When you are talking about billions of dollars of taxes, expenditures, debt and deficits it all gets a bit confusing.
So using the 2013/14 MYEFO updated estimate this is what Australia would be like if it was the average Australian family.
To start, according to the 2011 Census the median household income after tax is $64,168 (don’t believe it is really that low? I would think the Census is more scientific that your gut feel – http://www.censusdata.abs.gov.au/census_services/getproduct/census/2011/quickstat/0).
So this is the family budget for Australia…
– Income from all sources for the year after tax – $64,168 (actual $374 billion)
– Expenses for the year – $70,688 (actual $412 billion)
– Assets that can be sold – $66,287 (actual $386 billion)
– Debt that have to be repaid – $96,896 (actual $563 billion)
Now before you start on the “but look at Europe” argument, if your financial advisor set you up to have better financial outcomes than most foolhardy and nothing more than that you wouldn’t use them. You don’t compare your finances to others but ask is this sustainable and will allow you to meet your goals.
So what financial advice would you give to a family like this? If this was your family what would you do?
Cutting all expenses by 10% (read cut funding for everything the government does by 10%) or increase work hours by 10% (read increase ALL taxes by 10%) might stop the debt growing but wont pay off the debt the family already has.
So, to pay off the debt in 20 years you need no new spending items for 20 years, no tax cuts for 20 years AND EITHER an 17% cut in current expenses or a 17% increase in all taxes.
Why 20 years? The average worker work for 40 years. So in 20 years, half of the workers paying off the debt will never have benefited from what the borrowings were used for. So unless you like the idea of your kids paying off your debt you can’t justify going more than 20 years.
You could sell off all the assets to clear 2/3rds of the debt but some of these assets generate income so it may not help much.
So how much financial security does this family, this country, have?
Remember, there are no bankruptcy available to this family as the banks are legally allowed to pass the debt onto the children. So sort this out or my two wonderful children will have to.
Why is this on a tax blog? Make a choice. Higher taxes, less services or stuff the next generation. If you love your kids and don’t want to pay more taxes then don’t complain about hospitals/highways/schools… You made your choice…
PS… This only covers the Federal debt… I don’t really want to think about what this means if the State debts are included…