The big lie

By Leonie Saunders  A little over two weeks have passed since I listened…

The death of hope

“No man is an island, entire of itself; every man is a…

Assange’s Twelfth Day at the Old Bailey: Autism,…

September 23. Central Criminal Court, London.Following the script sheet of the previous…

The forced sterilisation of women in detention is…

By Mikayla Chadwick  The headlines may have shocked the world, but the forced…

The $3.5 billion investment in the NBN is…

By Laurie Patton  The Coalition has announced that a further $3.5 billion will…

Covid-19, Shark Attacks And Relativity.

"The beach is shut!""Yes, we know. We're here to protest this outrageous…

Assange’s Eleventh Day at the Old Bailey: Suicide,…

September 22. Central Criminal Court, London.Today, the prosecutors in the Julian Assange…

“Boys State”: An Australian Perspective

If you have an Apple TV as I do you will no…

«
»
Facebook

Passing On Debt To The Grandchildren And Why Josh Will Be Able To Deliver A Surplus After The Next Election!

Now I heard something rather interesting recently. Somebody said that because of all the spending associated with the pandemic, it’d be impossible for the Liberals to deliver a budget surplus any time soon.  I started trying to explain to this person why they were wrong before realising the futility of what I was doing: Just like all those times I’ve shouted at the politicians, the person on the TV wouldn’t be able to hear me no matter how loudly I yelled.

So, because I couldn’t explain it to the guy who said it, I’m going to explain it to you. And, just like a politician, I’m going to use an analogy because if I started talking about actual macroeconomics, you’d straight away see that my argument had various counterarguments and nobody wants a debate when they start explaining things.

Let’s imagine that I’m a father which is pretty easy to do because I actually am one, but so that I’m using a hypothetical I’m going to imagine that I have two sons and two daughters rather than just the one son. For the purposes of ease, I’m going to refer to them as A, B, C and Trevor.

Let’s start with Daughter A. She has moved out of home and has a good job. Daughter B is still studying. Son C is travelling overseas on a gap year and like the two daughters totally irrelevant to my analogy, so we’re really just dealing with Trevor.

Trevor has just come to me and asked me for a $15,000 loan so that he can buy a car which would enable him to start a job in hospitality which he has been offered. The hours of work mean that public transport isn’t an option and taking Ubers would mean that it wasn’t worth working. I tell Trevor that I don’t actually have $15,000 but he points out that have a redraw facility on the mortgage and could easily raise the money. This is where I take a leaf out of the Liberals book and suggest that if I go into debt by accessing the redraw facility then my grandchildren will be paying off the debt and is that any way for him to start a family and before I can invoke the spirit of John Howard, Trevor interrupts me and points out that if he’s working, he’ll be able to pay me back starting at twenty cents in the dollar once he’s earning over $19,000 moving on to cents in the dollar once he hits $37,000 which just happen to be Australia’s income tax rates…

Anyway, Trevor convinces me to lend him the money and so, Trevor is now working and I have to pay an extra few hundred dollars in interest each year, and because I’m a fair sort of chap I decide that I have to give all my children a similar loan.

Now stick with this because this is where I make the point about the surplus. If we say that the borrowed sixty thousand is going to cost me about two thousand in interest when it comes time to do my personal budget for next year, the only difference between a surplus and a deficit is two thousand. The fact that I’ve borrowed and spent sixty thousand doesn’t come into play with next year’s budget beyond the interest I need to find. And because son C used the money instead of putting things on his credit card when on the gap year, that Daughter A used it to get into the housing market and the Daughter B used it to help pay her HECs debt means that my grandchildren are all in a potentially better financial position than they would have been if I’d stayed debt free and kept Trevor unemployed.

And, if any of my kids start paying me back because they’re better off financially or I decide that I can work more hours, then the sixty thousand has very little effect on next year’s budget at all. In fact, it may even help me have a surplus because I have more possible sources of revenue.

Which is exactly the way JobKeeper might work. Except that unlike my ungrateful non-existent children, people who work are obliged to pay tax.

