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Mar 27, 2013

Here's the real story of Australian debt

The real story of government debt is much more complicated than News Ltd papers claim. And there's a deep irony in their campaign against it, wrote Bernard Keane and Glenn Dyer in March.


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.”

There are other problems around debt, but they’re not the ones you expect. High-quality debt, like that offered by the Australian government, is in short supply. The Financial Times reported this morning there was a shortage of high-rated AAA debt in the world, as the number of top-rated economies had fallen since 2007. Why is that a problem? Big investors around the world (government agencies, central banks and transnational agencies) need AAA bonds, as do insurers. It’s a form of reassurance for them. That’s why more than 30 foreign central banks now have Australian dollar investments in their foreign reserves, and why giant insurers and investors, such as Warren Buffett’s Berkshire Hathaway insurance group, have been buying Australian government bonds and other assets. Australian bonds pay 3% or better, which is more than you can get in the US, Japan or the UK and Europe. The Financial Times reports:

“The expulsion of the US, the UK and France from the ‘nine-As’ club has led to the contraction in the stock of ­government bonds deemed the safest by Fitch, Moody’s and Standard & Poor’s, from almost $11tn at the start of 2007 to just $4 trillion now.”

Of course, during that time and apparently in defiance of the debt concerns of News Ltd, Australia joined the nine-As club courtesy of the government’s economic management and low debt levels. And if you read the first Stability Review of 2013, issued this morning by the Reserve Bank, you find not a word of concern about the level of government debt, especially federal debt in this country from the nation’s pre-eminent economic manager.

In fact, the Reserve Bank again points out that “given the low amount of government debt in Australia” regulators have been forced to devise a one-off system of ensuring Australian banks have enough liquidity in the event of a new financial crisis and the loss of access to offshore markets for our banks. The bank also finds the financial system remains solid, with bank debts under control, consumers continuing to save and pre-pay mortgages faster than they should and funding pressures on the banks getting easier.

Indeed, the continuing strength of the high dollar (up today around one US cent or more at $US1.048), which is harming the employment prospects of so many Telegraph readers in western Sydney, is testament to how relaxed financial markets are about the supposedly iniquitous levels of debt bequeathed by Gillard. Moreover, the debacle in Cyprus has ended, for the moment, and hopes the Reserve Bank had for the dollar to continue a recent softness and drift towards parity. Instead it is current around four month highs.

The danger, as the continuing depression in Europe illustrates, comes if politicians take seriously the sort of cant about debt pushed by News Ltd and start treating budget outcomes and debt reduction as ends in themselves, rather than tools of economic management. A fiscal policy that goes beyond addressing the structural problems of our tax and spending frameworks to a cut-debt-at-all-costs policy not merely has the potential to drive the economy into recession, but it would risk thereby increasing what little debt problem we have through reduced economic growth and tax revenues.

But Eslake doesn’t see much danger from austerity-driven politicians. Instead, he is concerned that an incoming Coalition government, should one eventuate, will repeat the mistakes of the Fraser years and fail to use its position to drive necessary fiscal discipline. “Like the Fraser government, an Abbott government may be divided between a leader who distrusts markets, has little interest in economics and is actually contemptuous of economists, a National Party that has reverted to its traditional agrarian socialism, and reformist liberals like Hockey, Robb, Turnbull and Sinodinos.”

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 thoughts on “Here’s the real story of Australian debt

  1. smogdownunder

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

  2. littlemaths

    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.

  3. Steve777

    Everything is much more complicated than News Limited papers claim.

  4. Myriam Robin

    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?

  5. Roy Travis

    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

  6. Michael

    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?

  7. littlemaths

    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.

  8. drovers cat

    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

  9. extra

    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.

  10. Myriam Robin

    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.

  11. margie bell

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

  12. Achmed

    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

  13. littlemaths

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

  14. Jimmy

    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.

  15. klewso

    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?

  16. Warren Joffe

    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…)

  17. rossmcg

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

  18. Hunt Ian

    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.

  19. Jimmy

    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.

