Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Here�s how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.


 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate

Subscribe!
Subscribe





On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.
___________

Syndicate
RSS/XML


RSS 2.0

The debts run-up by profligate governments are about to cost us dearly

By Brendan O'Reilly - posted Thursday, 18 March 2021


The Covid-induced recession has been used across the world to justify massive increases in debt-funded government spending, as well as cheap easy credit.  Such actions have definitely helped businesses survive in the short term, though the sums paid out have been massive.  Crown Casinos, for example, reported receiving $111 million in Jobkeeper subsidies from March to June 2020, while (the also loss-making) Qantas reportedly pocketed around US$780 million during 2020.  Even the smallest businesses on Jobkeeper have received thousands of dollars a month, and countless businesses have had the taxpayer cover most of their wage costs.

Tax-free "cash flow boosts" of between $20,000 and $100,000 were also paid to virtually all small and medium-sized businesses with employees.  They got the money automatically when they lodged their BAS, and didn't even need to apply.

The orgy of government spending, however, is problematic because you cannot keep unprofitable businesses afloat indefinitely, interest rates may not stay low forever, and public debts (effectively deferred taxes) have to be repaid by someone.  Many people simply saved their stimulus handouts (the household savings rate for Australia soared to around 20 percent during 2020), and no amount of stimulus can restart industries, while they are affected by mandatory shutdowns or closed borders.

Advertisement

The biggest problem with stimulus spending in Australia, however, is that a large chunk of the poorly targeted spending was simply a windfall benefit to recipients that didn't need a subsidy.

The $130 billion Jobkeeper programme (now revised down to $90billion) has been the largest single stimulus element, yet we now know that many big company recipients had been making record profits.  Toyota announced it will voluntarily pay back $18 million, while Cochlear opted to repay $23.1m it received in the December half.  So far some 16 ASX-listed companies have repaid $126m of the benefit.

You can be assured, however, that the majority of un-needy recipients will simply keep a low profile and pocket a pile of money.

Car dealer group Eagers Automotive received $129.6m in JobKeeper between March and September.  It recently declared a full-year profit of $156.2m.  Clothing group, Premier Investments, which received $68.7m in Jobkeeper subsidies after delivering a record $138m profit for the 2020 calendar year, has not (along with Eagers) indicated any willingness to pay back the money.

It has also been alleged that some businesses set out to game the scheme by shifting revenues or generating unrealistically pessimistic forecasts, though the vast majority of recipients operated within the spirit of the scheme.

It is extraordinary that there is minimal political fuss over the huge waste inherent in Jobkeeper, a scheme which has channelled billions directly from taxpayers to business profits.  (Rather than criticising the scheme, the Opposition amazingly has kept calling for its extension.)  Contrast this with the fuss over the (small in comparison) $102.5 million Community Sport Infrastructure Grant Program.

Advertisement

Jobkeeper outlays are nearly one thousand times the size of Community Sport Infrastructure spending.  Furthermore, under the latter scheme the money did make it through to community groups (albeit less deserving ones in some cases).  Under Jobkeeper, a lot of employers have pocketed huge sums of public money for keeping on employees they would have retained anyway.

The notion of governments borrowing at artificially low interest rates over the long term also smacks of belief in a "free lunch".  Undesired likely future side-effects include renewed inflation (especially of asset prices), income losses for savers, and crowding-out of non-government borrowing.

Many Australian governments also seem to believe that they "might as well be hanged for a sheep as a lamb" and have added (uneconomic) pet projects to the borrowing binge.  For example, the Australian Government brought forward its unaffordable income tax cuts, increased defence spending, and is going ahead with expensive ill-considered schemes like Snowy 2 and the Inland Rail.

  1. Pages:
  2. Page 1
  3. 2
  4. 3
  5. 4
  6. All


Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

8 posts so far.

Share this:
reddit this reddit thisbookmark with del.icio.us Del.icio.usdigg thisseed newsvineSeed NewsvineStumbleUpon StumbleUponsubmit to propellerkwoff it

About the Author

Brendan O’Reilly is a retired commonwealth public servant with a background in economics and accounting. He is currently pursuing private business interests.

Other articles by this Author

All articles by Brendan O'Reilly

Creative Commons LicenseThis work is licensed under a Creative Commons License.

Article Tools
Comment 8 comments
Print Printable version
Subscribe Subscribe
Email Email a friend
Advertisement

About Us Search Discuss Feedback Legals Privacy