Josh Frydenberg is on a mission to try to convince us that we are well-placed to deal with the economic downturn because of the strength of our economy due to their superior economic management.
One thing Josh won’t be talking about is bond yields and specifically, the ten-year bond rate.
Bond yields are still a very good way of working out just how much confidence there is in financial markets.
On June 13, 1982, the yield on the 10-year bond rate reached what turned out to be its historic peak of 16.4 per cent.
In 2008 when the GFC was unravelling, the government bond yield fell to just under 4 per cent.
By May 2016, the ten-year rate was at 2.2 per cent.
And now, according to Trading Economics, “Australia 10Y Bond Yield was 0.84 percent on Wednesday April 15”.
When the Productivity Commission’s report on infrastructure funding was released in 2014, the 10-year bonds were yielding closer to 3.40 per cent.
As rates fell, many were calling for the government to take advantage.
“Forget any other way of raising money like public private partnerships, superannuation funds, or coming up with tax breaks to entice retail investors.
And forget about corporate bonds and bank loans. The cheapest money on offer for infrastructure projects is if the government goes and borrows the money itself.
With such cheap borrowing, now is the time for the government to act.”
But it’s not only infrastructure that we should be thinking about.
As I wrote on Barnaby Joyce’s facebook page after his latest attempt for relevance bemoaning our growing debt, it would take a special kind of idiot to not be able to work out a way to invest money in our society that would bring a better than 1 per cent return.
For example, PwC published an “Economic analysis of universal early childhood education in the year before school in Australia”, which found that approximately $2 of benefits accrued for every $1 spent on early childhood education. Expressed differently, “this is a return on investment (ROI) of 103%.”
We are belatedly realising the need for a strong vocational education sector where people can be trained or reskilled to adapt to and support our changing technology.
A paper by the NATIONAL CENTRE FOR VOCATIONAL EDUCATION RESEARCH lists a few of the positive returns.
“Positive effects on business productivity and profitability. Higher returns where training is highly specific; accomplished quickly and related to new technology or processes.
Education benefits: Improved health, improved environment, reduced national crime and drug use, democratisation and human rights. Adaption to technological change. Produce higher skilled workforce. Initial TVET – better health, membership of organisations and job satisfaction. Non-market benefits of self-esteem, confidence and opportunities for advancement.”
As enrolments drop, now would be the time to prop the universities up and let them devote the time and resources to research and development that bring such a big return
In 2018, a report by KPMG, “The Economic Impact of Medical Research in Australia”, showed that “every dollar invested in Australian medical research returns $3.90 in benefits to the population.”
Also in 2018, Deloitte Access Economics released modelling based on increasing Newstart payments by $75 a week. They found that the annual cost of $3.3 billion would be outweighed by the size of the “the prosperity dividend” – a lift of about $4.0 billion to the Australian economy.
They estimated it would lead to 12,000 new jobs, a 0.2% boost to wages, and that the Federal Government would raise an extra $1.0 billion in taxes, while State and Territory Government revenues would increase by some $0.25 billion plus a boost for the regions.
“There is also a relatively tight correlation between the least well-off districts across Australia (measured using the SEIFA index) and the boost to regional spending from this proposal, meaning that the regional economies most in need of help would receive it were this proposal to be enacted.”
As more and more people study, work, shop, play and communicate from home, we are experiencing increased online traffic, slower internet speeds and higher wholesale costs for providers serviced by the NBN, limiting the amount of extra data these providers can purchase.
As reported in the Conversation, our system is being exposed for the lemon it is.
“In Australia, the Coalition government’s 2013 decision to move to a copper-based multi-technology-mix NBN, instead of Labor’s all-fibre network with fibre to the premises (FTTP), has seen Australia fall down the global broadband rankings. Fibre to the premises is when fibre-optic lines run from the nearest available node directly to a premises.
Currently, low-quality streaming over the NBN occurs for two reasons. Firstly, because of the NBN’s high data charges for service providers, and also because of the second-rate multi-technology-mix infrastructure. And this will only worsen as more people adhere to social-distancing and isolation measures.”
Once again, New Zealand has shown leadership and foresight.
“In New Zealand, an FTTP rollout has been progressing since 2012. Connections to Chorus UFB broadband (New Zealand’s NBN equivalent) cost a flat monthly fee for service providers, don’t incur a data usage charge and have no data usage limits. This has allowed companies to quickly respond to the pandemic, and they have begun offering extra content free of charge.”
Instead of going into hibernation, the government should be going into overdrive thinking about what they could be investing in now and into the future.
What can they employ people to do right now? What training gaps do we have for the short and medium future? What research and development will we invest in? How do we insure against supply chain disruption? What new sustainable industries could we develop?
We don’t need people with small minds who long for the days of coal, copper and austerity. We need people with imagination about the opportunities of where we are headed and the foresight to start preparing now.
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