(03) 9020 2905A lot of people under 35 will unthinkingly answer the following question in the affirmative. Can you really cure Friday night’s hangover by going out and drinking hard enough on Saturday to get a second one?
Surely, that’s only going to make Sunday morning even worse. But does it really matter? It’s now only Sunday and so long as you’re okay by 8.30am Monday, everything will be cool.
If that’s all right, would a “quiet” Sunday afternoon session be out of order then?
Two extra wrongs don’t make it right. We know that. Of course we do. (The Sunday afternoon session is unnecessary, however much fun it might be to swap stories with the same drunks you’ve spent the last two nights with.)
So why on earth does the Federal Government think that it can cure one debt binge with another debt binge? Great to keep the economic party kicking, yes. But smart?
The first credit splurge was our own. As individuals, we racked it up on plastic, furniture “deals”, new cars, i-Phones and “Equity Ma-a-a-a-ate” loans like we were funding an Imelda Marcos shoe-shopping spree, or we knew the numbers in advance to last week’s $106 million Tattslotto draw.
That session was so big, we actually chucked a sickie on Monday and didn’t front up to work until Tuesday lunchtime, still reeking of beer, nearly broke and it goes without saying that we were in deep trouble with the boss.
And now the Government wants to take us out and use our money to get us smashed all over again.
It may seem like fun at the time, but there’s a cost involved. And it goes something like this.
There’s likely to be at least $200 billion, perhaps as much as $300 billion, worth of government debt before Rudd and Swan are done. Let’s call it $10,000 to $15,000 for every breathing human being in the country. That’s your debt.
This goes on top of a nation whose personal balance sheets are already loaded to the eyeballs. However, it’s going to make our national credit card debt of $44 billion look like the flash in the pan that was one-hit wonder Toni Basil (Mickey).
Now, before anyone starts accusing “Debt Man” of hypocrisy on the whole debt thing, let’s get to the real issue. It’s not the debt itself. It’s the what-the-heck-are-they-going-to-spend-in-on?
I believe there are three types of debt – dumb, okay and great (D.O.G.).
If it’s both a tax deduction and an asset that will increase in value, it’s great debt (investment assets). If it’s neither, it’s dumb debt (credit cards, furniture, etc). If it’s one or the other, but not both, it’s okay debt (home loans, for example).
How does this DOG debt principle translate into the Rudd Government’s debt program? (And keep in mind that Government debt is our debt. Unless you’re intending to head off to London, never to return, YOU are going to have to help repay this debt.)
So far, a lot of the Government’s big spending – handouts in December and April of up to $900 a person – is the equivalent of dumb debt. It’s come in to the Government’s hand and it’s gone out again. There’s no lasting benefit.
Like a credit card, it was a quick cash injection to the punters with the aim that they’ll spend the lot and pump up the economy a little. (Mission accomplished – we avoided a technical recession for the March quarter.)
However, this essentially does nothing more than bring forward public spending. Instead of you saving for it, the Government just let you buy it now.
What about the rest of it? Hopefully more of it will be spent on great debt than dumb debt.
Great government debt would be on long-term infrastructure projects that not only create immediate construction jobs in the economy, but help create longer-term jobs. This includes things like ports, roads, bridges, hospitals and a national Bratz doll buyback scheme.
The May Budget was supposed to be a horror. Swan was supposed to come out singing “You know, I’m bad, I’m bad, you know it, woo!” But it didn’t happen. No harsh spending cuts. No big tax increases.
Just whack it on the national credit card – we’ll find a way to pay it back at some stage. Who knows? Maybe the United Nations will have its own Lotto and Australia’s numbers will come up.
In the meantime, anyone feel like a soda water?
Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au) and principal adviser with Castellan Financial Consulting. Bruce will be in Perth between July 24 and 27. Email: bruce@debtman.com.au