Reality Check...

Several prominent business leaders and quality journalists this week have commented on the true state of the Australian economy as it is and as it is likely to be. These include David Murray (Future Fund reported in live interview) and Jac Nasser (reported by John Durie in the Australian). The Wall St Journal reported that the Reserve Bank cut to the Australian cash rate “may only be a band aid solution unlikely to reinvigorate growth”whilst the London Financial Times said “investors should be worried about Australia: it was dangerously exposed to China with much of the resource windfall having been squandered”….. and “Australia was one of only three countries in the world to have run a current account deficit for 30 years” (Greece and NZ were the others) and “warned Australia would suffer like Greece when access to global funds was cut”.

Many Australians – and especially in the SME (Mittelstand) sector understand very clearly that things are tough. “Blood on the streets” in that sector was a comment made to be me today. State Governments also understand that their budgets are going to be tough. They will have no option but to increase resource royalties to balance budgets.

Australia’s present political leadership in the Peoples’ Republic of Canberra will of course squeal like hell. Having squandered a sound inherited budgetary position, the ground is now laid for an Australian tragedy of operatic proportions. Turandot here we come. Except there is no magical music from Puccini to ameliorate the hurt.

Massive increases in recurrent social expenditure will bind future governments for years to come. This is the Greek route. The revenue supposed to fund this from the new Minerals Resource Rent Tax is unlikely to eventuate: the Australian States royalties will gut it. Carbon Tax revenue will not eventuate either: businesses categorised as polluters by the People’s Republic will move offshore or change their operations. The only way to fund these new expenditures is large taxation increases on the working Australian population.

That is the pain of the SME’s, their owners and employees who are now losing their jobs. Australia needs a wake-up call and the slowdown in China is likely to provide it.

www.millhouse.co