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…
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