Crikey



Here’s the real story of Australian debt

Of all the campaigns against Labor in News Limited publications, its latest one on government debt is the most deeply hypocritical.

The “exclusive” today purported to reveal Prime Minister Julia Gillard would be leaving $14,238 in debt to every working Australian (journalists John Rolfe and Gemma Jones used the wrong workforce number and inflated the calculation, but never mind that). Like the Coalition’s version of recent economic history, the piece airbrushes the global financial crisis from its account of events.

That’s the financial crisis that Tony Abbott recently said had ended nearly four years ago, and that Bank of England governor Mervyn King said on Monday was “far from over”.

The hypocrisy lies in this: let’s assume the Rudd government had done what Christopher Pyne says the Coalition would have done and run surpluses during the financial crisis, thereby ripping tens of billions of dollars out of the economy while the financial crisis and ensuing recession was unfolding. In the absence of the Rudd government’s stimulus packages, and with another $25 billion+ pulled out of demand, Australia’s jobless rate would have soared, particularly in industries like construction, retail and manufacturing. The result would have been massive unemployment across areas like western Sydney — exactly the area whose interests The Daily Telegraph purports to represent. In effect, the Telegraph is telling its readers it would have preferred if many of them had lost their jobs just so we could stay debt free. Still, it’s easy for News Ltd journalists and editors working in Surry Hills and in the bubble of Canberra to cavalierly dismiss the importance of keeping a job for a tradie or shop assistant living in Blacktown.

The hypocrisy goes deeper. Without the Rudd government’s stimulus program, particularly its cash handouts, the advertising market would have crashed far more spectacularly than it did in 2009. And what are the main beneficiaries of the advertising market? Media companies like News Ltd. Careful what you wish for, chaps.

The Tele’s article invoked some heavyweights to back up its case, including Saul Eslake, who told Crikey he’d been taken a little out of context in the piece. According to Eslake, Rolfe had contacted him to ask if Australia faced a debt crisis. Eslake’s reply was that Australia didn’t, and he compared us with Canada, which will not return to surplus for some years and will likely have a debt approaching 30% of GDP, compared with 11.5% for Australia. Over time, Eslake suggested, Australia might develop a problem due to the actions of a number of governments, including the John Howard government. This prompted Rolfe to ask how soon it would become a crisis, which Eslake answered by noting a debt crisis can come on very quickly — “the lights don’t turn amber, they turn red”. This, said Eslake, was portrayed as him saying a debt crisis was around the corner and it was entirely the fault of this government.

We have a fiscal problem,” Eslake said, “because what was a temporary surge in revenue before the financial crisis from corporate tax, the GST and capital gains tax was used to fund permanent increases in outlays in welfare programs, public sector payrolls (chiefly by state governments) and subsidies and transfer payments, as well as tax cuts. I was one of the few saying around 2005-06 that this surge wouldn’t last. Chris Richardson did too, there weren’t too many others.”

As it turns out, the world of debt is a lot more complicated than journalists and editors might have us believe.”

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106 Responses

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  1. I think you have a typo in the AUD to USD value. $1.48 would be truly alarming!

    by smogdownunder on Mar 27, 2013 at 1:43 pm

  2. The comparison of national debt to home credit card debt is one of the more idiotic lines to come from News Ltd. The two have little in common, other than the fact that they’re both types of debt. But it’s easier and quicker to say than, for example, a media organisation providing an understanding of how an economy actually works, which sounds terribly time consuming.

    by littlemaths on Mar 27, 2013 at 2:00 pm

  3. Everything is much more complicated than News Limited papers claim.

    by Steve777 on Mar 27, 2013 at 2:09 pm

  4. Great piece Bernard and Glenn. I’m confused by something though:
    “High-quality debt, like that offered by the Australian government, is in short supply…. Australian bonds pay 3% or better, which is more than you can get in the US, Japan or the UK and Europe.”
    If Australian debt is AAA rated, why do our bonds pay more than those offered by the US, Japan, the UK or Europe?

    by Myriam Robin on Mar 27, 2013 at 2:11 pm

  5. I have read some facinating conclusions drawn from a set of facts in my time, but seldom have they reached the height of Bernard Keane in the justification of more debt.
    He defends this government’s borrowings on the grounds that the world needs more AAA debt. Well if that is the case borrow away like there is no tomorrow.
    I wonder if our children will feel the same when they have to repay it

    by Roy Travis on Mar 27, 2013 at 2:13 pm

  6. The debt is ‘real’, though (not just ‘pump priming’ debt from the central bank, like the QE approach in the USA) - I read somewhere that govt bonds held by foreign govts is around $200bn.

