The only thing more annoying than
governments telling porkies about their debt levels is so-called guru
commentators falling for it. News Ltd’s Terry McCrann spouted the
following bunkum in The Weekend Australian last year:

Now we have $650 billion in super funds and growing by $50
billion or more a year. There is, on one hand, a need for a place to
invest that money. Enter the second biggest change: the almost total
elimination of all government debt – Commonwealth, state and
semi-government; along with, of course, the almost total elimination of
the actual semi-government entities themselves.

As we
pointed out at the time, Australian governments actually have more than
$100 billion of gross debt and almost $150 billion of unfunded
superannuation liabilities and the worst offender is the Commonwealth
with about $40 billion in debt and $98 billion in unfunded super.

However,
the message just isn’t getting through because John Howard has been
telling the same porkies to the Indians this week and The Australian‘s economics correspondent David Uren twisted this even further today when he wrote:

The Commonwealth will end the financial year with no net
debt for the first time since Federation. The final payout of the
Government’s debt had been expected to require the sale of the
Government’s final, 51.8%, stake in Telstra. At some point in the next
three months, the Government expects to move to a position where it
will have more financial assets than liabilities, marking a $96 billion
cut in the nation’s debt load since the Howard Government came to
power.

John Howard told an audience in India yesterday the
achievement represented a “remarkable performance”, saying the average
for OECD countries was a debt load representing 48-50% of GDP. The
milestone will mean the Government’s net interest bill will fall to
zero.

“More financial assets than liabilities” eh? Well
why does the latest Federal budget project a negative net worth of
$27.7 billion by 30 June 2006.

After ten years of so-called
economic and budget reform along with a property and commodity boom,
the Federal Government is still the most insolvent institution in
Australia, albeit one with an almighty taxing power. Here are all the
figures from last year’s budget:

Negative net worth of Federal Government

1996-97: -$74.35bn
1997-98: -$68.54bn
1998-99: -$76.15bn
1999-00: -$40.55bn
2000-01: -$43.30bn
2001-02: -$48.32bn
2002-03: -$53.25bn
2003-04: -$39.59bn
2004-05: -$31.98bn
2005-06: -$27.78bn

However,
we were actually wrong in our ten year comparison on the all important
measure of unfunded federal public service superannuation liabilities.
Rather than a $15 billion blowout to $90 billion over the past ten
years, it’s actually been a calamitous $29 billion explosion to a
record $98 billion. No responsible economic manager would ever have
tolerated that and it is illegal for private sector employers not to
provide for super.

Uren is also specifically wrong to talk about
“the final payout” when the Federal Government has more than $40
billion in debt in the bond market. Then you have the fact that our
Reserve Bank has one of the lowest stashes of foreign reserves in the
developed world, which is hugely relevant in any discussion about net
worth and financial management.

These breathtaking distortions
are really Enronesque in their scale. The only honest measures of
government financial performance are the annual profit and loss
statement (budget outcome) and the annual balance sheet which must
include unfunded super to give a true picture of net worth.

Peter Fray

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