How do you feel about the way our major parties are tackling our budget? We’ve received the article below Balancing the Budget which takes the position that debt is acceptable/not all bad, given the capacity to pay this off via productive assets that deliver us benefits. Not unreasonable, except that we, the taxpayers, never see the real situation/figures and ‘trusting’ party political interpretations is fraught.
Jennifer Westacott of the Business Council calls for Government to abandon the ad hoc nature of recent announcements. She says:
“The adoption of sensible stable and coherent fiscal rules would support confidence…businesses would create jobs and make investment decisions that grow the economy…
The right starting point would be to take stock of the size, scope and efficiency of government, its role, how efficiently taxpayer dollars are being used, and whether there are different and better ways of providing services to the community.
It’s only this kind of audit alongside the fiscal rules that will allow us to reprioritise and make room for things the community wants and needs while living within our means.
The challenge is reconfiguring the tax system so that it can raise enough revenue without compromising economic growth or competitiveness.”
“It seems that a balanced budget has become the holy grail of both sides of politics at the moment. But is it as important as the politicians would have us believe?
Families know what it is like to borrow to acquire a home for a growing family. If families had to wait till they could afford a bigger home then large families would be living in shoe-box sized homes and empty nested parents would be the only ones able to afford houses they don’t need. So borrowing to acquire an asset makes sense for families.
Businesses also borrow to fund capital assets and pay down the debt out of profits over future years. This enables businesses to grow and reap the benefits that investing in capital assets brings.
So why is there so much emphasis on a balanced budget for the nation? Doesn’t it make sense to borrow now to accelerate the economic benefits of spending in education, transport and communications? We think that there is a case for us to take on debt to improve our position provided there are economic benefits to be gained and we have the capacity in the future to service this debt.
We don’t profess to understand our national accounts – it seems that each budget night smoke and mirrors magically deliver the required outcome. However, debt represented by productive assets that deliver benefits to our nation can’t be all bad unless we will not have the capacity to repay this in the future!
Debt and servicing it
Whether you are a family, a business or a nation it is important that debt is matched to your capacity to service it and, over time, is paid off. You need to distinguish recurrent revenue and expenses and ensure that there is a surplus from these to fund the repayment of debt or further capital expenditure. You also need to match your borrowings with the assets you are acquiring. So short-term borrowings should be used for short-life assets; that is why you should never buy a car simply by drawing down your home loan and paying it off over 25 years. Equally borrowings that are paid off over a longer period for long life assets can be prudent.
Of course this is complex and our aging population, immigration policy and global competitiveness will all influence our capacity to grow economically.
However, in our mind the balanced budget is more about political and economic ideology rather than the rational response to the problems of a growing nation. We could be excused for thinking that our nation is like a large family destined to stay in the over-crowded house. So rather than protecting future generations from the perils of debt are we simply denying these generations the benefits that could flow from prudent capital expenditure?” Innovative Solutions – Saward/Dawson Chartered Accountants
Our major political parties work together in some areas but are our politicians sufficiently far-sighted to put the country first and tackle the structural reform the experts say we need?
I believe it’s time!