    If it is as real a problem as the Tele suggests, then luckily the debt could be repaid in a decade by (a) halving tax concessions for super, (b) abolishing the health insurance rebate, and (c) reducing private school subsidies for schools charging fees greater than say $10k pa.

    All we’d need is a govt with the guts (and parliamentary majority) to make these pretty straightforward changes.

    Anyone? Anyone?

    by Michael on Mar 27, 2013 at 2:14 pm

  7. Myriam - the higher the quality of the debt, the more likely it is to be repaid, which makes it a safer investment.

    Roy - I don’t think you understand how national debt works. The argument that all debt is bad is ridiculous, and completely unfounded, and leads to the kind of recessions currently brewing in fiscally austere places like Britain, about half of Europe, and Victoria.

    by littlemaths on Mar 27, 2013 at 2:21 pm

  8. Facts and the Australiar have been strangers for quite some time now.
    Why give them any oxygen?
    In the strictest interpretation of the word, the Australiar has by its own admission not been a ewspaper for some time.
    They have chosen sides - their choice that they must live with - but why people continue to include them among news suppliers is beyond me

    by drovers cat on Mar 27, 2013 at 2:23 pm

  9. Ah, yes. Gemma Jones. The quality of her News Ltd articles on government debt would appear to be of just as high a quality as her News Ltd articles on climate change.

    by extra on Mar 27, 2013 at 2:31 pm

  10. Hi Littlemaths - that’s the point. If something is more likely to be paid back, it should offer a lower rate of return, not a higher one.

    by Myriam Robin on Mar 27, 2013 at 2:32 pm

  11. Has anyone thought about reporting News Ltd to the Press Council? Oh, wait …

    by margie bell on Mar 27, 2013 at 2:36 pm

  12. Having read the Liberal manifesto “Real Solutions for all Australian” I found it difficult to find how Abbott was going to reduce debt.

    The plan is to repeal the CT(sic) and the MRRT, two forms of “income” for the Govt.
    Reduce business tax (in contradiction of the 2% business tax increase to pay for maternity leave.)
    Cut ‘red’and ‘green’ tape which is not a saving to govt but is for business.
    Reduce taxation for families and singles.
    Introduce the $3 billion Direct Action Carbon Plan and there is a $2 billion compensation package for the polluters.
    Sack 12,000 public servants if they are making $50K a year that saves $6 million….a bit short of paying off debt

    by Achmed on Mar 27, 2013 at 2:36 pm

  13. Myriam - oh, right, I getcha now. Don’t know the answer to that one, I’m afraid.

    by littlemaths on Mar 27, 2013 at 2:40 pm

  14. Good article and the dangers of a Abbott govt to the economy should not be understated.
    If he pursuits a surplus at all costs pay down the debt as fast as we can strategy a recession looms but what makes it woarse is that if he wants to do it and fund his direct action plan, paid parental leave, tax cuts, pension increases and rolling back means testing of things like private health rebate & FTB while removing revenue in the forms of a price on carbon & MRRT he will destroy the public sector completely.

    by Jimmy on Mar 27, 2013 at 2:40 pm

  15. These simplistic, Limited News’ appeals-to-the-lowest-common-denominator comparisons with “household debt (doing PR work on behalf of the public image of their Coal-ition - denigrating their Labor opposition) - how many of us didn’t need a mortgage to buy our home? Or a loan to buy a car?

    by klewso on Mar 27, 2013 at 2:45 pm

  16. Saul Eslake, as so often, has it exactly right. He’s been in a position to observe since the late 70s and plays it straight. I suspect he would strongly agree however with the critics of the ALP government who point to the waste in the way it went about its big stimulus package (which resulted in unneeded expenditure going on far too long as just one objection), the purely political way in which the NBN plan was got up (there’s over $40 billion not offset by asset value to justify the borrowing), the union domination of the government which, not least, has undone pre-Howard reforms to Industrial Relations and the early Howard-Reith reforms, its spin (albeit no longer working) and its sheer pragmatic anything-to-win elections ethos (totally undone of course by internal division, personal hatreds and amazing incompetence in planning and execution…)

    by Warren Joffe on Mar 27, 2013 at 2:47 pm

  17. Funny that news ltd revs up the old debt truck the week after there were several questions in the parliament about government debt.

    by rossmcg on Mar 27, 2013 at 2:48 pm

  18. Roy Travis: we all take on debt. Businesses, households and governments take on debt for different reasons. When I borrow to buy a home, it is to avoid being homeless until I can save up the price.When a business borrows to make an investment, it expects that its earnings will be greater having made the investment now than by waiting till they have saved up the money. Governments borrow to fund needed infrastructure that promotes economic growth or prevents recession. With good tax policies, they will be able to pay it back with expanded revenues derived from the growth. Will our children thank us? Well, yes, if it means they have jobs from which they can tax and would otherwise have been unemployed. My children will say that it better to pay off national debt than to be paid the dole. I don’t agree with Eslake about the Coalition. The Telegraph is signalling what it expects and pumping out propaganda to persuade people in Western Sydney that it is better not to have debt and be unemployed. Except they won’t say that, being a propaganda rag.

    by Hunt Ian on Mar 27, 2013 at 2:52 pm

  19. Myriam - I cut and pasted this from another website “The yield required by investors to loan funds to governments reflects inflation expectations and the likelihood that the debt will be repaid.”
    So I would expect that given the liklihood of repayment isn’t significantly different between us and the US or Japan the fact that the other economies are by and large in recession and therefore have less liklihood of inflation then the bond rate would be lower (but am happy for someone to correct me).
    It is also worht pointing out that in 2010 the bond rate got as high as 5.75% so it is a lot lower now.

    Another factor that might come into play is demand, Japan for example funds a lot of it’s bonds from within, it has relatively small foreign debt because the majority of it’s bons are held by citizens. I am not sure as to why but it could be cultural (having to buy bonds to rebuild the county after WW2 could of instilled almost an obligation attitude) or it could be that other investments give a worse return.
    I hope this helps but I also hope someone else gies a more confident explanation.

    by Jimmy on Mar 27, 2013 at 2:52 pm

  20. Myriam, I believe the interest rate reflects the RBA cash rate which in Australia is much higher then those for overseas central banks. I see you point with regards to our AAA rating though. It seems a little counter-intuitive from the standard risk/return model you’d expect.

    by Reuben Barnes on Mar 27, 2013 at 2:54 pm

  21. Michael,

    You say, “If it is as real a problem as the Tele suggests, then luckily the debt could be repaid in a decade by (a) halving tax concessions for super, (b) abolishing the health insurance rebate, and (c) reducing private school subsidies for schools charging fees greater than say $10k pa.

    All we’d need is a govt with the guts (and parliamentary majority) to make these pretty straightforward changes.”

    Who, might I ask prevented the government making the changes you suggest? Was it the Greens, the independents or both? And did the government try to do as you suggest which I agree would be sensible things to do?

    Of course there are other ways to reduce deficits like say reducing “defense” expenditure and subsidies to big corporations especially the polluting ones.

    by Ian on Mar 27, 2013 at 2:55 pm

  22. @littlemaths

    You overlook the problem of running debt fueled policies in provincial economies which are even more susceptible to cross-border exposure than were countries like the UK when Keynesian prescriptions would have been just right for a largely self-sufficient economy such as the US in the early to mid 30s.

    Victoria tried being “Keynesian” (don’t blame Keynes though) in the 80s when Rob Jolly, Cain’s premier didn’t seem to understand the problem of the provincial economy which, as well as the cross border problems, doesn’t control interest rates or have its own currency (cf. the Eurozone countries on the southern periphery).

