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Gladys Money Man Throws Piles of Cash at NSW Residents

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We saw it with Federal Treasurer Josh Frydenberg’s budget and now we see it in NSW, with more money being spent on the COVID-caused crisis, despite the fact that we have a booming economy and real estate market.

The only reason I can suppress my usual tendency as an economist to warn that this is overspending is because “this time it’s different!”

In case you didn’t know, these are deadly dangerous words for an economist or financial market commentator, as history has generally shown that what we’ve seen in previous economic / market crises, which looked different , were in reality only variations on an old theme.

But this time it’s different. Why? You have to go back to 1918 to get a pandemic that crushes the world economy with the so-called Spanish flu. But then they failed to shut down businesses and economies, causing a government-imposed recession.

And there has never been a concerted global government spending program like the one we saw after Covid-19 to create a big rebound in economies. In addition, interest rates have never been lowered to these levels, as central banks have agreed to keep the price of silver low for longer.

Take a look at the spot interest rate chart below. See how far it has come during the GFC recession. Then it went from 7.25% in August 2008 to 3% in early 2009.

It is now 0.1%! Did I say this time it’s different? This table shows it clearly!

That’s why it’s helicopter money that is spraying us back into the NSW budget to continue the stimulus created by the coronavirus that started in 2020. But rather than beware of the big guys spendthrift politicians, who might try to suck voters for a possible election, economists like me are all for the money falling from the sky.

For the next fiscal year, the NSW state deficit will be $ 8.6 billion, up from $ 7.9 billion this year.

But that’s half of what was expected! Why?

Well, on the one hand, the money is spent on vouchers of $ 100 for preschoolers to learn to swim, $ 2.1 billion for 44 new and modernized schools and $ 10 billion for children. health infrastructure (think of more hospital capacity to deal with the sick and injured).

On the other hand, the money has come in. From where ?

Try the stamp duty of the booming real estate market and the fact that NSW residents who love to travel abroad can no longer spend the money they used to give to foreign countries.

If you want to understand why politicians love real estate booms, check out this: “Stamp duty brought NSW $ 9.379 billion in fiscal year 2020-21. The tax is now the largest source of tax revenue for the state. (abc.net.au)

Also, the money collected on tolls will increase by 8% per year for the next four years!

In fact, the money coming in is so good that Treasurer Dominic Perrottet points to a budget surplus by 2024-25 of half a billion dollars!

He says keeping the borders open has helped the state’s economic growth, but the help of JobKeeper from the federal government has also played a big role.

The global economy is expected to grow at a whopping 5.2% in 2021 and NSW (being the largest state) is benefiting from that growth. And the RBA’s low interest rates have sparked the “fire” under house prices.

There are good initiatives like the “learn to swim” program, and I like the idea of ​​CBD assistance, which means $ 100 vouchers that city workers can spend on long lunches on Fridays, as well as $ 100 lodging vouchers to encourage NSW residents to stay overnight at a town hall.

There is also $ 2.7 billion over four years for 400,000 public servants, who will get an annual salary increase of 2.5%.

And what was the best investment advice from this NSW budget? Invest in automakers, who are all getting into electric vehicles. NSW will spend $ 500 million on an electric vehicle policy to increase the purchase of battery-powered cars as the government moves towards net zero emissions by 2050. And this is just a government in a world full of governments that all commit to zero emissions by 2050.

Politicians chasing voters who are increasingly committed to a greener and cleaner world will make it easier for automakers to sell us electric vehicles. This should be good for automaker earnings and stock prices. Of course, the price of these stocks has already taken off following announcements of electric vehicle manufacturing, but that’s just the tip of the iceberg. Unlike most icebergs in the world, this one will get bigger instead of shrinking.