What Did We Get for Our $400 Billion Loan? (Part 3)

The hunt for where our money went continues here in Part 3:

5 – Transport – $21 billion

Given the annual volatility, this one needs a table to show the full picture. The first number is total transport spending, while the figure in brackets is the portion spent on roads:

If the annual transport budget had been increased in line with revenue (i.e. 4%), then total transport spending would have been $38.5 billion from 2007-08 to 2015-16. Instead, $59.8 billion will be spent.

Relatively speaking, this extra spending is defensible in the sense that there is hard substance to show for it (pun intended) and jobs were created along to way. While increasing this area of spending by an average of 13-14% each year is questionable, it’s definitely a ‘lesser evil’ when it comes to Labor’s spending.

Of course, the extent to which we got our money’s worth is a separate question – and not one my continued sanity wishes to explore.

PS: Labor loves cultivating an image of being environmentally friendly, which makes its decision to spend 67% of the transport budget on roads (i.e. pretty much the same as Howard did) quite interesting.

4 – Increased welfare – $20 billion-$40 billion

This one depends on how tough you want to be. In 2006-07, welfare spending was $92 billion. For 2015/16, it’s budgeted to be $154 billion.

Within this, among other things, are our current annual welfare bills for:

  • ‘families with children’ – $38.1 billion;
  • assistance to the aged – $60.1 billion; and
  • assistance to people with disabilities – $29.5 billion.

To illustrate just some of the welfare money being wasted on people with no need for it, one need look no further than:

  • Family Tax Benefits A and B – where, for example, if your family earns ‘only’ $150,000, you need a handout. To be fair, this ‘middle class welfare’ was a legacy of John Howard’s and probably his biggest mistake as this spending has become firmly entrenched. At least Howard had the money to pay for it at the time.

All up, welfare spending has increased by 6% each year since 2006-07.

Given that annual revenue growth was about 4%, you could be generous and say that welfare spending was 2% too high each year over this period (i.e. welfare should only have increased in line with government revenue). In this case, the total wasted spending has been $20 billion.

Alternatively, you could be ‘tough but fair’ and say that welfare should only have increased by the inflation rate (around 2%-3%). In this case, the wasted spending has been $30 billion – $40 billion.

You could also be firmer and say that welfare spending should have been cut given that it amounts to 35.5% of total government spending.

It’s up to you.

Meanwhile, many elderly pensioners still cannot afford to run any heating or air-conditioning. Perhaps they should be having kids?

3 – GFC stimulus package – $42 billion

The infamous ‘stimulus package’ with its $900 cheque mail out program was Rudd’s panicked response to the GFC. In fairness, some stimulus might have been defensible in the circumstances. However, a real leader would have taken time to do actual thinking and then taken a calm and measured approach to the situation (and would have probably realised that nothing needed to be done in Australia). Rudd, on the other hand, needed several changes of underwear and invited everyone – including the dead – to buy a new TV.

2 – NBN – $56 billion

Trying to list all of Labor’s blunders on this project is like trying to individually bag every grain of sand on Bondi Beach.

The insane cost for this white elephant is after the Liberals mercifully put some brakes on the project (going from fibre to the premises to fibre to the node). Just imagine how much more it would be if we were still hopelessly pressing on with fibre to EVERY premises under Labor.

Something tells me that this version of Rudd and Conroy’s ‘napkin’ cost benefit analysis wasn’t far off the reality. And yes, they were trying to tell us at the time that full fibre to the premises would ‘only’ cost $37 billion.

Of course, a real cost benefit analysis probably would have concluded that this kind of project is best left to the private sector which isn’t exactly miles away from rendering the NBN redundant. Just imagine if the private sector was allowed to handle this project or properly compete during this time. Instead we were lumped with a government created monopoly where there was not even the slightest whiff of natural market failure. Marx would be proud.

Let’s just say that the less than 25% take-up rate for the fastest speeds offered by NBN says it all.

To any person with intelligence, it all boils down to a question of cost and priorities – and the NBN certainly doesn’t fall into the ‘we need $100 billion right here right now’ category (which is what fibre to the premises would probably ended up costing). I have no doubt that one day in the not too distant future, we will all require ‘Lamborghini internet’ for modern life in ways we cannot possibly imagine today. However, today is not that day and we simply don’t have the $100 billion for it in any event.

Why couldn’t we have built the fibre skeleton across the nation first and then seen how things were going, rather than starting with fibre to the premises in Tasmania?

1 – Interest on loans – $90.4 billion (rising to well over $150 billion) 

I promised irony and here it is. The biggest contributor to our debt is the interest on it. It’s not even close and it’s still contributing at a rate of $15.6 billion per year and rising. You are not seeing things. Here’s our sordid interest bill history:

NB: interest on debt also amounted to $3.5 billion in 2006-07 based on government bonds on issue. However, there was no net debt in 2006 despite this due to returns the government was receiving elsewhere.

Over the next four years, our debt is projected to grow by another $80 billion (that’s the next four years of projected budget deficits). The total interest payments we’ll be making over this time will be around $70 billion – $80 billion. That’s right, the extra amount we’ll be borrowing is just enough to pay the interest on the loan. Feels great doesn’t it?

The second most expensive item on the list (NBN) is not even close and isn’t going to have $15-20 billion added to the pile every year for the next four years – unless we vote Bill Shorten in.

When the interest bill is the biggest contributor to your debt by miles, then you know something has gone disastrously wrong.

Last word

If you’ve been keeping count, then you’ll have noticed that about $320 billion of our money has been tracked down. That still leaves a lot left over to account for our $400 billion loan.

About $50 billion can be accounted for by Rudd and Gillard’s refusal to accept the reality of the government’s declining revenue in 2008-09 and 2009-10 and their attempt to keep our ‘lifestyle intact’. Instead, they defied all logic and kept increasing spending in too many areas of the economy that were never going to provide any return on the ‘investment’:

Budget3

When normal people are confronted with less income, they cut spending and balance the books until things improve. Sometimes that might mean making hard decision like selling the house or a car or moving the children into public schools. As for Rudd and Gillard

Imagine a wage earner, John, employed in the same job throughout the last 20 years. For a period in 2003 to 2007 every year his employer gave him a sizeable bonus. He was grateful but in his bones knew it wouldn’t last.

The bonuses did stop and John was told that his income would rise by around five per cent each year over the years to come. That’s the basis for his financial plans. Now, very late, John has been told he won’t get those promised increases for the next few years – but his income will get back up after that to where he was promised it would be.

What is John’s rational reaction? To respond to this temporary loss of income by selling his home and car, dropping his private health insurance, replacing every second evening meal with two-minute noodles. Of course not. A rational response would be to make some responsible savings, to engage in some moderate borrowing, to get through to the time of higher income with his family and lifestyle intact and then to use the higher income to pay off the extra borrowing undertaken in the lean years.

…To return to John, you would not expect him to stop funding his son’s top quality schooling or his daughter’s university studies.

You can easily dissect this guff in dozens of places. However, this comment says it best:

What would be the response of the bank manager when John says he has no savings, is living above his means and wants to borrow money to keep his ‘lifestyle intact’?

As for the remaining tens of billions, it’s a case of death by a thousand cuts and almost impossible for a hobby blogger like me to track down. Even if I could, the list would be hundreds of items long and impossible to digest. I can only say that it’s all in there somewhere:

I think it’s time for a stiff drink.

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2 thoughts on “What Did We Get for Our $400 Billion Loan? (Part 3)”

  1. Just WOW…especially when a lot of these problems have such simple solutions if only we could commit to one but instead we seem to be eternally debating everything…

    Like

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