The Resources Boom: They Think it’s All Over…
In 1966 England won the football (soccer) World Cup.
It was the first, and so far, only time that the birthplace of association football has won a major soccer tournament (England’s 54 British Home Championships don’t count as a major tournament).
But aside from the excitement of the win, a hat-trick from forward Geoff Hurst and a disputed line-ball goal, one of the most memorable moments is the commentary from the BBC’s Kenneth Wolstenholme.
With England leading three goals to two and only seconds left in the match, Wolstenholme said the immortal words:
‘And here comes Hurst, he’s got…some people are on the pitch, they think it’s all over [Hurst scores]. It is now.’
The argument over whether the Aussie resources boom is over has been going on since the world economy almost collapsed in 2008. Since then you’ve seen analysts, economists and commentators running on to the pitch…thinking the boom was over.
Fortunately for the Aussie economy, the resources boom wasn’t over. But, now in October 2012, if our old pal Dan Denning is right, it is now…
As Dan told your editor this morning over a coffee and a slice of carrot cake:
‘After going through a 20-year economic boom without a recession, Australia doesn’t have much to show for it. Federal government debt of $250 billion. A federal budget deficit of nearly $40 billion. And every month this year the Aussie trade deficit has been in the red. And yet the Aussie stock market is at a one-year high. Aussie investors should be worried.’
In short, Dan says the Aussie resources boom is over. The time when you could buy any old two-bit mining stock and see the price climb three-, four-, or five-fold is over.
Of course, we’re not saying you can’t make any money from the stock market. What we’re saying is that you’ll have to be far more selective of the stocks you back and the stocks you avoid.
Dan calls it a ‘new normal’ for the Aussie economy and Aussie investors.
Dan makes a fair point. For the last goodness-knows-how-many years we’ve heard how great Aussie policymakers are. The ‘great’ Peter Costello. The ‘great’ Wayne Swan. The ‘great’ Reserve Bank of Australia governors Ian Macfarlane and Glenn Stevens.
Turns out they aren’t that great after all.
Only now all the beer has gone, and now everyone’s wondering why the customers aren’t turning up anymore…‘We thought he was a genius.’
The ‘great’ governors and treasurers were nothing more than barmen giving away free beer while the times were good. As the old saying goes, in a rising market everyone looks like a genius.
Of course, the real sign of a genius is how you manage your finances when everything isn’t rising.
So how do these ‘great’ leaders look now? Not so good.
Because the worst thing is – to use the pub analogy again – not only were they giving away free beer during the boom, but the free beer wasn’t even theirs. They were siphoning it off from the pub next door…otherwise known as The Taxpayer Arms.
And now the taxpayer is dry. But if the stories from overseas are anything to go by, that’s not likely to stop the politicians from squeezing every last drop from the dehydrated taxpayer.
Take these news stories from the Financial Times:
‘France’s socialist government has delivered on its pledge to make big companies and the wealthy bear the brunt of an unprecedented budget crackdown in 2013, including a 75 per cent tax band.’
And this from the same newspaper:
‘Portugal announced sweeping new tax increases in an effort to keep the country’s faltering bailout programme on track amid a powerful public backlash against increased belt-tightening.‘The new round of what the government described as “enormous” tax rises came as Lisbon revealed it would miss this year’s recently relaxed budget deficit target by the equivalent of 1.1 percentage points if it failed to take exceptional measures.’
But Australia is different…although not so much.
The government raised the Medicare Levy Surcharge, and it brought in a Flood Levy and a Carbon Tax. Then there’s the National Disability Insurance Scheme that taxpayers will have to pay for.
And of course there’s talk the government will raise taxes on super contributions (more on this in Money Weekend on Saturday).
But all governments tax and spend. In 2001 the federal government spent $156.8 billion. In 2008 the government spent $280.1 billion. And in 2011 it spent $356.1 billion.
The economy boomed. The government took more taxes. They spent it. And what does Australia have to show for it?
The socialists and social engineers will tell you we have lots of lovely infrastructure…new hospitals…new school buildings and new roads.
But what we also have is a retiring population that’s in so much debt they need to cash in their retirement savings in order to pay it off (again, more on this in Money Weekend). That leaves them to live off the poverty-line pension.
As the Age reported yesterday:
‘Baby boomers are taking on growing debts as they approach retirement, in a trend that threatens to undermine their future savings and leave taxpayers with a hefty bill.’
While the government, bureaucrats and lobbyists got rich as the resources boom increased government coffers, those nearing retirement went further into debt. Why? Because they fell for the spin about the never-ending resources boom.
And because the governments (both Liberal and Labor) continued to tax and spend, individuals couldn’t fully fund their own retirement.
But now the boom is over. Retirees thought it might be, but they kept hearing about the 50-year resources boom. So they thought it would all be fine…and they borrowed and spent.
Now it’s coming back to bite them, and it’s about to bite the Aussie government too. If the experience of foreign governments is anything to go by, what bites the government eventually bites the taxpayer.
For Aussie investors it means getting ready for French and Portuguese style tax rises in the years to come.
This article is contributed by Money Morning. Click Here to Subscribe to their free newsletter.