Tuesday, 23 July 2019

If it is a priority, we can afford it

SAYING we cannot afford something is code for saying it’s not a priority. We are a rich society. We have all the resources we need to deliver better housing, health, education and infrastructure, but we choose not to. We are constantly told we cannot afford them and we need to live within our means.

Imagine for a moment Australians were shipped to a desert island, a new paradise. All facilities were there, infrastructure, schools, hospitals, even a new K Block. Lots of people with all the required skills are ready to start working, but nobody has any money. Neither does the government nor its bank, the Reserve Bank. Nor do private banks or any residents or businesses. The government cannot raise taxes or borrow money because there’s no money to pay the taxes or lend to the government. Gridlock. What would happen?

One practical solution would be for the government to simply start spending money by crediting accounts. Hospitals would be paid enough to operate. So too schools and other government departments. Workers could then be employed and paid. Money would start circulating. Some will return to the government via taxes. Businesses and residents would start borrowing and spending. Without government spending in the first instance none of this would not be possible.

Most of us have been led to believe the opposite, that the Australian government must raise money before it can spend.

It’s not true.

Some people would regard this solution as heresy.

Two different approaches to funding the new island economy. Which to use? The first approach seems straightforward and sensible. The government spends by crediting accounts. That’s what happens in the digital world. Will this lead to inflation? All spending carries the same inflationary risk. Borrowing deposits created by private banks before spending carries exactly the same inflationary risk as the government simply spending by crediting accounts. Why interpose private banks to achieve what is possible without them. At a cheaper cost as no interest would be payable as there would be no debt owing. It’s time the Australian government used the overwhelming advantage bestowed on it by the reality of a modern economy in charge of its own sovereign currency to be able to spend to satisfy worthy needs simply by crediting payee accounts.

This is not to say that taxes or government borrowings are never required, rather that they are not necessary prerequisites for all government spending.

Here in Tasmania we’ve had a public discussion as to whether a $157 million debt owing by the state government to the Australian government for low cost housing should be written off. Senator Abetz argued that would reward bad behaviour. The Mercury editorialised on June 19 that the Senator was letting his ideology get ahead of his common sense. In a Talking Point on June 20, Senator Abetz went on to say, “(i) f we are “forgiven” the debt it doesn’t disappear. It is simply transferred to another level of government and will need to be paid for by … you guessed it — you and me, the long-suffering taxpayer.” That is an assertion not a truism. Senator Abetz is letting his ideology get in the way of reality. And that reality is the Australian governments can spend simply by crediting payee bank accounts. It does not have to burden long-suffering taxpayers. Too often that is used as an excuse for not spending.

We can’t afford it is the stated reason. The real reason is that it is not a priority. Whether it’s spending on housing, health or additional Newstart, if they say we cannot afford it they do not think it is a priority.

There’s increasing chatter about the efficacy of privatising public assets. Rightly so. In many instances the promised social gains have not eventuated. Overall, we are worse off as a result. Any gains have been captured by a minority. One of the most crucial activities that has been fully outsourced to the private sector for questionable overall social gains is money creation. Arguably the Australian Government needs to bring some of this back in-house. Leaving money creation up to private banks has not exactly been a raging success. Banks create money via new deposits every time loans are made. That’s how the system works. Existing deposits are not lent as is popularly believed. The opposite occurs. Loans create deposits. Banks then chase deposits to balance their books, not to lend out. The horse comes before the cart. Credit is needed for growing economies. Banks provide credit via loans. They make loans where it is most profitable. And that, unfortunately, has been mainly to finance existing residential housing. The market has failed. The economy is unbalanced. We are told we can’t afford things like housing, health and Newstart increases. It is untrue.

Yet the Australian Government wants to run budget surpluses which means the private sector will have no alternative but to run deficits which will only add to the debt load that already makes us one of the most indebted in the world.

We need to revisit the policy options available to government. The future of a viable Federation depends on it. The Tasmanian Government is on the brink of joining Northern Territory as unsustainable. There has been a massive failure to understand what’s happening. Saying we can’t afford to employ our unemployed and underemployed resources to satisfy some of the state’s glaring unmet health and housing demands, is not only short sighted, it is grossly negligent.

(Published in The Mercury 23rd July 2019)

No comments:

Post a Comment