So there you have it, economics by analogy. I know it’s a terribly flawed analogy but then so are all the ones about government’s putting things on the credit card and the idea that there aren’t times when you shouldn’t spend more than you earn. In theory plenty of people could borrow money at about three percent using equity in their home and purchase a diverse range of shares that would pay off the interest as well as growing in value. Yes, it’s a bit risky but people who make money don’t mind a bit of risk… that’s why you have so many people who write for the financial section of the papers calling for an early end to lockdown saying that we just have to let COVID-19 rip because lockdowns cause mental illness, isolation and depression that are unacceptable unlike when those things are caused by neoliberal economic policies.

So while Josh may not be able to deliver a surplus with his second budget, it won’t be that hard to deliver one after that unless he resorts to the supply side economics that caused the economic mess of the Fraser years. Of course, when his next budget will be is anyone’s guess given that he delivered his first one a month early and his second is scheduled to be six months late but, hey, it’s not like you need to do it on a fixed date every year. Why not just do the Federal Budget whenever it suits?

I hope my actual son doesn’t read this or I may have to lend him the money for a car just to show that I’m not playing favourites with his imaginary siblings…

Like what we do at The AIMN?

You’ll like it even more knowing that your donation will help us to keep up the good fight.

Chuck in a few bucks and see just how far it goes!

Donate Button

9 comments

Login here Register here
  1. Bob Rafto

    I notice that they don’t mention the $225B for the subs and another $200B for missiles to point at China only monies that are going to jobkeeper and jobseeker.

    Now if the pandemic didn’t occur no one was saying that by spending over $400B on weapons would affect the grandkids.

  2. John Hanna

    All relies on you keeping your job to pay the principle and interest on the bigger mortgage. Anyway selling bonds into the secondary bond market is like share trading, you will never hear a CFO saying they have ‘Borrowed” from the share market, so it is not really debt at all buying bonds is an investment in the future of Aus. and they come with a govt. guarantee.

  3. Rossleigh

    Yes that’s true, John, but that’s where the analogy falls down. While I might lose my job, the government has much greater control over the decisions it makes. In terms of me losing my job, the equivalent for a government would be deciding that they didn’t need so much revenue so they wouldn’t require any taxes next year! in terms of the imaginary example, if I lost my job, I’d start charging my kids four percent interest on the loan and I’d be back square in no time!

  4. Keitha Granville

    The LNP have convinced so many people about the Debt and Deficit Disaster being a burden for the children, grandchildren and so on, it’s going to be very hard to unconvice them.

    The alternative is what? We become a Third World country with half the working population unemployed, homeless and dying of starvation?

    Time for some basic truths from the government about what they can do to get us back to the future and forget allt the BS about our grandchildren. Pretty sure nobody worried about them in 1940.

  5. New England Cocky

    Uhm Rossleigh ….. your son paid back only the principal leaving you out of pocket with the interest bill on the loan. Is that the same thing as the misgovernment gifting Rupert’s media empire a total of $40 MILLION to but editorial advertising, or rather, the analogical cost to Australian taxpayers of allowing foreign owned multinational corporations to operate in our safe markets while paying no taxation?

  6. wam

    Analogies are great , plenty of room for tweaks but I cannott even get my conservatives to see an analogy that if you eat more than you exercise out you get fat. The lying rodent squandered to richest period that could have made Australia obese.

  7. Brozza

    Lets hope A, B, C and Trevor don’t come to you when they retire and discover that their super won’t last a year.

  8. Andrew Smith

    Government or LNP messaging has been clever when targeting the oldies of the frugal generation (and others) claiming government budgets are analogous to (need for balanced) household budgets, or that government expenditure precludes potential investment (capital) in the private sector.

    By that standard then government should be borrowing like there is no tomorrow, when Australia’s net public debt is low by international standards but our private or household debt is some of the highest in the world….. for one of the least innovative and low value added sectors or investments i.e. real estate.

    Greater economic management issue is that it is electoral suicide to even suggest modest tax increase for public investment vs. the expectation of forever lower taxes; result of clever radical right libertarian messaging that benefits the corporate sector and wealthy middle class, that wedges the centre left.

  9. Florence Howarth

    I suspect our kids as they say won’t mind passed on debt if it means a first-class fibre NBN, a thriving renewal electricity grid. Debt is a part of our economy system at all levels. It depends on one’s ability to service along with what is created.

Leave a Reply

Your email address will not be published. Required fields are marked *

Return to home page
Scroll Up
%d bloggers like this: