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Trillion Dollar Baby?

What will it take to wake the media up to the fact that the way our government is spending it won’t be long before we are a $1 trillion net debt baby?.

Our current federal liabilities (p.121) stand at $1.002 trillion (which is pre COVID19). Have the media bothered to look at the state of the budget accounts? Or are they too busy lavishing praise on rescue packages which have a finite lifespan.

We pointed out yesterday that the “revenue” line could be decimated by the disruption – huge cuts should be anticipated in the collection of GST, income, company and excise taxes. Not to mention huge rebates to be paid to now unemployed workers. On an annualized basis the revenue line could get thumped 30-40% if this continues for 6 months.

So on the back of an envelope, it is not very hard to work out that with a current $511 billion revenue line looking to fall towards the early to mid $300 billion mark against a projected expense bill of $503 billion a deficit of $150bn will open up. Throw on c$150bn of COVID19 stimuli arriving by June 30th and we get a $300 billion budget deficit. Our net financial worth would grow from minus $518 billion to negative $818 billion.

Rolling into next year, it is ludicrous to think that hibernated businesses will have resumed as normal. This means that the following year’s tax revenue line will look as sick as the previous period. The government will be torn shredding the expense line as unemployment shoots higher so assuming minimal budget cuts, it could face another $200 billion deficit taking it north of $1 trillion net liabilities in a jiffy.

Let’s not forget what the states may face. Severely lower handouts from the federal government via GST receipts which will balloon deficits, a trend we’re already seeing.

The states currently rely on around 37-62% of their revenue from the federal government by way of grants. The balance comes through land/property taxes, motor vehicle registration, gambling and betting fees as well as insurance and environmental levies.

All of those revenues lines can dry up pretty quickly. 40% of state budgets are usually spent on staff. Take a look at these eye watering numbers.

NSW spends $34 billion on salaries across 327,000 employees.

Victoria spends $27 billion across 239,000 public servants.

Queensland uses 224,000 staff which costs $25 billion per annum.

WA’s state workforce is 143,000, costing $12.6 billion.

SA has 90,000 FT employees costing $8.5 billion.

Tasmania 27,000 setting taxpayers back $2.7 billion.

Just the states alone employ over 1.05 million people at a cost of $110 billion pa!! The territories will be relative rounding errors.

A lot of the states have healthy asset lines which are usually full of schools, hospitals, roads and land). These are highly illiquid.

Unfortunately, one of the golden rules often forgotten in accounting is that liabilities often remain immovable objects when asset values get crucified in economic downturns. When markets become illiquid, the value of government assets won’t come at prices marked in the books.

How well will flogging a few public hospitals go down politically to financially stressed constituents?? This is why gross debt is important.

The states have a combined $202 billion outstanding gross debt including leases.

Throw on another $150 billion for unfunded superannuation liabilities. Good luck hitting the “zero by 2035” targets some state have amidst imploding asset markets. It simply won’t happen. If only these liabilities were marked to market rather than suppressed by actuarial accounting. The WA budget paper (p.42) notes the 0.4% bump to the discount rate to lower the pension deficit figure. To be fair, they are far less outrageous than US state pension deficits.

How must the State Gov’t of Queensland be praying that Adani keeps plowing ahead? How Greyhound must regret terminating a contract to ferry construction workers to the mine? We doubt the incumbent government will have a climate change bent in the upcoming Oct 31 state election. See ya.

The trillion dollar federal debt ceiling seems like a formality especially as the chain reaction created by the states puts on more pressure for the federal government to inject rescue packages to prop up their reversal of fortune budgets. It is that trillion with a T headline that will get people’s attention.

In short, we ain’t seen nothing yet.

Liberal Party of Australia – find a cure

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Margaret Thatcher once said, “such are our achievements that my employees have asked me to stay – twice!

The current crop of the once conservative Liberal Party of Australia (called the Turnbull Coalition) can not attest to that. How Michaelia Cash hasn’t resigned for misleading parliament over the recent AWU scandal is beyond me. Then we have Christopher Pyne saying if the boundaries in his constituency are changed then the other member must make way for him. If a $50bn submarine deal to buy his seat at the last election only just saw Pyne scrape home, what on God’s earth does he think he has done to earn his employees’ faith?

The Turnbull Coalition is a dud in every sense of the word and without question we know that Turnbull will decide to leave the ‘political stage’ in the face of defeat to (in his eyes) an inferior opponent. Such is the fragility of the ego PM’s that he’ll actually view his legacy as paved with countless successes. I am struggling to think of one.  Indeed were his employees happy with him they’d ask him to stay at the next election. Turnbull loves the limelight of being PM. Why would he give that up? Surely if he believes his own BS then he’d be the first to contest again in confidence that he would beat Shorten to The Lodge hands down.

Then we have Foreign Minister Julie Bishop who jets around the world cutting cheques to nearly anyone and pushed hard for the purchase of a seat at the UN on the Human Rights Council. Let us not forget that other parts of the UN thought Mugabe a worthy ambassador.

As a life long Liberal voter, there is no conscionable way for me to help elect these clowns until there has been a proper bleaching of all the stains within. There is hardly any whiff of sensibility within their ministerial ranks. Since Turnbull arrived he has divided a party, destroyed its foundations all the while his ministers have to resort to cheap shots and raids to expose the opposition as fraudsters rather than look within. Are their memories that short? It was only 10 years ago they were trying to smear Kevin Rudd for going to a strip club in New York! Who cares? Try running the country instead of trying to force your set of moral values!

It makes my blood boil to see the incompetence get shown on a daily basis. I will happily vote Liberal Party of Australia again once they come back to me. At present they are so far removed from the principles they once held that ‘Liberal’ is actually more aptly described as the derogatory term we give to the ‘left’ in America.

They need a proper drubbing at the next election to remind them how badly they have stuffed up. So caught in their own echo chamber, so on top of the electorate do they believe they really are they will find out that there is no way the ‘achievements of the government could in any way lead to the employees asking them to stay twice.

Storing the Fukushima nuclear waste

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Scattered throughout Fukushima prefecture are some 5.5mn black bags containing soil contaminated by the crippled reactors. This picture is on the outskirts of the exclusion zone. To put it in perspective this is what it looks like from the air. They now have huge black tarpaulins draping over them to keep it dry.

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Most of the ‘unusable land’ has been converted into waste dumps like this or solar parks. Cars with flashing blue lights waft slowly around the neighborhoods to prevent theft and looting from deserted homes.

Even driving into Sendai some 100km+ north the highways have radiation level information alongside speed limit signs. A reminder of that terrible event 6 years ago which was highly preventable had the money been spent on relatively low cost sensible placement of the back up generators (in the $10s of millions) on high ground. It was forgone because the plant was scheduled for closure 6 months after the quake. The idea was that the risks of a tsunami or quake were so negligible that penny-pinching was the right thing to do. Of course PM Kan refused to give the order to release the presssure inside the reactors against the advice of nuclear experts. The clean up is in the 100s of billions. Go figure.

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Fukushima City feels dead. It is a long way from the reactor but unsurprisingly infamous for one thing now. As I mentioned a few weeks ago I’m guessing the government will turn up investment projects to revitalize it.

For a good video on the reactor check ABC’s Mark Willacy on Foreign Correspondent