  20. Reuben Barnes

    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.

  21. Ian


    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.

  22. Warren Joffe


    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.

  23. GF50

    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!

  24. Warren Joffe

    @ 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.

  25. Warren Joffe

    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?

  26. littlemaths

    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.

  27. CML

    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.

  28. John Newton

    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

  29. David Hand

    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.

  30. mikehilliard

    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:


  31. Clinton's Accountant

    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.

  32. michael in melbourne

    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.

  33. Achmed

    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

  34. Roy Travis

    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.

  35. Recalcitrant.Rick

    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”

  36. Harry1951

    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.

  37. Harry1951

    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.

  38. Jimmy

    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.

  39. Recalcitrant.Rick

    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!

  40. Are you free?

    “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.

  41. John64

    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?


  42. Damien

    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.

  43. Diane Patricia Harpley

    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.

  44. Daniel Maurice

    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.

  45. Achmed

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

  46. David Settelmaier

    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.

  47. Achmed

    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.

  48. Clarke Steve

    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.

  49. Damien

    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.

  50. Recalcitrant.Rick

    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!

  51. Achmed

    One of the things the Govt need to do is somehow wean people off the welfare packages introduced by Howard that are now costing taxpayers billions – and this welfare bill will be ever-growing unless its stopped.

    When will people realise that the baby bonus etc is like being given your own money….taxes pay for it. The more welfare you want the more tax you pay

  52. Warren Joffe

    @ Recalcitrant.Rick closely followed I think by Harry1951 and Jimmy I think……

    Some elementary understanding of opportunity cost, the multiplier (as in supposedly Keynesian stimuli) the time value of money and economic history (pace your claim to know something of the New Deal) would help.

    Of course a fibre to the home network would be an asset when even half commpleted. But so what? Even supposing it remains state-of-the-art for a national broadband network you have to do the sums taking all the above elementary factors into account before you can justify praise.

    Your simple assumption that there is a big positive multiplier for such expenditure as the pink batts fiasco and often underused or low priority school halls is almost certainly wrong and anyway turns negative if account is taken of what the money could have been spent on instead and if the expenditure only went on for the first six months after which is was clear that we weren’t in the depths of a serious recession. Moreover,

    Roosevelt’s New Deal was so far from following the Keynesian prescription that Roosevelt actually sent the country back into depression in 1938 through premature return to surplus [exact figures would make the point even if my memory is slightly out). It was WW2 that finally fixed the US economy. And you have Reagan wrong too. His deficit financed defence expenditures (which arguably did much to bring an end to the Soviet Union because it couldn’t afford to keep up) were highly stimulatory in the early 80s and his lowering of taxes also helped the US economy boom.

    AS to “whipping round a few schools” and asking if they think the halls are a waste of money!!! Really. It isn’t the person who wins $1000 on the Melbourne Cup whom you should take as the expert on whether gambling is a social good to be encouraged by government…

  53. AR

    News…latest on government debt is the most deeply hypocritical.” I’ shocked. Shocked I tells ye!

  54. Ian


    I think the biggest reason that Australia has a higher interest rate than do the US or Japan can be put down to the differing policies followed by the reserve banks (and governments). The US in particular and Japan more recently have, through quantitative easing, been creating money like crazy. The reason that the actions of those countries’ have not (as yet) resulted in high inflation nor stimulated growth in their real economies is that the recipients of the central banks’ largesse have been the finance sectors who for a number of reasons, including depressed consumer and investment demand have used the funds to finance speculation, not the real economy.

    I think it would be unwise for Australia to follow policies that lead to reduced interest rates as they could lead to housing and other asset bubbles that serve to redistribute wealth and increase risk through higher leveraging.

    Any thoughts on this anyone?

  55. Daniel Maurice


    Well the government seems to disagree with you about the significance of mining & resources since (after Abbott) it’s Swan’s favourite whipping boy for all the pressues on the dollar, manufacturing etc. Chinese demand for our resources pumps billions into the economy and underpins our record terms of trade and our domestic prosperity. The number of people directly employed in mining is irrelevant to this argument.

