The problem of debt

Over the past few months there has been a growing awareness of the problems caused by debt . Greece was near the point where lenders considered the country could not pay the interest, let alone repay the capital on its huge borrowings.

Government borrowings exceed the total annual output of the economy. Earnings especially from tourism have been hit especially hard.

The size of the debt problem has necessitated a massive trillion dollar bailout by other more financial European countries, plus the IMF.

Greece is not the only problem in Europe. Portugal, Spain, Italy and Ireland are also on credit watch.

The problem is simply, too much borrowing.
Debt is always a burden though normally manageable. Interest must be paid to the lender and eventually the amount borrowed must also be paid back. If there was no debt there would be no mortgagee sales, no bankruptcies, no sovereign debt issues.
With Greece far too much money ended up being wasted on social agenda's. So instead of adding to their productive capacity it simply propped up unsustainable programmes that might have made people feel good in the short term, but did nothing to grow the economy in the longer term.

Companies also get into trouble borrowing too much. Feltex was a classic example of getting it wrong and they went broke because the housing market slowed down in Australia and carpet sales slumped.

Closer to home the Hastings District Council is engaged in a spending binge. It started innocently enough with $6.2 million borrowed to build Splash Planet. This amenity was supposed to be self funding but patrons have failed to reach more than about half the numbers forecast, so losses totalling about $10 million have resulted.

The only way to make up the deficit is for the council to find the money. For council read ratepayers.
If that money had not been lost council would have been $10 million better off and that might have been available for other uses such as to fixing up the footpaths . Or it could have been left in ratepayers pockets.

Four years ago about the time when council debt started taking off some $15 million was spent upgrading the Opera House. While there were some generous contributions from local business ratepayers still contributed close to 10 million dollars.

Operating losses already amount to a further 3 to 4 million dollars.

Now the Hastings District Council is developing the new Sports park in Percival road. The cost seems likely to be $60 – 70 million. Though Nelson Park yielded $17 million after the site was cleared it seems clear work to date has exceeded this so ratepayers are already funding the shortfall.

While there have been some generous contributions from Unison and the Regional Council towards the proposed Vellodrome more than $10 million is still needed.

As Council debt has grown in the same period it is clear the Sports Park is contributing to the problem.

For the record Hastings District Council debt is forecast to grow to over $100 million up from $37 million in 2006. That's nearly triple the Debt in just 4 years and more than total annual council income from rates and fees.

The chances Sports Park will be self funding are near zero.

We are not yet a cot case like Greece though we are on a greasy slope. Its so easy for politicians to justify borrowing to fund pet projects, and so difficult to find the means to repay it when the time comes. Inevitably it is the little people who end up paying for the extravagances.