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Should You Ignore The Federal Budget?
BY GREG CANAVAN - 11/05/2018 | VIEW MORE ARTICLES BY THE DAILY RECKONING

I’ll be honest with you. I didn’t watch the budget last night. Nor did I listen to any of the post-budget analysis.

I scanned the headlines this morning to get a gist of what it was all about. But that’s it.

For me, it’s no different to any other day, really. That is, I don’t read ‘the news’, especially when politics is involved.

I used to. In fact, I used to spend way too much time reading about and following politics and its impact on business. Now, I remain blissfully ignorant.

And it hasn’t made a lick of difference to what is most important to me — making money for subscribers of Crisis & Opportunity. In fact, I’ve gotten better since I realised that following ‘the news’ is mostly useless for successful investing.

The thing is, we’re in an age of spin and lies. Politicians are trained to not answer the question, and stay on point at all costs. The mainstream media largely rewrites press releases and confirms the biases of their readership.

If you’re looking to get to the truth via the media…good luck.

So do yourself a favour and pick up a book instead. It’s a much better investment in your time and knowledge.

As you get older you become desensitised to the news. But when you have young kids you see it as it really is. In our house, we make a point of not having the news on when the kids are in the room.

It’s nothing but murders here and stabbings there. Car crashes, train crashes, airline crashes, wars, cyclones, floods, whatever. It’s designed to keep us in a constant, low state of fear. It’s designed to make us feel that we need someone to look after us, to provide for us and protect us from the big bad world.

Look, I know the world isn’t all rainbows and lollipops. But it’s not a stewpot of fear, either.

For some reason, humans like to believe that someone else is responsible for their fear, happiness or general wellbeing. They look to the Church or the State for salvation and security, instead of looking within.

It reminds me of a quote by Edward Gibbon, which Dr Marc Faber concluded his presentation with at Port Phillip Publishing’s recent conference:

In the end, more than freedom, they wanted security. They wanted a comfortable life, and they lost it all — security, comfort, and freedom. When the Athenians finally wanted not to give to society but for society to give to them, when the freedom they wished for most was freedom from responsibility then Athens ceased to be free and was never free again.

It’s a good quote to ponder at Budget time when the mainstream media urges you to ask, ‘What’s in it for me?’

If you’re caught up wondering/hoping how much you’re going to get from the budget, you’re on the path to putting security over freedom. Because when you want the government to provide for you, it’s pretty much all over.

I understand and agree that the government’s role should be to redistribute wealth to those that are most in need…those that are genuinely struggling to cope. But it’s certainly not to provide handouts to the middle classes and those who are asset rich but cash flow poor.

The vote-winning centrepiece of this budget is ‘income tax cuts’. But really, it’s an adjustment for bracket creep, whereby inflation pushes people into higher tax brackets and allows the government to grab more tax. The result is workers suffering a fall in real incomes.

The first thing I’d do if I was Treasurer (before I get booted the next day) would be to automatically index the tax brackets to inflation and eliminate bracket creep for good. That would provide a certain amount of discipline for government spending and help to maintain workers’ real incomes each year, which in turn would be good for consumer spending and economic growth.

But that’s never going to happen…

What’s the Bottom Line For This Year’s Budget?

We’re $18.2 billion in the hole. And we’ll still be in the hole next year, to the tune of $14.5 billion. That’s despite resurgent commodity prices, very strong employment growth, low inflation and the strongest rate of coordinated global economic growth since the credit crisis.

These all contribute to higher tax revenue, and we’re arguably at a cyclical peak in terms of the strength of global economic growth.

The government expects to return to a small surplus in two years. Which will, apparently, grow in subsequent years.

And while the government has some reasonably conservative growth forecasts, I’m sure those forecasts don’t factor in a global economic slowdown over the next few years.

Given the strong growth experienced recently, in my view it’s a high probability that you’ll see a decent slowdown in the next two years. Which means you can safely ignore the budget forecasts.

In fact, you can safely ignore nearly everything about the budget.

Focus on yourself, what you’re doing and how you’re doing it. It will be a much better investment.



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The Daily Reckoning's mission is to look at the investment world and the financial world in a sceptical and contrarian way. To do that day in and day out and tell you honestly what we see, even if it isn't always popular. If you'd like to subscribe to an alternative look at the mainstream interpretation of events, join for free here.



 

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