    If you read “austerity” as just a synonym for achieving needed internal devaluation (EZ but also the UK though it has its own currency) it makes more sense though one could argue for greater early write-offs for big bondholders such as German and French banks. In Victoria’s case it is to be hoped that they can get a favourable outcome from competent cost-benefit studies of major infrastructure projects which could now be financed at historically low interest rates. Melbourne, after all, has to maintain its comparative advantage of being a very liveable *large* city with a concentration of skills and talent. But borrowing just to keep up government outlays is decidedly not the right way to go for the states.

    by Warren Joffe on Mar 27, 2013 at 2:57 pm

  23. Thanks Crikey, a clear view factual stats and all!
    Since this is the “Blanket” view that economists have put forward for four years with monthly updates on the facts and continuing trends etc. I hope for Australia’s
    sake that articles like this FACTUAL account can gain some traction with a public in obvious cognitive dissonance.
    ie. an entirely self funded retiree, no superfunds or fixed pension, sure I would love higher interest rates, but I am doing just fine, I receive NO Govt assistance. I pay tax, I belong to a Health fund (since late teens).That I am considering leaving as it is double dipping into and removes funds from the public system, the Govt rebate for Private Cover + more, I donate to Medical Foundations. No mortgage, I am not rich. I REVOLT against the “middle class entitlement welfare” THE time bomb for our economy left to us by a previous Gov’t THAT money properly funded, BELONGS to society to fulfil our obligations to those that in genuine need, and thereby provide equality of opportunity for access to excellence in Public Health, Public education, Aged care, Disability services decent Public services. End rant!

    by GF50 on Mar 27, 2013 at 3:01 pm

  24. @ Hunt, Ian

    What don’t you agree with that Saul Eslake said about the Coalition?

    If, btw, you are in favour of paying off debt then I agree that, broadened to liabilities such as “entitlements” we should not be over optimistic in our fiscal planning. Despite tne virtual certainty that we will benefit from even greater rates of innovation than in the last 250 years we shouldn’t underrate the problems of demographic change including the rapid ageing of the population with greater numbers of elderly dementia sufferers, nor swift adverse changes in the terms of trade or the expenses of defending ourselves going up…. The old idea that public sector pensions, like the OAP, could be paid from the revenues derived from an evergrowing population in a growing economy seems to be largely behind us fortunately thanks to Kennett government reforms in Victoria, where the situation was bad, and to some extent, Costello’s Future Fund federally.

    Of course the OAP burden on the young is hardly going to be diminished at all because of poor design of the superannuation arrangements under successive governments.

    by Warren Joffe on Mar 27, 2013 at 3:04 pm

  25. Interesting how readily we allocate other people’s money to good causes (as they are in our judgment). Of course there are some of us who can readily agree that we have been lucky (even quite a lot of Aborigines today because of the natural resources that China and Japan buy in a big way, but very few of us could claim much of a moral right to be in our happy position as Australians are generally even if we believe the sort of humbug which calls about-to-be-discovered-with-great-application-of-technology minerals in WA “our resources”). But that doesn’t mean that we think generously of the politicians who compete to spend our money in a way which will win power and keep their bums on the limo seats, so we are perfectly reasonable in objecting to the tax we have to pay.

    It is also interesting that recent surveys have found people quite unwilling to pay more tax for many things that are usually approved of. It used to be that we would piously say we were willing to pay more tax to employ more teachers or whatever even though - or because - the majority of those answering would in fact pay very little indeed. Now not even that majority exists. Is this because we really do not like the careerist politicians who have almost completely taken over the ALP and are making inroads on the Coalition?

    by Warren Joffe on Mar 27, 2013 at 3:19 pm

  26. Warren - I agree with what you’ve said. It’s a matter of balance, as most things are. And yes, it seems very easy for Keynesian policy to be badly timed, or badly applied. The answer isn’t to simply stick to Hayekian principles. Just as hardcore Keynesianism is ill-advised, so is hardcore Hayekianism.

