Seen Malcolm Turnbull’s new ad on debt? (see here for the version with spaghetti western-level dubbing http://www.liberal.org.au/).

[youtube]http://www.youtube.com/watch?v=QyoxKHjtWNY[/youtube]

We thought we’d subject the claims of this advertisement to some scrutiny.

Kevin Rudd and Wayne Swan have lost control of our economy.

I prefer my economy not in the control of politicians, actually. Perhaps Turnbull means “lost control of the budget”, which might make more sense. Except, it was only the other week that Joe Hockey was saying at the Press Club that most of the Budget in fact isn’t within the Government’s control.

“The reality that around 95% of expenditure in each budget is politically non-discretionary for the government. Funding for pensions, unemployment benefits, defence, Medicare, schools and so on, is effectively locked in unless – and this is very important – the government is prepared to accept the risk of substantial electoral pain. Governments would deliver radical change if they were to tinker with 95% of the Budget.”

So presumably what he meant was “Kevin Rudd and Wayne Swan have lost control of the 5% of the Budget that is politically discretionary.” Anyway, we quibble. It’s a good opening line for an ad, reminiscent of those “I’ve lost…!” ads The Late Show used to mock.

18 months ago we had no debt and cash at the bank

Now they are plunging us into over $300b of debt.

Nice elision, although I’m not sure about “cash at the bank”. Sounds rather old-fashioned. Turnbull carefully avoids any reference to the global economic crisis of any kind, making our current fiscal position the result of a giant act of economic vandalism by Labor.

It is, though, not strictly accurate. 18 months ago, as now, we had a structural budget deficit papered over with mining boom proceeds. Once the boom ended, it turned out there wasn’t any more cash at the bank.

They want us to believe that they can repay twice as much debt in about half the time that the Coalition did when we were in Government

The entire debate about at what point the Commonwealth will again be debt-free is nonsensical on several fronts, even without discussing the CPI in 2022. It demonises debt, which in the hands of most households and businesses is a critical tool for growth and prosperity – and they pay higher interest rates than governments. And it assumes a level of government control over its own revenue that is fanciful. A return to pre-GFC economic conditions, coupled with some basic fiscal discipline, will see a rapid return to sizable surpluses. A prolonged downturn or anaemic recovery will doom even the most disciplined government to years of deficits or marginal surpluses. You can’t conjure up money when it isn’t there.

As for the Coalition’s effort in the 1990s, in 1996 government revenue was $132b. Next year, mid-recession, it will be $290b, so this Government has more than twice the revenue. The Coalition had two good budgets in 1996 and 1997, and then progressively succumbed to indiscipline, leaving the budget in poor structural shape when they left office.

It just doesn’t add up

We must get Labor’s debt under control

Absolutely. Which makes this exchange last Thursday between Turnbull and a journalist a bit peculiar.

QUESTION: What does the Coalition regard then as an acceptable level of debt?

MALCOLM TURNBULL: Well, the level of debt should be no more than is absolutely necessary.

QUESTION: What level, what number?

MALCOLM TURNBULL: Well, it’s not a question of a number.

It just doesn’t add up, but it’s not a question of a number? How’s that work?

Truth is, both the Government and the Opposition are lying to Australians. The Government was right to take us into debt the try to offset the impact of the economic crisis, quite apart from its impact on its revenues. But trying to seriously claim that it is capable of holding future expenditure growth to 2% when it struggles to make any tough decisions is asking too much. This is the Government that had added to the structural deficit with pension rises, with a piddling offset of increasing the retirement age by two years more than a decade hence, and committed to billions of extra protectionist support for industrial basket cases like the car industry out to 2020. This is the Government that refuses to really get stuck into superannuation concessions that cost the government tens of billions of dollars a year. 2% real growth? Are you kidding?

The Opposition is even worse. It’s not even clear whether the Coalition still thinks a stimulus package of any size was necessary, although it supported the first one. The tone of Turnbull’s ad is that all government debt of any kind is bad. There are only three ways of getting “debt under control” – raising more revenue, reducing spending, or hoping economic growth is much higher and increases your tax take. Having criticised Treasury’s Budget recovery assumptions, presumably the third option is off the table for the Coalition. Which leaves higher taxes or lower spending.

In a budget that is still stuffed with middle-class welfare and handouts to business and farmers, there are in fact loads of opportunities to significantly reduce spending. If the Coalition was genuinely committed to reducing the size of government, this ad could be taken seriously. They’re not.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey

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