Building the debt revolution

One mulish old man, Learlike in his delusions, was all that stood between Britain and urgent revival yesterday afternoon. ‘Resign!’ cried the crowds at the gates of Downing Street. ‘Resign!’ There was anger in those voices. Echoes of revolution. He ignored them, just as he has long ignored anyone who challenges him. He did that rosy-lipped, snippy push away of the head. Pursed his mouth. Glowered. 

The above was written by the London’s Daily Mail columnist Quentin Letts as he reported Gordon Brown addressing the press, the morning after the British election. Apart from the geography, there were echoes of our own Dear Leader — perhaps from sometime in the near future. After 13 years of being Treasurer and Prime Minister, Gordon Brown has taken Great Britain to the verge of financial collapse. The country is somewhere near one trillion pounds in debt. That is 1,000,000,000,000 British Pounds. 

In Australian currency the above figure is the equivalent of $1,667,000,000,000 of debt. 

Recently, a lawyer friend emailed me an article written by Ross Greenwood, Financial Editor of The Nine Network and author of Money Matters. It is some weeks out of date but the basic premise of the article seems pretty well current. Greenwood took the Rudd government’s recently acquired debt (in the past 18 months), which may be approaching $200 billion. Rudd’s self-imposed borrowing limit is actually that —$200 billion. 

That’s $200,000,000,000 of borrowed money. 

Greenwood then did a very basic calculation using a home-loan calculator to work out the interest on the $200 billion over 20 years @ 4.67% interest (the current Government bond rate). The repayment rate came to $1.24 billion every month, for every one of the 20 years, or $15.4 billion every year. As Greenwood pointed out this is a government that 18 months ago had no debt. Whereas Gordon Brown has had 13 years to puff-up Britain’s debt to a trillion pounds, our Inner Cabinet of four — Kevin Rudd, Wayne Swan, Julia Gillard and Lindsay Tanner — have managed to tick-up what could be one fifth of a trillion dollars in just 18 months. 

As a recent footnote to the British woes, it is worth remembering, is that the UK Treasury has only just fully repaid the US loans that that nation incurred to finance the WWII war-effort. The final payment was made in December, 2006. The massive war debt, of then $US 4.3 billion was negotiated by John Maynard Keynes, the sovereign-debt king. The need to re-finance huge loans can kick along money problem for decades, long past the memory of what the money was borrowed for in the first place. 

The Sydney Harbour Bridge, was started in 1924 and completed in 1932, but the debt (loans) took until 1988 to be paid off. The bridge debt was paid for by tolls. The toll for our present debt situation, according to Greenwood’s calculation, will be $733 for every man, woman and child, every year, for the next 20 years. Some debt! Some legacy! 

If we have another global financial crisis, what happens then? Do we borrow another $200 billion? 

So it is with those above thoughts in mind that the spinning of this week’s Swan Budget should be viewed, because just about everything associated with the Rudd government has been, is and will be, associated with spin. They are the living, breathing Hollowmen

Take the pre-budget announcement of the Henry Tax Report and in particular the new super-tax that is to be levied on mining companies. The Henry Tax Report contained 138 recommendations but to date the government is only interested in one of them. 

Firstly, the spin. Remembering, “if there ain’t no spin, there ain’t no sin!” The story unraveled thus. 

Our Prime Minister, Kevin Rudd, claimed that it was a new 40% tax on foreign mining companies, but failed to mention that BHP, The Big Australian, had 500,000 individual Australian shareholders, many of whom are working Australian families. Those that didn’t actually own shares had superannuation — and with hardly a super-fund in the country not holding a parcel of BHP (and/or Rio Tinto) shares, the spin-notion, that this was just a hit against foreigners ran well… for about 60 seconds. 

When it became obvious that the Big New Tax was going to sting the dividends and share value of 500,000 Australian BHP shareholders and 160,000 Rio Tinto shareholders plus nearly every other mining company Australians had invested in, or their superannuation had help fund, the tune changed. The original announcement was premised on the notion of foreign mining companies and their foreign owners. And vast big fat profits going overseas to foreigners. Oh yes, xenophobia works best against foreigners. As for local investors, like those investing in say Telstra, BHP, Fortescue etc. Well they are really “class traitors”, aren’t they? 

But the tune changed to something like “the assets in the ground (ore, minerals, energy) belong to all Australians, and all Australians need to be paid their fair share”. Well, sure! Except that that is why mining companies pay royalties, company tax and all the other bits of income governments collect… and why select just one type of business? Rudd then went on to say that “super-profits” were those over 6%. Taking Kevin Rudds notion of all Australian’s are entitled to a cut in profits over 6% (the super-tax), why not charge farmers? After all they make their income from “mining” the soil —soil all Australians own. What about plantation owners? What about real estate agents? 

As good as it sounds to those who don’t own mining shares, (and resent the idea that some do) this whole “super-tax” idea does have a whiff of dear old man grandpapa Marx and his commo manifesto (Items 1 and 2). Whether BHP Billiton is correct in claiming that the Rudd super profit tax is equal to the government seizing 57% ownership of the company, remains to be seen. But Rudd and Swan have to find that pesky $1.25 billion every month to pay for their big spend-up. 

Gordon Brown and his predecessor Tony Blair operated for 13 years on spin, before the coin finally dropped in Britain. How long will it take before crowds are at the gates of the Lodge shouting “resign”. 

It would be nice to think that the 2010-2011 federal budget will be spin-free. 

Don’t hold your breath!


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