    by littlemaths on Mar 27, 2013 at 3:20 pm

  27. Great article Bernard and Glenn! Some facts for a change.

    @ Warren Joffe - doesn’t matter how you cut it, if Australians want a first class health and education system, (on top of everything else the government provides) they have to be paid for. There is already a structural deficit in the federal budget, caused mostly by the explosion of middle class welfare and repeated tax cuts handed out under Howard, so that means the government needs to increase revenue to cover existing programs, and to pay for things like the NDIS. Are you saying we shouldn’t maintain out world-class health system, introduce Gonski or fund better services for the disabled? I think there would be a lot of people who would disagree with you, if that is the case.

    by CML on Mar 27, 2013 at 4:19 pm

  28. How about this economists?

    Debt to GDP percentage

    Public debt is the most relevant data for discussions of government default and debt ceilings. Although of similar magnitude for the US (2010), it is different from external debt, which instead reflects the foreign currency liabilities of both the private and public sector.
    The figures here are represented as a percentage of annual gross domestic product. The public debt relative information provided by national sources is not always objective and
    true, given the fact that there is no independent research in these matters.)

    Australia: 26.9

    Austria: 74.3

    Belgium: 101.1

    Brazil: 54.9

    European Union 82.5

    US 73.6

    Germany: 80.5

    France: 89.1

    Japan 218.9

    Sweden 38.6

    by John Newton on Mar 27, 2013 at 4:25 pm

  29. The federal government debt is almost entirely a political problem and not an economic problem. The stupidity of committing to a surplus, spending massive social welfare payments on uncertain tax revenues and Swan’s lack of love for Australian businesses are very damaging to the current government.

    The trajectory of debt is a political problem as well. Though it’s not bad today, one can’t help worrying that the Gonski education reforms, the NDIS, the failed mining tax and the likely funding burdon from the NBN failed business will mean that a future ALP government will simply let the debt soar until it is a genuine economic problem. Surpluses are desirable over the long term, especially when our terms of trade are very good - as they have been over the past 10 years.

    I’m not holding my breath that an Abbott government will run surpluses. I think Eslake is on the money and hope that the Hockey/ Turnbull/ Robb/ Sinodinos set prevail in setting Coalition government policy.

    Growing the economy is the best way to generate a surplus. Fiscally responsible government spending is good but governments of all types find it very hard to do.

    by David Hand on Mar 27, 2013 at 4:27 pm

  30. Good article Bernard. I am no bean counter but understand from this that debt is just another tool in the management of an economy. Unfortunately this doesn’t fit Abbott’s narrative especially as he doesn’t have one on economics anyhow. As others have commented the coalition and News Ltd’s continued attack on labor’s debt is just oversimplified soundbite put out for those that don’t or don’t want to know better.

    A good example of Abbott’s dangerous economic management is the no confidence motion he’s threatening in May, see this:

    http://ausvotes2013.com/2013/03/25/no-confidence-no-budget-what-happens-if-a-motion-of-no-confidence-passes-on-budget-day/

    by mikehilliard on Mar 27, 2013 at 4:30 pm

  31. don’t worry, abbott will change his tune once he gets in. so will the msm. and so-called “middle-australia”, who can’t tell their ar5e from their elbow will duly fall in line. the sun will rise and the sun will set and so the story of australia human-sheep hybrid population will continue. uugggh.

    by Clinton's Accountant on Mar 27, 2013 at 4:36 pm

  32. Let’s say say the Govt did what Pyne suggests. What would have been the outcome? No one off payments to the general population, leading to lower retail spending and loss of jobs in that sector. No school halls leading to loss of building and construction jobs. No insulation leading to loss of trade jobs. Unemployment rises quickly, tax revenue collapses, welfare payments increase and the downward spiral begins. Govt debt rises as s consequence. So, make your choice! No jobs, no hope, corporate and mortgage debt default, banks under pressure, a downward spiral and rising Government debt. Or, stimulus leading to rising government debt, jobs maintained, corporate and mortgage debt default limited, temporary pressure on banks but hope. Well done Labor, I say.

    by michael in melbourne on Mar 27, 2013 at 4:38 pm

  33. The misinformation or ill-informed comments continue.

    The MRRT has not failed. It is designed to collect tax when the miners make “super” profits. As the price of ore has dropped they are not making the “super” profits and are not having to pay the MRRT. When the price recovers they will have to pay the tax.