    In turn I’d ask what’s the evidence that $20 billion spent on sending out $900 cheques mostly pent on (imported) TVs and overseas holidays “saved” Australia during the GFC? Swan quotes self-serving stats from Treasury. That’s the same bunch of “experts” that hasn’t got a budget forecast right in the last decade, consistently over-estimating / under-estimating key figures. Better believe your local fortune-teller who could hardly be less inaccurate.

  56. wbddrss

    Costello sold off 70% of Australia’s GOLD reserves.
    Australia very rarely has a balance of payments surplus. Australia needs high taxes to keep surplus in Canberra. Instead we go deeper into debt. For a country exporting so much gold, it is a shame we cannot accumulate for a rainy day.

    Instead we give our monies overseas to countries where central banks are buying gold.

    This world is upside down & yes IMHO Australia has a real financial problem due to only < 10% of our foreign exchange reserves is in gold.

    just my humble opinion. Neither a debtor or creditor be & have a strong military to defend those gold reserves.


  57. Recalcitrant.Rick

    Daniel, “Roosevelt’s New Deal was so far from following the Keynesian prescription that Roosevelt actually sent the country back into depression in 1938 through premature return to surplus” …..What an odd thing to point out given that that is what the arguments about? His stimulus worked but his mistake was to withdraw it too early? So he was right to stimulate the economy? just like Labor did? Huh??? And the line is a fine one about when to withdraw. But given that the economy is motoring along reasonably well, and we are nearly back into surplus, I’d say Swan and the Reserve got it just about right!

  58. Chienne

    I must have missed Keane’s grovelling apology to News and Fairfax over their “invented” leadership speculation (you know the one where Chris Bowen and Joel Fitgibbon are running numbers and organising Crean to initiate the spill once they’d got to the magic number). Good on him for keeping the faith on the anti-News jihad!

  59. Hamis Hill

    So in fifty six posts only Daniel Maurice addresses the real story of private debt.
    While the tag team of Mudorc and his Man in parliament go on about Government debt, who is talking about private debt in Australia?
    What is the that interest bill, every year, for example?
    Readers clearly aren’t interested so Bernie and Glenn don’t bother writing the follow up article “Here’s the real story about PRIVATE Australian debt!”
    Is the figure of $1.25 Trillion in mortgage debt accurate?
    Haven’t overseas observers been warning for several years that Australian houses are “overvalued”.
    The article almost incidentally quotes reassuring noises on the sustainabillity of the national mortgage market, but won’t Hockey’s higher interest rates take the interest payment to a cool Cool $2,ooo,ooo,ooo every week, about a hundred dollars per week for every man woman and child?
    Hey, no problemo?
    Talk about unsustainable! and all gambled on continuing capital gains on “Non-wealth producing assetts”.
    Where’s the momey coming from Lieberals?
    Would it be a form of careless economic vandalism to confirm a conservative GFC style recession will come with the election of an Abbott government?
    About as careless as hoping that Abbott’s economic ministers will somehow avoid this problem by abandoning the fetish for surpluses which, fellahs, only amounts to confirmation from you that there actually is a real problem with unsustainable private debt in Australia after all.
    Far better to continue with a proven government, and give it a workable majority for the next three years than take an even larger gamble than the Australian Mortgage market by giving the laziest opposition int Federation history the reigns of power.
    Abbott will be gone and Turnbull can set about rebuilding a real Liberal party in Australia,.
    This Rudd, Abbott,tag -team, DLP desecration of Australian democracy will be over as well and the majority of Australians will be represented again.
    All good, really; you have to do the private debt article there, Bernie and Glenn; you have not actually irreversibly painted your selves into a corner with your attempts to refute the problem in your incomplete “real” Australian debt article.
    Your country needs you!

