holding the economy back and so limiting inflation problems.

    During the fat years, when the budget is in surplus, the excess funds are used to repay the debt incurred during the lean years when the budget was in deficit.

    Because this process tends to occur automatically, trying to stop the budget falling into deficit during a recession would involve making cuts in government spending or increasing taxes at a time when the economy is on its knees.

    This would be stupid because it would make the economy even weaker. And by making the economy weaker it would be self-defeating, making the deficit bigger rather than smaller. Thanks to the long boom and the consequent long run of budget surpluses we have completely eliminated the federal debt.

    Revealing their love of militaristic metaphors, economists sometimes refer to this process as "reloading the fiscal cannon". And the reason you reload a cannon is so it is ready to be fired the next time it is needed to help you out of trouble.

    Clearly, that time is now. The Government has been saving for a rainy day and now it's pouring cats and dogs. And, to remix the metaphor, yesterday Treasurer Wayne Swan let off an almighty shot. So don't let anyone convince you there's something bad about running a budget deficit during tough times. Although, as I say, the budget has an automatic tendency to start returning to surplus when eventually the economy resumes its strong growth, this process can be interfered with if governments have been too free with their decisions to increase their spending or cut taxes.
  4. It's partly because the Howard government liked to trumpet surpluses as evidence of their good economic management, when actually it was evidence both of the growth of China's economy fueling a minerals boom and also of some of the economic excesses that fueled the crash... but yeah, budgets in surplus should not be a religion... and contrary to our right wing friends, tax cuts when there are surpluses because the government has more money, and tax cuts when there are deficits to boost the economy, and tax cuts just because it's Tuesday... don't really work. Tax cuts are important, but are not the economic panacea to be rolled out in answer to every challenge.
  5. Stop giving out cash payments as it only goes in the freaking pokies....

    They should spend the 12bn in cash bonus into more realistic ideas, like maintenance and infrustructer of key services, thus lasting longer and employing more skilled workers for longer.
  6. Watch current affairs much? that would be a small minority not the general majority
    Um, they are.
  7. to really be of benefit it must be kept here! Spent on Australian made & owned not spent on imports to prop up some other failing economy!
  8. Yeah, that is happening too. Just sit tight. In 2 years all will be good again.
  9. I hope so... but lets face it if our only concern is can I afford the LCD tv and the PS3 or just the LCD tv then things aren't too bad... As bad as things may get they will never be to the extent of the great depression nor even to the childhoods of most of our parents
  10. Try some more fundementals :roll:

    To allow Australia to raise that debt, we need to borrow it from international banks.

    This debt usually comes at a steep cost (not just interest payment which international banks don't really worry about), such as us being forced into signing trade agreements and consideration for other treaties.

    What you are not seeing, and I know for a fact, is that in closed sessions in Canberra, there is debate on how much we are willing to give away in future trade deals for the right to raise the capital now.

    Also, by injecting $42 Bn into the economy, they are just debasing the currency (Hence the $1000 you get in your handout will only be worth about $900, for argument sake). Therefore its actually a false economic exercise.

    It just political barganing activity to convince people to keep spending.
  11. My LCD died on the weekend, the missus was playing the xbox and I noticed this dirty green lsingle pixel wide line down one side :( . How do I replace that and support the local economy?

    The specialisation of national manufactoring bases that has crept in over the last 50 years sucks :(

    RIP my TV :angel:
  12. Even if all the money was being put into pokies, doesn't that have a flow on effect to the economy anyway? Ie, club does well, hires more staff, more money is put into the community through poker machine funding (compulsory), etc etc?

    And thanks Tony, that seems like a very sensible explanation and sounds like i was on the right track. So it looks like there's a lot of political point scoring at the cost of Australians, nice.
  13. No, it won't have a flow on affect. What I'm sayin is its gone in a matter of weeks, and the economy isn't going to hop on the magic horse to ride up the top again, its going to continue going down and a further few billion dollers will dissapear into thin air.

    Almost every boss is gearing up for a slow year or two, just because Kev gives out some cash won't make a boss go... "Everything will be fine, might hire more staff..." Then in a months time sack them
  14. Not much really. Most venues have enough staff to cope with a full house. the only upside would be if a venue has sufficient revenue to expand it's current operation. the kicker in pokies spending though is the fact that the Govt is the one who gets most of the money back!

    Here is how handout dollars will help the economy as I see it-

    50% will go directly to mortgage and credit card debt


    25% Will be put into savings accounts by those who don't need the handout to survive right now, and are smart enough to plan for the future.


    25% MAY, if we are lucky, be spent in the economy, stimulating growth to a very small degree.

    Net worth to stimulating the economy, sweet #k all!

    Money would be far better spent in tax breaks to small business, to encourage greater employment.

    this guy is on the money...

    A Boss Who Tells It Like It Is

  15. And in fact - the imported stuff does also have some flow on locally - apart from distribution and service jobs - the raw materials are mostly exported from here so there's some flow on to the mining industry as well.

    The vast bulk of the money from the stimulation package is going into infrastructure and maintenance. The amount going into peoples pockets is relatively minor.

    And while some money may have gone on pokies (and other things) it's noticeable that Westfield reported a rise in spending in its shopping centres after that first lot of money went out.

    Infrastructure spending won't stimulate the economy quickly. I've just come from a meeting of the Project Control Group for a $15 million automotive & logistics training centre at Chisholm TAFE. We've just had the design development report presented (design started in October) and the tender documentation will be ready in April - construction won't start till probably June.

    If money is allocated now for infrastructure it's not as if there's billions of dollars of designs and costing and tender documentation sitting on the shelf ready to go. It would be - even with a very rushed process - 6 months at the least before any construction could be considered. And I doubt that anything that could be started that quickly from scratch would be exactly best practice in design.

    Maintenance works could be started more quickly - most organisations have a backlog wish list of major maintenance - but again, you need to hire people and go to tender etc. etc. All this takes time.

    A quick dose of cash in peoples pockets will at least help until the cash flow for major capital works starts flowing through the economy.
  16. Three things make the governments plan superior to the oppositions:
    1. A larger proportion of money is injected into infrastructure. This gives us two things:
    a) job security
    b) a national asset
    Turnbull's tax cuts not only don't give us thses, they lesson our ability to achieve it in the future. This in a country that is still in an establishment phase.

    2. Because the money gets spent on infrastructure it tends to get spent in Australia, at least through the first round of transactions. Turnbulls tax cuts could and will be spent on imports. Once the money leaves the country it is lost.

    3. The government's plan leaves in place the mechanism to recover the money. i.e. the taxes are still in place. The oppositions plan severely compromises that recovery ability.

    I have to laugh when Turnbull claims the government is being irresponsible with the surplus..
  17. Did you read the comments? Seems a few others think like me, that this is a very short term shot in the arm, with little long term benefit other than a nicer road to drive on and a nicer classroom for the kids....

    Glad my job is secure!
  18. Yes I did read the comments. Those arguing against the package are highly likely to be Liberal staffers, those for, ALP staffers, as is the way with political blogs.

    I was more interested in the point that the effects of the pre-Christmas package has, so far, conformed to Treasury expectations. Early days yet, of course, but it's a promising start.

    Given the possibility that Treasury may have some idea of what they're doing, I'm prepared to accept the possibility that they might have got the second package right(ish) too.

    Bearing in mind that most of the major business bodies appear to be, more or less, on side and the only significant organisational criticism is coming from an Opposition in deep, deep shit electorally and desperate to find a point of differentiation from the Government to fight the next election on, it's rather hard to find anyone proposing any realistic alternatives that don't have the whiff of vested interests about them.