Tuesday, June 03, 2008

Flim flam man

If bullshit was music the NSW state treasurer, Michael Costa, would put John Philip Sousa to shame. Costa just bought down the budget promising major infrastructure spending over the next decade.

This is a government which has regularly promised infrastructure development, then quietly buried projects at their earliest convenience. It is a sham budget, by the sham treasurer of a sham government.

The whole big spending budget is predicated on Costa’s desire to sell off the state’s power generation assets. I’ve been there before; we don’t want our assets sold. The ‘promised’ $57.6 billion spend up, $20 billion covered by surplus, is a pathetic con. Even that amount could and should be covered by debt.

Instead Costa wants his corporate buddies to have access to that debt rather than the people. He wants his corporate buddies to own the profits too – after all, they are they ones who will pay him off after politics.

I won’t bore you with an image of this faux bald headed pub thug. The hard man obviously has delusions of brain cells that simply don’t exist. Costa thinks he can panic us into a trade off; have our essential development but sell off our assets.. Bugger him with a fish fork!


lindsaylobe said...

Overall Australia's GDP was a larger-than-expected 0.6 percent increase for the March quarter; double the market expectation. Finance Minister Lindsay Tanner said he was pleased with the result but went on to caution us on the need to fight on against inflation and many Economists now fear the Reserve Bank of Australia may again be forced to increase rates to restrict domestic demand and contain demand driven inflation. Hopefully not. Meanwhile you would be a interested to note a small item in the NSW Budget papers which reflect a rather badly timed decision to punt $7 billion on equity market last June which left the NSW government with a large increase in unfunded super liabilities, the exact opposite to what the clever move was designed to do; to reduce unfunded liabilities. As reported In the Financial Review page 16 ‘an article entitled ‘Treasury punt drops motza’. Budget papers reveal Government super funds will return minus 3.8% which is stark contrast the Future Fund which has shown healthy increases (admittedly it has most of its holdings in cash). Hence the budget papers show unfunded liabilities rose 2.7 billion to 17.12 billion. The timing was impeccable, as it had transferred funds held into Government Bonds into equities. However they are budgeting for in increase and recover next year. NSW may be saved to some extent by the booming coal prices.

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Cart said...

Lindsay, forgive me if I sound cynical, but… I have come to the conclusion that Iemma and Costa are more concerned in a post politics corporate payoff than in putting NSW on a sound economic footing. The near panic evident in pushing the power sale, among other signals, suggests promises made.
As such, I find it very difficult to regard the NSW budget projections as a fiction, sadly a fiction balanced by the reports of their failures. The foxes have been minding the hen house for far too long I this state; they don’t even duck for cover anymore.
Normally I respect the hard, factual data. With this current state government I believe much of what thy say, even in the budget papers, is riddled with self serving lies. That they can’t actually manage a strong resource economy is testimony to their poor stewardship. But one thing they will do well is enjoy the wealth after they leave office.

D.K. Raed said...

Isn't it ironic that the same old BS keeps coming up, over & over. No matter how many times a bad idea is rejected (like selling off your power utilities), it never dies ... a newly tweaked form magically appears for consideration. Let's hope that the pkg is still identifiable as a pure money grab, so that it never materializes.

BTW, I love your final threat involving a fish fork. Never heard it before, but it is quite evocative!

And I'm still trying to parse Lindsay's "unfunded super liabilities". To me (and granted I have no govt experience), an unfunded liability is an oxymoron. It is either a liability (a debt, actual or estimate of a known future debt) or it isn't. It is "funded" by either pledging assets or reducing capital/net worth. Debits = credits or it doesn't balance. I can't figure out an unfunded liability, much less a "super liability". I'm sure this is a language deficit on my part & hope to be enlightened.

D.K. Raed said...

nevermind ... I think I understand now. A business would go bankrupt if its liabilities
exceeded assets & net worth for very long unless it procured funding, like a loan or capital/stock infusion or increased its revenue very quickly. But I guess govt accounting is different because Govt has no net worth to fall back on. So govt liabilities (committments) are created & expected to be funded from some future source of revenue (which I hope isn't just from printing more money). Well, that's the best I can understand it. So, "super liabilities" must be massive, like super black holes? just a guess ...

Cart said...

DK, I'm leaving that one for Lindsay :) The government super funds here are a nightmare to me.
Many of our local government areas have lost bigtime on poor investments.

lindsaylobe said...

Hi Cart & Dk
Let me attempt an explanation

First of all may I begin by stating the obvious universal requirement; the going concern convention, eg ~

Liabilities are to be fully funded within an entity since its Directors are bound by duty of care to immediately cease trading if they determine at any time the entity is insolvent, unable to meet its debts as they fall due.

Superannuation benefits of the types I refer are ones which have a defined future known liability. Although they arise in many years hence they are actuarially determinable at any given point of time, by the use of disconted cash flow analysis to their equivalent present day value. Suffice to say such equivalent present day value needs to be represented by cash and or investments; any difference be it a surplus or defiencey would periodically need to be disclosed. The extent to which a Superannuation Fund has a deficit would be the extent to which it is unfunded. This would be no different to a Construction company in the USA having an unfunded liability in relation to the aggregated agreed pension entitlements, assuming it ran its own fund, which would need to be disclosed as a note to the accounts, e.g. ABC has an unfunded liability in relation to its pension fund for its employees of $ …………. . This could arise because of poor returns on investments or inadequate contributions by the employer or both. The current accounting standard makes it obligatory any shortfall be recognized (after an actuarial review) in the form of an entry against the accumulated reserves in the P& L accounts to provide fully for these liabilities. The Company would subsequently need to make out a cheque payable to the super Fund to ensure such a liability was funded. To that extent the defiencey would be covered and the unfunded liability would no longer exist.
However the position of the NSW government with its employees is there exists a defiencey of 21Billion.
In the USA the lack of solvency of many of your unfunded state pension schemes (the idea is you only recognize the payments when due) will become very evident with your ageing population base as politicians aren’t at all interested in long term solutions. I don’t want to sound presumptuous but I don’t think (present company excluded) many even understand the parlous state they are in. Hence I think the next generation is going to a get huge shock when they realize the extent of these unfunded liabilities in the public sector. Along with the funding of ever increasing budget deficits, which are primarily deficits from paying social security from government borrowed funds!! Best wishes

Cart said...

Lindsay, I was really struck by the truth in Sat SMH by Ross Gittins - Economics through the eyes of a sociologist
“Economics is so dominant that even people with no training in it tend to see things the way economists do.” Well, I know that is the case in Australia, though the depth of the wider ‘our’ understanding is still marginal.
I tend to take descriptions like this with a certain level of ignorant trust. Even so I have no doubt DK will understand precisely.

D.K. Raed said...

Thanks Lindsay! You helped me to better understand the perilous future of our state/fed govt pension programs. We have had individual county govt pensions go bankrupt (Orange County in Calif comes to mind), but usually the taxpayers step in & fund a bond to cover the basic shortfall. These "defined benefit" pensions are a dying breed here in the US. Very few coporations offer them anymore, but of course govt emp'ee programs are different. Private biz has mostly gone the "defined contribution" route which more or less puts emp'ees in control of their own pension money. It is usually always worse for the emp'ee, but it does let the emp'er off the hook for those long-term funded liabilities you speak of.

Now I will have to read Cart's link. I know even less about sociology than economics!