Wednesday, 13 July 2016

Government Surplus

I had a thought the other day about lifting the bar, in terms of what we expect of governments.

These days a government is assessed (partly) on whether it runs a surplus or a deficit budget.

Can you imagine if we had that standard for a CEO of a company! Surplus or deficit. If a CEO talked in those terms, you'd get rid of him! Of course you would expect a surplus.

And not only a surplus, but a profit. And hopefully a better profit than the year before.

When it comes to business, you wouldn't think of a businessman as successful if he was only thinking in terms of whether or not he personally was going to be in net surplus or in net deficit at the end of the financial year.

No. A businessman is considered personally successful when he personally no longer lives off his fortnightly salary. He should have attained the position where he has enough passive income to live off, quite aside from his salary, and quite aside from the profit of the business he's running - or you wouldn't think of him as particularly successful.

So why not lift the bar for a government too!

Instead of it just being about surplus or deficit, what if the goal of successive governments was to end-up with so much surplus that the earnings of the invested surplus ends up being enough to run the entire government! Then taxation could cease.

Australia's net government debt was $96 billion in June 1996. By June 2007, thanks to the Howard government, Australia had net financial assets (negative debt) of $29 billion. If government surplus had continued to increase at that rate, the government might be $227 billion in surplus by now.

If each successive government keeps increasing the surplus at the same rate, and invested it, how long would it take before the investment's earnings would be enough to fund the government's total running costs of about $450 billion per year? Then in theory taxation could be eliminated.

Sound far-fetched? Yet that would be no different to what we expect of a successful businessman.

So why expect something far less from governments?

Lift the bar!

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