# What Saves Australia From An Economic Contraction?



## Michael Cornips (8 February 2012)

Even as Australia runs a budget deficit, the country has never tried to reduce expenditure. This is despite what the politicians would lead us to believe when they preach fiscal responsibility. Expenditure increases by 3% to 7% each year. When we have a recession, the automatic stabilizers (welfare payments) kick the annual increase to above 10% (1991, 2000 & 2007-10). What Australia and the politicians rely on is a bullish assessment of future growth. The rhetoric of the current Government is that they are promising a balanced budget. If the red line doesn't go down, then the blue line must go up. All by next year. The danger for our economy is if growth doesn't rapidly increase then the Government might cut expenditure. And that would not make them very popular, and is something to watch out for in the future.



Look at America and a graph of similar data. The gap is still a $1.2 Trillion deficit, but the US have not really made any inroads into cutting expenditure. There was a period in 2009 where expenditure dipped, but that was only after the 15% expenditure growth rate induced by the GFC. Expenditure growth is currently running at 2% to 3%. That certainly doesn't seem to correlate with the impression that the GOP controlled Congress is trying to curtail expenditure.



Then there is the UK. They have been in negative expenditure growth for 12 months. Unsurprisingly, the UK recorded negative 4th quarter 2011 GDP growth of minus .2%.



The UK's strategy of cutting expenditure and expecting the economy to expand has proven to be a failure. The Euro region is committed to enforcing austerity measures on debt loaded countries. This might save the debt holders, but it will be a burden on growth.

The US economy is showing some signs of recovery, but the politics of both the US and Australia could promote austerity measures requiring expenditures to be cut in the face of tepid world growth.

Update: BUCHAREST, Romania (AP) Romania's government has collapsed following weeks of protests against austerity measures, the latest debt-stricken government in Europe to fall in the face of raising public anger over biting cuts. Emil Boc, who had been prime minister since 2008, said Monday he was resigning "to defuse political and social tension" and to make way for a new government. Thousands of Romanians took to the streets in January to protest salary cuts, higher taxes and the widespread perception that the government was not interested in the public's hardships in this nation of 22 million. In 2010, Boc's government increased the sales tax from 19 percent to 24 percent and cut public workers' salaries by a quarter to reduce the budget deficit. Jeffrey Franks, the head of the IMF mission to Romania, said Sunday he is confident that economic reforms the fund demanded in exchange for the loan would continue, even if the current government steps down.

Michael Cornips


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## Logique (8 February 2012)

Michael Cornips said:


> [Australian govt] Expenditure increases by 3% to 7% each year..



Nice work there Michael. I wouldn't be too condemnatory of the UK. For mine they are doing the better job of curbing expenditure and matching it to receipts. 

Aust Labor/Green Govt increasing expenditure and taxation. What a surprise, knock me over with a feather! Sorry getting political.


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## Starcraftmazter (8 February 2012)

No right/left wing labor/lib bull**** here please.

Let's face the facts, all political parties in Australia are equally worthless when it comes to economics. Both would spend infinity amounts of taxpayer dollars proping up the housing bubble. Both fail to tax the mining industry and control our currency. Both fail to save for the future, and are only good at bringing forth future expenditure. Both fail to address productivity issues. Both support many stupid and inefficient taxes like the luxury car tax. Both support middle income welfare and the general welfare state, and neither is capable of controlling healthcare expenditure.

Australia is a first rate country with a second rate government. A government whereby all political parties are equally worthless when it comes to economic management. Completely clueless morons.


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## IFocus (8 February 2012)

Logique said:


> Nice work there Michael. I wouldn't be too condemnatory of the UK. For mine they are doing the better job of curbing expenditure and matching it to receipts.
> 
> Aust Labor/Green Govt increasing expenditure and taxation. What a surprise, knock me over with a feather! Sorry getting political.




Highest rate of increase of expenditure was under Howard


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## Starcraftmazter (8 February 2012)

IFocus said:


> Highest rate of increase of expenditure was under Howard




Not to mention the FHOG and all the middle income welfare. Libs have a crapton to answer for.


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## drsmith (8 February 2012)

IFocus said:


> Highest rate of increase of expenditure was under Howard



Looking at the graph in the first post of this thread, it looks like the increase went ballistic from late 2007.


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## drsmith (8 February 2012)

Expenses are projected to grow to $414bn in 2014-15 and that's before the carbon tax.

http://www.budget.gov.au/2011-12/content/bp1/html/bp1_bst3-02.htm


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## Glen48 (8 February 2012)

Nah it will all be a new world once Iran is attacked by Israel oil will hit new highs in a week  and soon go to $200 so how many will be driving to work if its still there, how much will food cost to be delivered.

 Any one got any answers what to do then???


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## Smurf1976 (9 February 2012)

Glen48 said:


> Nah it will all be a new world once Iran is attacked by Israel oil will hit new highs in a week  and soon go to $200 so how many will be driving to work if its still there, how much will food cost to be delivered.
> 
> Any one got any answers what to do then???



The hills mate. Run for the hills...

Seriously, from an individual perspective I think it's not wise to have oil as a large % of your expenses. If you can't eliminate that then at least invest in some oil stocks (companies with operations in "safe" countries) or some other related asset.


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## sptrawler (9 February 2012)

Smurf1976 said:


> The hills mate. Run for the hills...
> 
> Seriously, from an individual perspective I think it's not wise to have oil as a large % of your expenses. If you can't eliminate that then at least invest in some oil stocks (companies with operations in "safe" countries) or some other related asset.




Yes it is certainly better to travel to work and live close to facilities. Than to live near work and travel to buy your groceries. Worste scenario is to have to travel for both.IMO


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## Glen48 (9 February 2012)

What I am trying to say is if oil hits $200 a B. it will be new world as *every thing* is related to oil.
Not much point filling up your car and driving to work if the company can't survive  or driving to the market to buy goods that aren't there because the delivery cost etc are to high.


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## Uncle Festivus (9 February 2012)

3 charts = 3 jaws of death?

Also, the only thing making that blue line on the first chart go up is iron ore & coal to China. But I've heard a rumour that China likes to print money & create debt too to pay for those commodities, in the best unsustainable capitalistic way. Only things have started to turn for the worse in China with a number of readings indicating the policy of stimulis isn't working anymore ie not getting back a commensurate return in growth from freshly printed currency.

Japan & China are our single biggest concerns. Boat people from China perhaps?


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## ajjack (9 February 2012)

@Glen48



Oil will hit $200/bbl some day, nothing surer, but to say the new world
order sets in  ....well thats a big call there kaibigan.

How do you figure this, as oil has been at $145 nearly four years ago,
and not much happened then or since?

Conspiracy theories welcome!


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## Glen48 (9 February 2012)

Check the news ajjack you will find USA  wants a war with Iran a very large % of Oil tanker's pass through 21 Mile wide gap that Iran can control with Vehicles equipped with rocket launchers.


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