From: c.oneill@trl.oz.au (Chris O'Neill)
Subject: Re: Will Victorians vote stupid yet again...?
Organization: Telecom Australia Research Laboratories, Melbourne, Australia
Date: Mon, 12 Oct 1992 07:44:58 GMT

In article <1992Oct9.052412.13649@monu6.cc.monash.edu.au>
suter@fawlty8.eng.monash.edu.au (Mr D. Suter) writes:
>In article <1992Oct9.002908.24713@trl.oz.au> c.oneill@trl.oz.au (Chris
O'Neill) writes:
>>Yes, Government debt used to finance assets should be considered in the same
>>way as any debt used to finance any asset, regardless of who the owner is. 
The
>>thing that's so special about new right (laissez-faire) economists saying
that
>>there should be no Government debt is that they think there should be no
>>Government assets either.  This is the thin end of the wedge to saying there
>>should be virtually no Government at all.
>Talk about putting up straw opponents!

Well when are we going to get an argument about how much government debt there
should be and why it should be that much?

>>The "no Government debt" idea leads to ridiculous notions such as the public
>>sector borrowing requirement, PSBR, that the Federal Government forces on
State
>>Goverments and Government Business enterprises.  This politically based
>>requirement has to be satisfied regardless of whether the debt is used to
>>finance a good investment asset or not.  The Victorian Government's sell-off
>>and lease-back of railway stock was prompted by having to satisfy the PSBR
even
>>though this was a terrible investment strategy.
>Can you prove that the lease-bask was so prompted and that they
>had no other reasonable solution?

They had no other option for immediate debt reduction but they had the option
of increasing taxes (such as was exercised in N.S.W.) to allow debt reduction
over a longer period.  They did not take that option which was a mistake as I
pointed out in the previous article.

>>I think there is one similarity when it comes to borrowing to buy a house.  I
>>think most people understand that this is an economically sound form of
>>borrowing.
>I generally agree that borrowing to buy a house is OFTEN a sound
>idea (the recent boom and high interest rate period aside). HOWEVER,
>the basic reason it is a sound proposition is that you can reach a situation
>where your repayments are at or below the cost to rent (which is
>the only other alternative).

As is the case where the Government should not have sold and leased back
railway stock.  The cost of leasing exceeded the cost of interest saved.  The
Government would have been better off not selling the railway stock and not
using the proceeds to have less debt than it otherwise would have.  Of course,
the Public Sector Borrowing Requirement makes no allowance for whether
sell-offs are good or bad financial management.

> Coupled with this is
>the expectation, not as often fullfilled as most
>people seem to think, that the rate of increase in value
>(minus cost of rates/maintenance) will outperform most
>other "safe" investments. However, let's not get sidetracked onto personal
>finance.
> There is no direct translate in government borrowings (i.e., the government
>spendings are more discretionary - *I* have to live somewhere.)

Yes, they could close the schools and hospitals down for a while.

> Moreover,
>the fact remains that I and others HAD to put off buying until we thought
>we were in a position to handle the mortgage. If I thought the govt
>was handling it's debt similarly then I wouldn't be complaining!

So now that interest rates have come down there is no further need for debt
reduction.

>However, we digress. I really think it's funny we have so
>many apologists for the past govt when they themselves
>have admitted they completely stuffed up on this score.

Well there is no need to blame them for absolutely everything as well as the
mistakes they did make.  But it makes some people feel better.

>I still haven't had any offers of anyone compensating me
>for my share of the debt (or even of the interest payments) :-).

Well I'm afraid you are stuck with living in a society that would rather have
less taxes and more Government debt.

Chris O'Neill