Sunday, 22 July 2018

Progressives are their own worst enemies


Misunderstanding our current problems is reaching epidemic proportions if one is to judge by Dr Michael Powell’s comments ( see here )on the new GST arrangements and the wider more crucial issue of Federal budgetary difficulties.

Just to quickly address the GST issues before moving to the broader matters of budgetary policy.

Wednesday, 20 June 2018

Budget buffer?


The Treasurer is winning the post budget arguments because those who question his mastery aren’t acquainting themselves with the true situation.

The Treasurer is setting the agenda. We have fixed the budget mess he claims. There are surpluses as far as the eye can see.  Are there surpluses? Yes. Does this mean the budget is fixed? No.

The corporate world is littered with the corpses of companies which showed profits one day and went belly up shortly thereafter. Profits or net operating surpluses in this case, often coexist with cash deficits. Yet most people, innocently accept the Treasurer’s claim about future surpluses thinking he means cash surpluses, and respond by saying why not spend them now?  The Treasurer’s answer is essentially to say, no, they are needed to provide a buffer for the future.

This is the point where the Treasurer crosses the line from an arguable position, namely the existence of surpluses, to a baseless assertion that he is creating a future buffer.

Friday, 27 April 2018

Banks: Do we need them?



People who believe the good times will soon return are harder to find these days. It’s not just the loss of trust in our institutions and the political class but a more deep-seated scepticism as to whether the suggested remedies will work.

The laws of economics are not immutable. Many are mere transient beliefs that may provide a reasonable explanation of current machinations, but when a black swan event occurs, like the Global Financial Crisis, something outside previous experiences, the old ways of thinking are of little help.

Likewise, our treasured institutions have failed us. As part of the reported proceedings of the Royal Commission into Banking, investment banker UBS estimated $500 billion out of $1.7 trillion in mortgages across Australia, that’s one third of the total mortgage debt, could be ‘liar loans’, based on dodgy documentation.

With residential mortgages growing faster than the rest of the economy, our economy is out of balance. Everyone knows it. We shuffle existing assets amongst ourselves at ever increasing prices using borrowed funds under the mistaken belief we are growing the economy when the reality is we are involved in a giant Ponzi scheme. Now we discover that up to one third of the mortgage loans may be based on suspect if not fraudulent documentation.

Friday, 20 April 2018

The case for Basslink?

(Published in The Mercury on 20th April 2018. This blog includes additional endnotes.)
With all the talk about a second Basslink one would have expected to have a clear picture of the costs and benefits of the first interconnector. Surely if you’re buying another of the same, one of the determining factors would be how the first has performed? Has it worked as planned?

The short answer is no. It’s been a costly voyage into the unknown.

Thursday, 29 March 2018

Forestry Tasmania and the RFA


The following was a background paper prepared as part of a series of articles on Regional Forest Agreements  by Gregg Borschmann published by The Guardian. An overview can be found  HERE.
The Guardian asked the Tasmanian minister responsible for forestry a series of questions about the RFA. The questions and the Minister's responses are included at the end of this blog.

The Tasmanian Regional Forest Agreement (RFA) signed in 1997, was supposed to provide a framework for the sustainable management of Tasmania’s forests.

If financial sustainability was the aim, the outcome has been a complete failure. Since 1997 the state-owned Forestry Tasmania (FT) has suffered cash operating losses of $94 million. In simple terms it was selling timber far too cheaply.

But the overall picture is even worse. Capital spending of $368 million on plant and equipment, roads and plantations, most sourced from government funds, failed to add anything to FT’s asset base.  FT’s total operating cash loss over 20 years was therefore $454 million.

That’s just the cash losses.

Not only did new capital spending fail to increase FT’s asset base, there were huge non-cash losses as forests under its trusteeship lost $750 million or 90 per cent of their value.

Thursday, 1 March 2018

A surplus of lies


Treasurer Gutwein reckons even after factoring in all the promises made during the election campaign there will still be surplus totalling $104 million over the next four years.

"The key thing here is that we have arrived at a modest surplus to provide for a buffer moving forward," he was reported as saying.

Mr Gutwein forgot to mention the skinny surplus each year is solely because of the $40 million special dividend received annually from TTLine.

As explained in the last blog profits don’t imply cash surpluses. Now we have Mr Gutwein trying to tell us there is still a buffer when the tiny profits which he calls surpluses  are due entirely to transfers that are locked away and can only be used to fund vessel replacements.

Take away the TTLine transfers and even the paper profits disappear.

Saturday, 24 February 2018

Back in black?



One of the Hodgman government’s claim that always seems to pass without challenge is the proposition that the budget, being back in black is now able to withstand more spending.

The almost universal view is that we now have the necessary cash buffer to be able to loosen the purse strings a little and give ourselves a treat after a few years of austerity.

However, reality has a different perspective.