    This is a tax that should have been introduced 15-20 years ago, like the PRRT

    by Achmed on Mar 27, 2013 at 4:42 pm

  34. Ian Hunt, I readily acknowledge that we borrow, as individuals, for good purpose, a car or a house.
    What is seldom mentioned in discussions on government borrowing is that all we get for it is “pink batts” “green loans”, “cash for clunkers, overpriced school libraries and now the looming white elephant of the NBS.

    by Roy Travis on Mar 27, 2013 at 4:59 pm

  35. Roy Travis, and where did the money for pink batts and school halls go? Into the economy! Where it is meant to be, to be spent over and over again in purchasing and employing. A big surplus is money not being used productively, especially given the threat of a global reccession. Read an account of Franklin’s Roosevelts time during the great depression. His New Deal set America on the path to the richest time in their history the 50’s and 60’s. Since Reagan the American middle class have not moved forward at all and the poor are poorer.
    What’s the expression? “those that ignore history are destined to repeat it”

    by Recalcitrant.Rick on Mar 27, 2013 at 5:11 pm

  36. Of course the LNP and the lack of economic aptitude of Abbott are banging the supposed debt “problem” for all its is worth. Scaring people has long been an LNP favoured tactic. Sadly it will probably prove effective and provide cover for wholesale privatizations and other slash and burn exercises when/if? they are elected.

    by Harry1951 on Mar 27, 2013 at 5:15 pm

  37. Roy Travis: on what basis do you claim the NBN will be a white elephant? It has barely started being rolled out and will eventually replace the ageing copper network to become an asset for this country. But it must be given time to demonstrate its value.

    by Harry1951 on Mar 27, 2013 at 5:17 pm

  38. Roy Travis - The school halls and pink batts programs have been found to be good value for money by subsequent investigations and the NBN won’t be a white elephant.

    You might need to get some perspective.

    by Jimmy on Mar 27, 2013 at 5:18 pm

  39. And Roy Travis, a million homes are warmer in winter and cooler in summer and using (I imagine) less electricity/gas. And why don’t you whip round a few schools and see if they think their new halls are a waste of money and then ask a lot of parents whether they like the idea that their kids have a new gym/meeting/whatever place!

    by Recalcitrant.Rick on Mar 27, 2013 at 5:21 pm

  40. @Myriam:
    “If Australian debt is AAA rated, why do our bonds pay more than those offered by the US, Japan, the UK or Europe?”

    Those four jurisdictions’ central banks are controlling the entire yield curve for government debt securities (overnight out to 30 years and beyond), whereas ours is controlling only the short (overnight) end. That’s a policy choice. Also, when the proverbial hits the fan, capital is pulled from the periphery of the US Empire back to the centre, into US Treasury bonds, thereby lowering their yields.

    In practice, the governments of Australia, Britain, Japan and the US have no default risk because they issue their own fiat currencies - so the idea of assigning credit ratings is a nonsense. The Eurozone governments are mere users of a foreign currency.

    by Are you free? on Mar 27, 2013 at 5:36 pm

  41. Let’s see if I’ve got this right:
    1. Every other country in the world is economically f%#&*!.
    2. Therefore, people want to loan money to Australia - Australia should be encouraged to increase its debt levels.
    3. Australia is still being effected by the GFC.
    4. The GFC is “far from over”.

    So when the GFC actually brings a few overseas countries down into ruin, such that they default (even more than they already have) and end up say, purchasing less Australian products (or none), which triggers a flow-on affect to Australia and causes an economic issue in Australia (reduced GDP, recession)… It will be a good thing that we’re carrying loads of debt at that time?

