25. May, 2016

Public Finance and Administration

This area of our country seems very confusing as does the micro aspects of the budget. This blog is about Public finance and administration generally... micro aspects will come soon.

So here is a short lesson it:  Like any household the government has so much money to spend overall and each year. In the budget you would hear that the goverment collects $450B in revenues. That is what we have to spend for the year. That money is used to pay for anything Nationally and distribute to the states for state funding other than what they also raise. So we might pay for our interest on loans, Defence, Major Infrastructure Projects, our public servants, social services (Human Services is our largest budget item) an so on.

What is of real concern is our borrowing (DEBT) as a percentage of that revenue. It has been acceptable for many years that borrowing up to 30% of our income is a figure that is Ok. Currently and it is disputed that we are at approximately 25.08%. That of course depends on the terms and conditions of the loan. Lesser is always better because it leaves more money in the pool of funds for programs and projects here...not to be spent purely on interest. What is very important is that any borrowings reflect sound projects and programs that are of value and return something to the country...such as roads, rail and so on.

There is a mood among Politicians especially ALP and Greens (LNP is also looking at this) that we shuold be able to lift the cieling (yes there is a limit set) on borrowings above 30%. This can lead to a country become bankrupt! Wont happen you say, well Ireland, Spain, Portugal, Greece and a host others also said that and look where they are now. Even the USA is struggling with DEBT levels that it can not pull back. You see it is so easy to say lets roll up to 50%, we can rely on future revenue funds to pay for it. Suddenly its 60% when a GFC bites harder and commodity prices dont go how you wanted. Then 80% rolls along an then 100% while all the time credit ratings disappear and your country is gone fiscally and monetarily. What happens then is your grandchildren have to deal with it. The other point is that when your credit rating is gone the interest bill is also higher...a double wammy!

Like any household the governemnt needs to control spending and its public finance and adminsitration...not just for us now but for our children and their children.