Governments of developed countries around the world are running record deficits, and Greece has had to be bailed out. What will happen in the long term, and how will it affect you? Read on to find out more.

This article in the Washington Post says that the IMF wants developed countries to “rebalance”. What does this mean? It means that in order to pay for deficits (both fiscal and trade), we will need to purchase less, pay more taxes, earn less and pay more for imported goods. We should expect less of governments and work longer before retiring.

Well, government provides very little of what I want anyway, despite paying a large percentage of my income for it. I am not sure how my expectations of it can be further reduced. Now I will have to pay more taxes, for the little that they do provide. That leaves me with less for my family, and what I can buy will cost a lot more. All this because governments have regulated the labour markets and industry to make it difficult for local business to compete globally and because of a massive expansion of government programs to meet the demands of people who don’t have to pay for them which increases costs.

In Australia (where I live), the one industry that has kept us going is mining. I work in mining. Now the government wants to tax the industry more to pay for the areas that don’t have a mining industry. It is clear that the rest of the economy (outside of mining), in line with most developed nations, is going nowhere. It is referred to as a two speed economy – states with mining are doing well while the others languish.

Mining in Australia is shouldering the load because of the demand from China for raw materials such as iron ore. China is all that is keeping us going. Other than that, we have reached the end of the line. There are no options but slow decay.

Politicians will always find it easier to increase taxes than cut spending. I see that they will try to tax the rich (the rich being anyone who earns more than a politician) and tax business until both groups can no longer function. Eventually they will be forced to cut spending, firstly on infrastructure (hoping that it will hold together) and then when it is inevitable, they will have to cut transfer payments  (this is already happening in Ireland). There will be a revolt on their hands from the increasing number who rely on government programs and payments.

The workers in developed countries are productive and efficient but the taxes have increased their costs beyond what is viable.

Many developing countries have booming economies due to reasonably priced labour and lack of the taxation burden and unnecessary regulation found in the West. For example, Malaysia is a not particularly low tax country, but their top tax rate is 28%, compared to 46% in Australia. In Australia, there is a 10% VAT on virtually everything as well. Retirement contributions are taxed at 15%. Buying an average house generates a $30,000 stamp duty fee.

The wealth in developed countries has been bled away over time. It is now difficult to accumulate assets due to taxes, an unfair legal system and lack of economic growth so we are living off the work of past generations. Investment banks play with the economy and make bets on housing falling. The system is not set up for the ordinary person to succeed. Over time we will likely see infrastructure fall into disrepair as governments are unable to keep raising money from the falling asset base.

The developing countries often don’t have the management and technical skills found in developed nations and as such can benefit from expatriates. I see the trend as being for the most productive citizens of developed countries leaving their countries to their own messes and fleeing high regimes where they are the victims of class warfare and seen to be simply cash cows and selling their expertise to developing nations.

The other option is to build sustainable communities that don’t rely on the central grid of government provided services and can to an extent build their own internal economies outside of government interference and chicanery. For more on this, see the Sustainable community section of this site.

Tags: future, politics, wealth

This entry was posted on Saturday, May 1st, 2010 at 7:24 pm and is filed under Wealth and work. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.