WHERE TO FOR AUSTRALIA?

Australia is at a cross roads. As I have previously written, the country can go down the road of old school socialism or it can have its own Margaret Thatcher moment. Only Australians can decide at the forthcoming Federal election on the 7th September.

Under the Rudd, Gillard, Rudd governments, Australia was taken down the socialist road, at huge cost to its economy, industries, and the welfare of its people. Despite the fact that Rudd marketed himself as a "fiscal conservative".

What he has actually done is to create a mountain of Federal Debt. Net Federal debt is now some AUD 250 billion and growing at a rate only exceeded by Spain and Slovenia. To plug the gap, he now proposes to tax bank deposits (Cyrus ?), despite the fact that these are already insured. For my non-Australian readers, State and Territory government debt is about the same volume as Federal debt, which should not be seen in isolation.

As a highly respected economist and former Reserve Bank board member, Warwick McKibbin, reports (Australian Financial Review 2nd August), there is a growing problem with deficit spending to fund social programs. Australia is not growing its debt to fund productive infrastructure. Concurrently, Rudd policies are reducing economic activity and employment significantly.

Monetary policy is following other countries, not yet at the money printing stage, but interest rate reductions will not work in an environment globally of credit contraction, including in China. It is this credit contraction and the reduction in the speed of money circulation that multiplies the sins of taxing and spending governments.

People are becoming debt shy: the shift to part time work and underemployment, and the ageing of the population serves to emphasise that trend.

There will be no return to the "normative", pre-Great Recession times. This is the new normal, and there is no China boom on the horizon to alter that. Indeed, the maturing of the Chinese, Indonesian, Malaysian, Thai and Indian economies will mean that their highly educated populations will manufacture quality products, and provide high quality services to Australian consumers. This is at the same time that Australian government policies have significantly increased the costs of production and delivery in Australia.

The choice is clear: more of the same which will result in the rapid export of the country's best talent and industries, or have its own Margaret Thatcher moment.