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Why the Australian government is doomed to fail

Written on the 8 August 2016 by James Cagney

This is not going to be a popular subject but it has to be said. It is time to ask yourself the tough questions now rather than wake up at 67 years of age and wonder how you are going to survive for the next 20 years. I am not prepared to sugar coat the pill or be overly concerned about your political affiliation. By the way I am being over critical of government . Will Rogers one of the most popular commentators this century said  "I don't make jokes. I just watch the government and report the facts".. I am going to say it as it is without worrying about being politically correct - so here goes.

Firstly, the Australian Government is broke and that you have no option but to look after yourself in retirement.  Cut-backs are going to continue as the public eventually comes to the realisation that the Government cannot keep spending more and more on social services. Author George Bernard  Shaw wrote "A  government which robs Peter to pay Paul can always depend on the support of  Paul". So the politicians will pander to the whim of the people to get into power.  This is how Australian politics works with each term of office:

1) The government is elected after promising the people far too much.
2) The first year they announce the austerity measures because there is no money for the promises they made
3) The second year they capitulate and withdraw the austerity package because they are worried about losing their cushy jobs.
4) The third year they promise more spending and more than the opposition in order to get re-elected.

And so the process continues for another 3 to 4 year term. This is what one of the most successful presidents of America said  "The government is like a  baby's alimentary canal, with a happy appetite at  one end and no responsibility at the other" Ronald  Reagan.

Politicians do not want to acknowledge how a budget works. The fundamental law of a budget is to spend less than you earn. Yet the politicians

continue to promise more and more spending so they can win the next election. If you ran your household budget like that you would go broke. If you run a business like that you will go broke. Politicians' response to this:  "We realize we are spending more than we earn but we are not as bad as other countries". What lunacy is this? Do they not have any common sense at all?  Let's go broke like many other countries around the globe and everything will be OK because everybody else is doing it?  Please excuse the PICTURE above is to throw some humor into a very serious topic.

Because we pay our taxes we believe we are entitled to services. That is a fairy tale. We pay taxes so we can support  a three tears of government we can't afford. Employees -. After we have paid the Federal, State and Council politicians and  employees their salaries and entitlements we get what is left over. Unfortunately that is not enough to provide what we need as a country to create jobs and to provide social services.  For example, the current Medicare system is something we simply can't afford in the long term and a future government is going to have to make changes.  Te American political satirist and journalist, P.J.  O'Rourke, wrote "If you think health care is expensive now, wait until you see what it costs when it's free!".  Unfortunately for the ruling party at the time that announces these changes will lose the next election.   

A point to take note on is that the Greek government could not afford to pay the pensions to the elderly because the government had used all the money they 'borrowed' from the pension funds. So the answer to this negligence by the government was to borrow more money from the European Union and to get further into debt. Of course it is never the politicians fault - it's the global economy's fault. If the Greek government could borrowed the pension money do you not think that the  Australian government will not work out a scheme to 'borrow' the money in Superannuation Funds to pay it's deficit?  With our ongoing current deficit how long will that Superannuation money last. All the government has to do to persuade a gullible public is that the Superannuation companies are taking too much in fees to run the Superannuation Funds (and they are because they skimmed $30 Billion last year in fees) and they will do a much better job at no cost? Think about that. What will happen to your Super when, not if, this happens. Are you prepared to take the risk?  Governments through the ages do not change their philosophy. This is what Frederic Bastian,  the French economist (1801-1850) said "Government is the great fiction, through which  everybody endeavors to live at the expense of everybody else". If you would like more information about investing your Super click >>> HERE.

We should be thankful that the Liberal National Party (LNP) Government in the 1990 to 2000 decade, who were prudent and resourceful and accumulated a huge surplus. However,  the Labour Party lavishly spent this surplus going into a huge deficit to keep the economy from declining during the Global Financial Crises (GFC) in 2007-2009 and in the aftermath of 9/11 in the USA which affected the world economy. Therefore the GFC and 9/11 did not affect Australia as much as other first world countries who did not have the luxury of a huge surplus and did it tough for many years after the GFC. However, the government  ransacked the coffers, gave away a "bonus" to people for plasma televisions, consumer goods, new cars, free gas hot water systems to motels and hotels, subsidized pink bats in roofs, and the list goes on and on. All this money for non investment purposes, which gave Australia a temporary growth period but provided nothing sustainable to improve our economy in the long term. Winston  Churchill  said "I contend that for a nation to try to tax itself  into prosperity is like a man standing in a bucket and trying to lift  himself up by the handle".

