This year\u2019s federal budget landed with all the usual fanfare, with tax cuts and other \u2018cost-of-living\u2019 relief front and centre.<\/p>\n\n\n\n
Judging by how it was pitched by politicians and covered by the media, you\u2019d assume the national budget was just a glorified lolly scramble \u2014 with the only real question being: what\u2019s in it for me? And with an election around the corner, the government was never going to come empty-handed. In fact, it plans to spend about $40 billion more than it will collect.<\/p>\n\n\n\n
Understandable. But more than a little tragic.<\/p>\n\n\n\n
The Federal budget, in theory, is a financial blueprint for the country. It should aim to maximise prosperity and opportunity in a fair and efficient way.<\/p>\n\n\n\n
Instead, we get a bag of cynical vote-buying sweeteners to the usual interest groups, and not even a whiff of (badly needed) long-term structural reform. Maybe that\u2019s to be expected \u2014 short-term sugar hits win elections, even if they worsen the very problems they pretend to solve. While painful but necessary adjustments only make you unpopular.<\/p>\n\n\n\n
Take the cost-of-living crisis. It\u2019s the<\/em> issue du jour, and for good reason. People understandably get upset when the price of life\u2019s basics jumps over 20% in a few short years.<\/p>\n\n\n\n So they look to Canberra for answers.<\/p>\n\n\n\n But, irony of ironies, when we run persistent deficits, we\u2019re only making matters worse by pouring fuel on the inflationary fire. Especially when the borrowed money goes into ventures with little (or even negative) economic return.<\/p>\n\n\n\n Yes, you can blame greedy corporations and global shocks. And yes, they play a part. But corporations are always greedy, and the wider world is always throwing us curve balls. The least we could do is not make things worse through wasteful and unfunded spending.<\/p>\n\n\n\n Indeed, it\u2019s exactly that process that has helped create the situation we now find ourselves in. It\u2019s just hard to see because the cause and effect are separated in time, and transmitted in unobvious and indirect ways.<\/p>\n\n\n\n It\u2019s not that deficits are inherently bad. The prevailing dogma actually encourages them as a countercyclical stabiliser \u2014 you save in the good times so you can spend in the tough times. The trouble is, we never manage to save money (not without the dumb luck of favourable commodity price bumps). We\u2019re always stimulating regardless of the economic backdrop.<\/p>\n\n\n\n The current situation is a case in point. The economy may not be great but, at least at a surface level, and measured in a way the technocrats prefer, it\u2019s far from dire. Unemployment is at historical lows, the share market is just below record highs, and GDP (as flawed a measure as it is) is moving higher.<\/p>\n\n\n\n And yet we\u2019re set to spend $40 billion more than we bring in over the coming year, with no serious path back to balance. Federal debt will top $1 trillion next year; one million million dollars<\/em>.<\/p>\n\n\n\n It\u2019s a reckoning the nation will have to face one day \u2014 just not today. Or tomorrow. Or next year. But unless we change course, history tells us exactly where it leads: debt monetisation, financial repression, and currency debasement.<\/p>\n\n\n\n It\u2019d be one thing if all this spending and debt were going toward projects that actually boosted our productive capacity. But instead, we\u2019re funding tax cuts that, for the average taxpayer, amount to little more than the cost of a sandwich each week. A perk the government thinks even the wealthiest Australians should enjoy.<\/p>\n\n\n\n To put it in perspective: the same money could fund a world-class hospital in every capital city. Or seed a sovereign wealth fund. Or boost defence. Or help tackle the housing crisis. Or… pretty much anything that might actually move the dial for the country.<\/p>\n\n\n\n But no. We\u2019re racking up billions more in debt so we can all afford an extra Happy Meal each week.<\/p>\n\n\n\n And it\u2019s not just individuals. We\u2019re also bailing out failing companies \u2014 like Rex Airlines or Whyalla Steel. It might seem compassionate, but it distorts markets, misallocates capital, and ultimately makes us all poorer.<\/p>\n\n\n\n That\u2019s not to suggest we shouldn’t support displaced workers, but for the love of God we need to stop propping up uneconomic companies with public money \u2014 especially when we\u2019re forecasting debt and deficits as far as the eye can see.<\/p>\n\n\n\n To be fair, there were some decent measures in the budget. It\u2019s not all bad, and it certainly could have been worse. But the details seem far less important than the bigger problem: persistent deficits, growing debt, and a total absence of any long-term, high-return national investment. Frankly, no investment would be preferable to much of the malinvestment. Yes, policy affects certain industries. And investors should pay attention to regulatory and budgetary shifts. But short term government spending plans almost never justify a portfolio reshuffle. Plenty of companies fail despite strong government support. Others thrive without it.<\/p>\n\n\n\n Yes, policy matters. But other factors matter far more.<\/p>\n\n\n\n Really, what policy announcement \u2014 on its own \u2014 can materially and sustainably lift a company\u2019s intrinsic value? Especially when policies change, often bring unintended consequences, and are usually priced in before you even finish reading the headline.<\/p>\n\n\n\n If your investment thesis hinges on favourable policy, it\u2019s probably not a great investment. Far better to focus on businesses with the resilience and fundamentals to thrive regardless of the political climate.<\/p>\n\n\n\n Structural flaws will always beat short-term tailwinds. Which is why most of the budget analysis from the finance media is noise. Clickbait masquerading as insight.<\/p>\n\n\n\n Budgets don\u2019t turn bad businesses into good ones, or vice versa. They might nudge things slightly. But they\u2019re never a reason to buy or sell.<\/p>\n\n\n\n So yes, take note of the big changes. But don\u2019t let the budget distract you from what really matters \u2014 as a citizen or an investor.<\/p>\n\n\n\n <\/p>\n\n\n\n Strawman is Australia\u2019s premier online investment club.
It\u2019s not just the pollies caught in short-term thinking. The financial press is right there with them, rolling out the usual \u201cwinners and losers\u201d lists. They\u2019re almost as painful as the annual stock market crystal-ball gazing that clogs up your feed every New Year.<\/p>\n\n\n\n
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