Federal deficit

Lies, damned lies and statistics,
or in this case Econometrics, my old specialty,

Now who would have thought oil prices going down would lead to a share slump, it's supposed to stimulate activity.

Once i gut a chicken at lunch, i will post the winning Lotto numbers :D

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Originally Posted by Roverlord off road spares

Speculation....... is something you can't rely on. Never assume anything for the future. It is not right to factor into a budget, maybes.
With income you can't assume you will receive the same in the future.
Just like a household budget, you rely on your wages every week and say you factor in overtime also, you take on a loan and then in a year down the track your overtime is cut and you don't have the same funds you thought you would have, or you loose your job What then? Your in the poo.

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How would you suggest they do it? No income is certain at a federal level. If you take a highly conservative view you would continually be running austerity budgets.

The big problem was governments overestimated the projected revenue and included in their budgets as fixed figures. This should never have occurred in the first place and the figures should have been under estimated if used at all not estimated at the higher end. This was basic economic failure at its best. Mining companies for the last year or 2 have been estimating that the price would drop and settle at around $80 per tonne while the govt was counting on around $130. It has in fact dropped below $80 a tonne and why so many redundancies (though BHP still making multi billion dollar profits). As said the state and federal govts knew about this and just ignored it as the projected revenue made their budgets look good and gave them an excuse for out of proportion pay rises to themselves several times in the last year.

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Originally Posted by AndyG

Lies, damned lies and statistics,
or in this case Econometrics, my old specialty,

Now who would have thought oil prices going down would lead to a share slump, it's supposed to stimulate activity.

Once i gut a chicken at lunch, i will post the winning Lotto numbers :D

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Could I have the chicken for my dinner ? it might take a few days to get the dividend check.

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Originally Posted by AndyG

Now who would have thought oil prices going down would lead to a share slump.

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Tell me about it - my super fund has taken a massive hit - the Aussie market has taken a massive drop where the US market is still around all time highs - and the drop in oil prices is aimed at the US not us yet it is our market that falls not the US market.

The Aussie share market no longer rises and falls on the economics of companies but on speculation if the market will rise and fall. Traders have learned that if there is some bad news somewhere all stocks fall even those outside the sector so traders get in early - self fulfilling prophecy comes to mind.

In the GFC the US stock market fell far more than ours yet recovered in a few years and is now at all time highs where ours is still languishing.

The US market recovered by Jan 2013 and is now 28% higher than the pre GFC level where our market is still is still 20% behind what it was at the the start of the GFC.

I wish I had a crystal ball.

Garry

The only good thing is the oil prices will give Putin a world of pain.

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Originally Posted by JDNSW

The reduced royalties affect the state budget, but not the federal budget.

This scenario explains why, from a purely government budgeting point of view, the mining tax was such a bad idea. Even assuming it worked as intended, it would exaggerate the effects of resource price swings on government budgets even more than is happening now, as it was on "excess profits".

John

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Isn't the opposite true? Use the mining tax as a "bonus" during boom times to reduce or eliminate Govt debt and stash it away for the lean period you know will come. I grew up in a sales commission income household so Feb- Nov where good and Dec, jan, sometimes feB where bad. This meant my parents stashed money in the bank to cover those 2-3 months. Do the same thing on a national level. Instead past Govts have spent a majority of the boom income, cut taxes to both personal and companies, and sold assets for a short term electoral gain at the same electorates future expense and pain.

Spot on Frantic, and both major parties are equally guilty.

Meanwhile New Zealand is doing very well indeed............

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Originally Posted by frantic

Isn't the opposite true? .....

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No, no opposites. The boom in tax income exists anyway from the boom in mining profits - adding an additional supertax on that would only make the effect more pronounced. It would have no effect whatever on the propensity of governments to commit to spending money they haven't got, except to make them feel even less the need for restraint.

The question of whether to use windfall profits for routine expenditure or debt reduction is a completely separate question. If the windfall mining profits had actually been used for that we perhaps would not be having this conversation. But they weren't - they were committed way into the future for current account spending! (By governments of all persuasions!)

John