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Warwick McKibbin tells it straight

RBA director Warwick McKibbin has a reputation for speaking his mind on key economic matters. It appears he is at it again, and it is worth considering his informed views on some global and local matters.

Here are my favourite points from the linked article.

Referring to the most recent global economic crisis as a mere ''blip'', he said the coming crisis could undo the mining boom and bring on inflation of the kind not seen since the 1970s.

The response globally to the financial crisis was mostly to kick the can down the road.  At some point this must stop, and the longer it goes on, the worse the resolution must be.

Joking that he could not talk about Australian interest rates, which were in any event ''always appropriate'', the Reserve Bank board member warned that the inflation would spread worldwide.

I would say that Australia has been severely buffered from global inflation by our exchange rate.  Who knows how long this can last.  My suspicion is that if interest rates go up to fight inflation, our local economy will flounder and we will end up having to drop interest rates severely and get our share of inflation anyway.  

Australia needed a sovereign wealth fund to store mining income while it lasted, ideally stored in a separate account for each taxpayer so the government could not raid it.

Of course I agree about using the tax revenues raised from the mining investment boom to save for our future.  The idea about giving each taxpayer an account seems particularly interesting.  I haven't put much thought into it but at first glance like the idea.

The $50 billion national broadband network epitomised the sort of waste Australia could not afford. ''I would say to any politician who thinks that spending is worthwhile, take your salary as shares in NBNCo. If you think it's a good investment, you'll be ahead,'' he said.

While I think the idea is great, the positive externalities generated by the NBN should factor into the equation, yet these can't be captured by revenue from broadband access.  But in general I like the idea. 

7 comments:

  1. "Australia needed a sovereign wealth fund to store mining income while it lasted, ideally stored in a separate account for each taxpayer so the government could not raid it."

    dam straight ... and also curb immigration so we're not watering it down and squandering it on more expansion.

    something easily forgotten is that infrastructure wears out, so the more you have the more you have to maintain.

    ask anyone who's bought 3 cars while they were wealthy how that pans out over time

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  2. "Australia needed a sovereign wealth fund to store mining income while it lasted, ideally stored in a separate account for each taxpayer so the government could not raid it."

    If the government can't raid it, doesn't that mean it's not a sovereign fund any more?
    And what's the difference between that and, say, tax cuts?
    And, isn't that inviting inflation by directly increasing the money supply?

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  3. "Australia needed a sovereign wealth fund to store mining income while it lasted, ideally stored in a separate account for each taxpayer so the government could not raid it."

    Whilst I am 100% behind the SWF push, I'm not convinced by this "separate account" idea... Whilst I agree that we need mechanisms to keep pollies hands off the money, it should be future generations that benefit from a SWF and, for the life of me, I can't work out how you could legitimately establish individual accounts in the names of those who are presently unborn?!

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  4. Fair points cjd and Sam. At first glance the idea of keeping the fund away from the political cycle seems ideal, but you are right that in effect it is akin to, say a tax cut, or more specifically (if one can't access the funds for some time), boosted superannuation.

    The fact that many of the citizens such a fund is intended to benefit are not yet born, or have not yet migrated here, does seem to discredit the individual account idea.

    Nevertheless, it is good to see people in high places thinking properly about the incentives at play.

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  5. I'm not convinced about the SWF idea anyway. that just means the government will be competing for the same investment opportunities as the rest of us, thereby distorting the market.

    Anyway, it's nonsense for a government to save the money it creates under monopoly conditions.

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  6. CJD, there is a strong argument the best things governments can do in order to 'save' for the future is to not save. Spend now and and in the future you will have a greater stock of capital. Seems simple enough.
    One other reason for a SWF to to get money out of the country to keep a lid on the currency. Perhaps that's a legitimate reason, though I'm not 100% convinced on how effective it would be in that regard, or whether is is really a great idea.
    My gut feeling is that there are other ways to 'keep some balance' in the economy. But I will need to put more thought into it.

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  7. Wow excellent post ever seen. really its informative.

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