  60. Mr Denmore

    Myriam, our bond yields are higher for two reasons – our comparative economic strength and the fact that our central bank is not sitting on the longer end of the yield curve by buying government bonds without soaking up the excess liquidity created (printing money). Many of the other developed exonomies are fighting deflationary forces. Our comparitive strength means there is more term risk here. Also, there is a traditional liquidity premium with Aussie and Kiwi bonds. In other words, they are harder to trade than US Treasuries, German bunds, UK Gilts or JGBs.

    The notion that we have a public debt problem is farcical. If we did, we wouldn’t have dozens of foreign central banks diversifying their reserves into the $A, we wouldn’t be one of only seven sovereign borrowers triple-A rated by all the three major agencies and our borrowing costs woukd not be at record lows.

    As to the idea that the Rudd/Gillard fiscal stimulus was wasted, nonsense. That money circulated throughout the economy. Money spent building school halls, as well as providing much needed infrastructure, kept in work thousands of people who might otherwise have lost their jobs. The consequences of much higher unemployment and company failures would have been a significant hit to the budget balance and much higher debt than we have now.

  61. Warren Joffe

    It wasn’t Daniel but I who pointed out that you didn’t know much about the Roosevelt New Deal or Keynes or stimuli (fiscal or monetary) or multipliers. There is a lot of literature on the 30s, including some which is pretty rabid about Roosevelt making things worse. Keynes was pretty disappointed in him and certainly didn’t regard him as having followed his advice (my main source is Skidelsky’s 3 volume biography of Keynes). Roosevelt basically fiddled and did instinctively political and populist things like propping up prices. It may be irrelevant to the present point but it is interesting that he loathed a lot of the rich, but then he probably, as a descendant of one of the old families who were there when New York was called New Amsterdam, took the patrician view that even Andrew Mellon was nouveau riche (Mellon, Hoover’s Treasury Secretary, btw, gave his country the great National Gallery in Washington DC and shrewdly didn’t insist on it bearing his name – cp. the Rockefeller Center or Frick Gallery – so it would receive benefactions from others).

    Australia and the UK recovered quicker than the US from the depths of the Depression without little input from Keynes, largely because they left the gold standard in good time. Keynes actually expressed approval of the measures taken in Australia which were not a form of early Keynesianism though we did of course have plenty of public employment schemes such as those the built the Yarra Boulevard and the Great Ocean Road in Victoria.

    Your reference to the present is just as careless about fact. “But given that the economy is motoring along reasonably well, and we are nearly back into surplus, I’d say Swan and the Reserve got it just about right!”

    “Nearly back into surplus”!!!! You have to be kidding. Despite all the fiddling with the books, transferring payments and receipts from one year to another, the budget is nowhere near surplus. Not that I think the Coalition will find it easy to get there, but then, contrary to all the bleating about them not announcing – for some reason expressed by some as not having – policies, the Coalition is obviously going to make as few promises as possible and give itself a free hand to do what is necessary without accusations that they have broken promises.

    The government could have done as much, after the first, more or less sensible, stimulus package, by simply doing the Keynesian flight of fancy thing for a short time of burying banknotes in a big hole and allowing people with capital or credit to employ others to dig them up. Unfortunately they put in train about two and a half years spending with no economic payoff when all that was needed was about six months. Hence a great deal of displacement of more productive expenditure.

  62. Warren Joffe

    And to Mr Denmore – as the building of school halls produced assets which require depreciation and future expenditure rather than economic benefit (except some vague contribution to better education with whatever payoff that might have) it is hard to see what benefit you can claim for anything but the first few months of it in 2009 after which the government was claiming that there was no recession. The true answer isn’t to be found in some theory from an out of date pseudo-Keynesian textbook (I say pseudo because I respect Keynes as a genius who also had a much better knowledge of the real world of government and business than almost any academic economist ever has). It is to be found in hard facts and figures. There is never a problem in circulating money through the economy. It is always worth asking whether it has been spent productively and how fast and productively it then circulates. So….

    What you really need to justify is your claim that the stimulus was, to an important extent, spent on “providing much needed infrastructure”. If it had been I would have applauded. Perhaps you are thinking of the Brumby government’s contribution in Victoria by allowing huge cost overruns on almost everything including an unnecessary desalination plant and pipeline from the Goulburn (because their left wing wouldn’t have more dams).

