Wednesday, May 10, 2017

2017 Budget - Good debt and bad debt


The key takeout and massive mind shift is the seperating of

"Good debt"


"Bad debt"

In this 2017 Budget , the intention to segregate this debt is great! 

There is "good debt" 

It doesn't matter how much one spends on infrastructure if the spending is done right and the asset that is built or purchased is quality and it's value will grow over time. 

Borrowing to invest in infrastructure, education, roads , hospitals, bridges, planes , trains,  networks is "good debt" - and the return will be a multiple over the next 100 years - leaving a legacy to our children and their children. 

Our children may have a debt against these assets - but these assets should grow 10X  and the debt against these assets should be able to eventually be paid off as a result of a return from these assets, and if it isn't paid off, that's ok, as there should be enough income and value derived from these assets to pay this debt. 

The return could be in the form of increased house prices, more immigration of the right people, more investment, more tourism, upskilled workforce, healthier community, or even selling these infrastructure assets to private equity!

Borrowing to create something that will have a future value - this should be uncapped! 

And then there is bad debt!!!! 

There are vital expenses that need to be paid - such as - to fund the dole, to fund day to day expenses, paying for politicians, paying for police force, paying pensions and medical costs for the community, social security. These services are absolutely necessary , however these should be funded from income generated from the community. If you have to "borrow" to fund these expenses - this "borrowing" is bad debt.

In summary , borrowing on income-earning infrastructure is good, but borrowing for everyday expenses  is bad. 

I think the government has nailed this budget! Congratulations 

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