Unfortunately in 2016 the mining boom in Australia is over. The Government revenue is going down yet people have become so used to Government hand-outs and having the good life for over three decades they do not want to let these entitlements go. These entitlements cost too much and something has to give. I do not want to be a doomsayer but beware Australians - the dream will come to an abrupt end sooner than you think. Here are some disturbing statistics:
  •     In Australia we have approximately 4 million pensioners right now plus another 4 million people who will retire within the next 10 years i.e. over 800 people retiring per day.
  •     The population is 25 million people but we only have 12.8 million tax payers. It hard to believe, but when you take into consideration the number of housewives, children, pensioners and those on social security (the dole) and remove them from the equation it reduces the number of those working significantly. Do the maths i.e. 12,8 million people supporting 25 million people? How do those numbers work?
  •     Our welfare bill is $150 billion per Annum and  $400 million per day. An incredible 60% of households get some form of social security benefit  i.e. 9 million households on social benefits. How did that happen?
  •     Of the 95% pensioners on support 85% are on full pension ($24,000) and 15% on a part pension because they have Super Fund income. When they have used all their Super (which in most cases is after 3 to 5 years after retirement) will the government be in a financial position to give them a full pension? Look at the maths - how long can the government continue to pay the pension? Imagine 8 million people living in a city the size of Sydney including the surrounding suburbs south, west and north. That's how many pensioners we will soon have to support in Australia.
  •     What is amazing is 95% of these pensioners are broke living on $24,000 per year and most of the Baby Boomers coming through to retirement are heading in the same direction. Guess what, these Baby Boomers still have lots of advice to give you about how you should invest?  I make it a rule that I never take advice from someone who has less in assets than I do. So do we waste our time taking advice from these people who have not earned the right to give you advice?
  •     As a country we are close to  $1 Trillion in debt right now (see diagram alongside to see how much money that is) and every year our budget deficit is around $400 billion a year and increasing year by year. During the Federal election in 2016 the politicians promised to spend more money for social services and infrastructure. Australia can no longer afford it but that is the only way these politicians know how to get votes. Unlike China which has a 100 year strategic plan, Australia has only a three year plan i.e. three years between elections. How on earth can a country plan for a sustainable future when a population so used to entitlements keeps expecting more and more.

We have the two major parties in Australia which are poles apart. The Parliament is like a professional wrestling ring which resembles the popular WW Wrestling television series from the USA. Men and women in parliament putting up a show for the public to earn their large pay packets, grunting and groaning and pretending to hurt each other. The media are there with cameras poised as the audience laps it all up cheering and jeering. Of course we all know it's a farce but we either enjoy the entertainment or accept it as the norm.  It may be entertainment but the tickets are expensive to the show in our parliament  i.e. your income tax money!

You can ignore what I have said about the problems we will face in the future in Australia.  We only see what we want to see. For example, if you want  to buy a  sky blue Toyota Corolla with grey interior all of a sudden you notice Toyota Corollas everywhere whilst you are driving around. There were always Toyota Corollas on the road but because your focus is now on that make of car we begin to notice how many there are.  If we are going to have something to leave for our children we need to focus on opportunities and solutions and not on problems. 

We need to make smart decisions about the future of our country and for ourselves. We can not control what happens in the USA economy, the European economy, the Chinese economy and the stark fact is as individuals we have very little control of what happens in the Australian economy.  However, we are a democratic society and we have the right to vote for common sense in future elections, even if it is at the expense of our 'entitlements'.  We can not live above our means and the answer is not to "give away the farm" to get votes during every election campaign. I wrote an article about our politicians called "Bring in the Clowns" which you may find amusing. Click >>> HERE if you would like a chuckle.

If you would like to avoid the disaster that is ahead of us you have to take control of your own future and not rely on any Australian  government. Unfortunately Malcolm Turnbull's gamble to dissolve both houses of Parliament did not pay off. The present structure of the Senate will make it very difficult for the LNP to get legislation past that will stimulate growth in the next few years. This will play into the Labour Party's hands and the next election could see a change in government.  Will things improve under Labour - I doubt it because the economy is too far gone and we will enter into a deep recession.before the next Federal election.  Can they then do what the Rudd government did to stimulate the economy? Unfortunately not because there will be  a huge debt handed over this time not a huge surplus to give away to stimulate spending.

You need to invest in sustainable assets and property is one of the safest assets to hold. In the next few years companies will close, shares will cease to trade, jobs will be lost but property is forever! If you want to find investment property that will give you sustainable growth contact James Cagney  on 0416 137 645 or click >>> HERE. We have to have HOPE and this is a good acronym for you to remember:

H - stands for Honesty;  O - is for Optimism ; P - is for Personal Responsibility and, E - stands for Effort. It does take Effort to give you HOPE. Take action NOW or you will be broke in retirement. After all it is better to live with Lifestyle and Dignity, than to be broke, embarrassed and ashamed living off the charity of family and friends because the meager pension may or may not be there

This is not financial advice. You should not act solely on the basis of the material contained in this Property Update for your investment strategies. Changes in government and legislation occur frequently and without prior notice and financial markets are unpredictable.
Please note that the information herein is of a general nature only and is not intended as specific advice for any particular person or entity.

This information was written and compiled by James Cagney.  The opinions expressed herein do not necessarily represent the views and opinions of his associates including Asset Financial Services Pty Ltd.

Author: James Cagney
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