The catchphrase “this time it’s different” is a famous indicator of asset bubbles, but could it be that “this time it’s different” turns out to be true on the downside?

Does the unwinding of decades-long trends (rising asset prices, debt-fuelled consumption) mean that we need to steel ourselves for a lower-return future?

Two weeks ago the secretary to the Treasury, Dr Martin Parkinson, dropped a fiscal bombshell that’s drawn remarkably little comment, even though - or perhaps because - it blows the budgetary calculations of both sides of politics out of the water.

Parkinson said that since the global financial crisis, federal tax revenue had fallen by the equivalent of 4 percentage points of gross domestic product [about $60 billion a year] and was ”not expected to recover to its pre-crisis level for many years to come”.

This had made the task of maintaining medium-term budgetary sustainability harder for both the Commonwealth and the states. ”For both levels of government, surpluses are likely to remain razor-thin without deliberate efforts to significantly increase revenue or reduce expenditure,” he warned.

Why do value investors persist in declaring that they can’t time the market without even trying? At the same time, why do technical traders persist in treating shares like cabbages and trade Woolworths or CuDeco without respect to quality and therefore risk? Why not try a little bit of both? Being narrow in approach is an Achilles’ heel for any investor and, in a very nervous market, why would you close your mind to anything that helps?

High levels of debt are important for the Western world today, but more as a wake-up call than as a problem in themselves. They tell us that economic restructuring cannot be put off much longer. The trend across history is that debt levels move in the opposite direction to economic vitality. Big debts are a symptom of an economy not doing well. They are the canary in the mine rather than the dangerous gas build-up. Trying to deal with debt directly is as foolish and dangerous as trying to revive the canary when you should be dealing with the gas.

As Malcolm Turnbull explains in this article:

When a cabinet is presented with a surplus it is sorely tempted to spend it on some or all of the following: tax cuts, hand outs to politically important interest groups, infrastructure (often in marginal seats) and of course at the same time with lots of money sloshing through the doors it is very hard to persuade ministers to cut the costs in their own departments. “Why should my department have to cut back when Buggins over there is getting a few hundred million for his new project?”

Now one of the biggest problems with this temptation is that more often than not with an economy like ours the fat years, the years of surplus, are a consequence of a commodities boom – the revenues aretherefore in large part cyclical. But the expenditures governments are inclined to make, or increase, are more often than not structural – that is they will continue or be expected to continue into the future.

If, rolling in a big cyclical surplus, a government were to cut income taxes, that may not immediately send the budget into deficit. But when the cycle turns, tax receipts drop, unemployment benefits rise, the tax cut will still be there and reversing it will cause much more political pain than delivering the cut derived political joy.The same is true with increases to benefits or indeed to new benefits – if these are funded from cyclical surpluses then they may be contributing to a long-term structural deficit.

Of course, governments can just rack up surpluses and have the money in the bank, but without a specific savings objective the arguments for ‘giving us our money back’ are pretty compelling in a political sense.