Do NOT raise taxes and do NOT lower rates

If the Government’s suicidal tendencies continue, there will be no saving them from their own idiocies. It’s not even that raising taxes is politically popular. It is absolute voter poison. Raising taxes is guaranteed to lose you the next election.

But what makes it worse, is that raising taxes is also economic poison. The Treasurer has his eyes firmly fixed on 2055, forty years from now. I wish he would occasionally also glance at 2016 and 2017, which also happens to be when they will be trying to get re-elected.

It is bad economic management to raise taxes in a recession. Let me say this again with emphasis: It is bad economic management to raise taxes in a recession.

You have to stop looking at things from the perspective of those dunces in Treasury. All they can think of is how are they going to find the money for all of those programs you and Labor have committed us to?

If you really do think that recovery is in any way promoted by government spending, other than in a very very narrow and select range of areas, then you have not even got to first base in understanding how an economy works. Stop listening to these people and start thinking about who you really want to put purchasing power in the hands of.

It is business and the private sector that will give you growth and lower unemployment. It cannot come from any other source. And if you think that business will be encouraged by hearing that the budget deficit is fractionally lower, then you are so far off the beam that I don’t know where you think you are. Business is encouraged by making money. The economy grows through productive investment. Jobs and real increases in income are based on faster rates of private sector growth. If you think private sector growth driven by some form of government-financed activity is the same, then your whole basis of thinking about these issues is a FAIL.

And then there are the supposedly popular cuts to interest rates. Here’s a small test. Suppose interest rates went up by a quarter of a percent (which is what they should do, but won’t). You tell me: what would happen to the housing market? It would stall and possibly crash. Housing is already unaffordable. Why would you want to continue to finance a bubble that has now trapped every government so deeply, that it seems almost impossible to imagine rates going up any time soon. Although given past history, they will, in the month before the next election.

Business conditions jumped by a record amount in October

You never know what surprises are in store if you get the budget under control and encourage the private sector. Merely a straw in the wind but the direction is right. These are the results from the latest National Bank monthly survey.

BUSINESS conditions jumped by a record amount in October, hitting their highest level since early 2008 on the back of a strong start to the fourth quarter, according to a private survey.

National Australia Bank’s monthly business survey showed a sharp jump in business conditions — the largest monthly increase in the history of the survey — up 12 points on the index, to a reading of 13.

But NAB chief economist Alan Oster said the improvement may still be an aberration, considering the downward trend in business confidence.

The survey showed business confidence continuing to erode, as firms remain uncertain over near-term demand. The index dropped 1 point to a reading of 4, its lowest level since a pre-election jump in mid-2013.

But looking beyond monthly volatility, business conditions still came in with a reading above the long-term trend, Mr Oster said.

While confidence levels vary greatly across industries, the services sector has been the most consistently optimistic.

Mr Oster said despite consumer caution and rising unemployment, it was particularly surprising to see retail conditions lift strongly, up 15 points, albeit to still low levels.

The mining sector also saw an improvement in both confidence and conditions, recording the largest jumps in both, but still remained the sector with the lowest overall conditions reading.

The large jump in business conditions pointed to a strong start to the fourth quarter, Mr Oster said.

Pre-budget nerves – my list of dos and don’ts

I am getting a bit nervous about the budget that’s brewing, no longer behind the scenes but with a few strategic leaks breaking into the news. As you may know, I am no Keynesian but I went back and took a look at my own Free Market Economics text since I could not remember whether I even mention the word “deficit”. The index has it listed once, three pages from the end on page 332.

Here are my thoughts on things. Why they left a Labor-supporting Keynesian to manage Treasury in the single most important budget they will ever introduce is beyond me. Anyway, here are my thoughts.

It’s not the deficit per se that matter but the level of public spending.

If you want to fix the economy, resources must migrate from being under the direction of the public sector and into the hands of the private sector. Therefore, the focus should be on cuts to non-value-adding forms of public spending. If it doesn’t show a positive return within a reasonable period of time, cut it off. This, by the way, is not an anti-welfare message although welfare too must be affordable. I am talking about infrastructure and the many forms of waste and mis-regulation that are found at every turn.

The economy will grow, employment will grow, real wages will grow if and only if economic activity is directed by private sector entrepreneurs. It will shrivel under the direction of government. Do not even imagine anything much beyond the first 10 percent of what you are already spending will create economic growth. Cutting public spending will create growth, not maintaining existing levels.

Raising taxes to fund public spending is a deadly mistake and wrong twice over:

. Higher taxes will allow you to maintain the level of public sector direction of our scarce economic resources.

. Higher taxes will reduce activity in the private sector.

The core aim must be to encourage entrepreneurial activity. There is no budget problem that cannot be fixed by:

. Reducing the level of unproductive public spending

. Fostering private sector growth (where unproductive spending has its own very brutal cure).

If the strategy is to balance the budget in ways that will diminish private sector investment and entrepreneurial activity, it will make things worse, not better. Economic conditions have been improving since the change of government with nothing much at all having been done. Leaving things alone is better than introducing new programs or raising taxes to fund existing forms of waste. Step back, get out of the way, cut your own take up of resources. But for heaven’s sake, don’t apply some bizarre Keynesian budget-surplus strategy by funding the existing level of public spending at the expense of the private sector.