    Riiiight…

    by John64 on Mar 27, 2013 at 5:46 pm

  42. Great discussion on this site this afternoon. The debt crisis seems to me to be the most cynical of all the Coalition scare tactics, notwithstanding the irony that noted accountant to regional Queensland small businesses, Barnaby Joyce is usually its mouthpiece. He’s always going on about $100 million a week or some such, playing on Ben Chifley’s observation that once there’s more than six zeros, most ordinary people lose all sense of scale - it simply sounds like a LOT of money and when it’s on the debit side, bad.

    by Damien on Mar 27, 2013 at 5:49 pm

  43. Ah yes…. all that dastardly waste of School Halls disputed entirely by Stephen O’Doherty.. ex NSW Liberal Shadow Education Minister, Chief Executive Officer with Christian Schools Australia, who disputes every fact. So baseless the facts, the Christopher Pyne’s own bill for a judicial inquiry into the $16.2 billion schools building program lacked one sole vote…. his own. Pyne never arrived to vote.
    A media blackout this monumental embarrassment or cowardice concerning an issue he bathed himself in glory in shock jock land…. so with great generosity Pyne obviously lacks the intellectual basics to arrive for a vote on his own bill… and every other alternate reasons I will leave to the imagination.

    by Diane Patricia Harpley on Mar 27, 2013 at 5:56 pm

  44. Yes, the debt story is complex, and quite a few of the complexities are ignored by Bernard and Glenn:

    1) The crisis that hit Ireland, UK etc during the GFC demonstrated how quickly private debt can become public debt when governments have to step in to protect the banking sector. Australian private debt dwarfs public debt and this debt transmission could easily happen here, faster than you think. No Australian government is going to let a major bank go under (not if it wanted to stay in power anyway). While in opposition Swan endlessly prattled on about the “private debt mountain”. He never mentions now.

    2) As important as the growth on debt is what the debt is incurred for. Borrowing to build value-creating infrastructure there be justified. Borrowing to fund current expenditure, especially vote-buying giveaways like the school kids bonus, is just plain dumb. And Swan / Gillard do this a lot. Their idea of “economic policy” is to spend more money.

    3) Sure our current public debt seems small by international comparisons and easily serviceable, but consider the SPEED with which this debt has grown and that the current government has proved to be utterly incapable of charting a credible path to bringing it under control. Swan will NEVER deliver a surplus, which is another way of saying our public debt would just grown, and grow, and grow…and with it the cost of servicing this debt.

    By the way the claim that “….in the absence of the Rudd government’s stimulus…Australia’s jobless rate would have soared” shows that Bernard and Glenn have just been sipping the Swan cool-aid. Chinese demand for our resources is what saved us during the GFC.

    by Daniel Maurice on Mar 27, 2013 at 6:05 pm

  45. Investors put their money into Australia because it has a strong economy and provides a good return for their investmnent.

    by Achmed on Mar 27, 2013 at 6:13 pm

  46. Former Austrian chancellor Bruno Kreisky famously once said, “A few billion more in debt will give me less sleepless nights than a few hundred thousand out of work.” How true those words ring today.

    by David Settelmaier on Mar 27, 2013 at 6:14 pm

  47. Daniel - you forget the number of mines that closed and the numbers of people that the mining companies sacked. BHP alone sacked 2,000 from its mine in Ravensthorpe

    Even at its peak mining only employs 1.9% of the total workforce. More people are employed in tourism and the finance industries.

    by Achmed on Mar 27, 2013 at 6:18 pm

  48. Bernard,
    Why are quoting Christopher Pyne instead of Malcom Turnbull?
    Turnbull is on record during the GFC as suggesting deficit spending around half of what Wayne Swan ended up spending. That is why the Coalition waved through the first $10.2 billion stimulus package but opposed the second stimulus package as being too large.
    You are wrong to use some silly Christopher Pyne theatre as a basis for arguing what the Liberal party would have done during the GFC. Instead you should have based it on what the Liberals said and did at the time of the GFC.

    by Clarke Steve on Mar 27, 2013 at 6:18 pm

  49. Daniel, I suspect you’re right about Chinese demand and the GFC, just not sure how much of it retailers and building workers in the capital cities saw.

    by Damien on Mar 27, 2013 at 6:21 pm

  50. Daniel Maurice, Show me your figures! What proportion of GDP do you think mining contributes? What percentage of the workforce does it employ? Show me your proof that China saved us! It helped us, yes, but saved us? show me your figures!

    by Recalcitrant.Rick on Mar 27, 2013 at 6:25 pm

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