Monday, 23 April 2012
Last week the former Commonwealth Bank CEO Ralph Norris went out on an apparently shaky limb with his brave statement that a budget surplus is “an almost mindless commitment”. But he should be applauded for his strong belief. It is that same strength of conviction that will hold a branch firmly to a tree of thought and ensure that millions of Australians can safely join him on it.
The analogy that comes to mind in relation to the federal government is that of the captain of the ill-fated Titanic who ignored all warnings of the danger of hidden icebergs along the route and even put on speed, until the ship inevitably hit one and disappeared below the icy water.
There is a fundamental flaw in the government’s plan to achieve a budget surplus. It is simply that while on the journey toward that final destination, it runs the risk of demoralising the entire population through spending cuts.
The policy of “give with one hand and take away with the other” is a recipe for disaster, and the inevitable nemesis will be a crushing defeat at the next general election.
When people lose hope in the future they lose their spirit and their drive to move forward. They languish and procrastinate while hoping to hear any good news at all that will signal them to optimism. The Aussie spirit has always been based on hard work, enthusiasm and a determination to succeed. The final objective of all of us is to own our own home, but the current property market has almost stalled.
In a worthy attempt to “to ease the pain of the market” Tim McKibbin, CEO of the Real Estate Institute of New South Wales (REINSW), has proposed pay-as-you-go stamp duty for first-home buyers. This idea and a suggestion of cutting red tape and loosening planning controls are both positive, but it remains to be seen if the NSW government will actually introduce them.
Let’s face it, we cannot point the finger solely at the GFC or Europe and America’s economic woes. The federal government has to accept a large portion of the blame for our own financial malaise, and they need to do something about it in positive terms that the nation can take as a series of immediate initiatives to stimulate the economy.
The truth is that the current feeling of pessimism has little to do with unemployment or the closure of factories. Interest rates are lower than they have been for decades. So why is there a feeling of doom and gloom?
It is about the perception that people have of the economy and the future ahead. We are actually saving more money than we have for years, for the simple reason that we are too scared to spend it. Each of us of course has a different perception of the value of money, so one dollar to me may be worth two to someone else, or vice versa.
In 1947, Abba Lerner wrote an article entitled “Money as a Creature of the State”, in which he commented that economists had largely abandoned the idea that the value of money was closely linked to gold. He argued that responsibility for avoiding inflation and economic depression lay with the state because of its ability to create or tax money.
No truer word said.
In last week’s news I was delighted to read a comment by the straight-talking John Symond of Aussie Home Loans who coincidentally supported the suggestion I made in a recent column entitled With pessimism lingering in the property market, the RBA must cut rates in May that the RBA cut the cash rate by 50 basis points next month. He also called for “an injection of good news and an injection of confidence”.
What the central bank does later on in the year will again depend on inflation figures. The point is that it needs to take bold action now to stimulate the economy and restore vital confidence.
The following quote reminds me of the onerous responsibility held by the Reserve Bank of Australia and the duty of fair play by the banks to avoid profiteering:
“A prince, who should enact that a certain proportion of his taxes should be paid in a paper money of a certain kind, might thereby give a certain value to this paper money; even though the term of its final discharge and redemption should depend altogether on the will of the prince.” Adam Smith, Scottish pioneer of political economy (1723-1790) in An Inquiry into the Nature and Causes of the Wealth of Nations.
Tim Mansfield is a 30-year global veteran in the real estate industry and Founder and CEO of Sydney-based buyers’ agents PrimePropertyBuyer.You can follow Tim on Twitter by clicking here.