  63. Warren Joffe

    @ Hamis Hill

    Private debt is big in Australia but not necessarily a serious problem now that households have been saving hard since 2008 and corporate balance sheets have been refreshed with capital. While our dollar is so high it is also not a big problem that we have, compared with the Japanese or Germans, a big part of our borrowings in foreign currency. For authoritative exposition of this opinion I refer to much that Saul Eslake has written.

    The Economist mag and people closer to home like the egregious Steve Keen who sold his house five years ago because he saw a crash coming have indeed been saying our housing market is overpriced for years but Mr Market seems unwilling to accept their advice and prices are now recovering somewhat from recent small losses. Anyone with half an eye on what happened in the US, where, admittedly, it is possible to walk away from a mortgage in a way which is not possible in Australia, will probably be behaving prudently enough to make sure that we don’t have another debt fuelled asset bubble and crash.

  64. Warren Joffe

    “Costello sold off 70% of Australia’s GOLD reserves.”

    You may be right though on what advice and for what reason I don’t know and I also don’t know what price was obtained. I do remember that Gordon Brown the UK Labour Chancellor of the Exchequer sold a good part of the UK’s gold reserves at just about the lowest price for the last 30 years. It might well have been something the great J M Keynes would have approved as he saw gold as an outmoded relic of more primitive times.

    What the gold bugs don’t seem to understand is that gold is not s reliable store of value given that, in Australian dollar terms, it has swung in value from high to low far more than the US dollar over the last 20 years. (That is one reason why the Chinese and many other really big investors continue to buy US Treasury bonds on which they are almost certain to lose money in the long run in real terms).

  65. Hamis Hill

    Very reassuring Warren,so arguably there is no problem with government debt either?
    And the capital gain which sustained the aspirations of Howard’s Battlers will soon return?
    Perhaps their fearful hatred of Gillard is inversely proportional to the bouyancy of the mortgage market.
    Abbott will be alarmed that all this good stuff is not happening on his watch, it certainly explains the manic calls for an early election.
    Any comparative figures on pre GFC national debt, say with the Irish Republic?
    I thought Dublin was replicating the Sydney disease of unsustainable property speculation prior to their collapse.

  66. johnson

    Anyone with half a brain knows Australia’s economy is doing fine and government debt is not a big issue.

    But the Tele is aimed at turkeys who vote for Xmas.

  67. David Hand

    Let me help you with some basic arithmetic. Retrenching 12,000 workers at $50k delivers not $6million but 6 hundred million. Few public servants earn $50k. When you add on costs, their average cost is more like $100k so an Coalition initiative to do this would then save about $1.2 billion.

    Coalition policy is aimed at reversing the reckless trajectory of government spending. Today’s debt is manageable but it is where it might go to that is the problem.

    Comparing Australia’s debt with other OECD countries and saying there’s no problem ignores the parlous state of those economies. Europe is not deserving of praise. They risk bringing the whole global financial system down in their resistance to getting their own houses in order. And what they need to do of course is to reduce government debt from the unsustainably high levels they are today.

  68. Achmed

    Warren – Howard sell offs

    Telstra: $50.24 billion
    Australian airports: $8.5 billion
    Commonwealth Bank: $5.15 billion received
    Reserve Bank gold assets: 167 tonnes sold for $2.4 billion,
    National Rail Corporation and Freightcorp: $1.05 bn received,
    Broadcast Australia: $650 million received,
    DASFLEET: $407 million in 1997,
    Telecommunications spectrum: about $1.3 billion received,
    Radio licence spectrum: about $1 billion received,
    Property portfolio 59 sites: for $1 billion,

    Total value from sales: $71.7 billion

  69. Hunt Ian

    Warren Joffe does know something about the Roosevelt and his panic about getting back into surplus in 1938. Wayne Swan is also too panicked.
    Yes, the multiplier for pink batts was probably not very great but the multiplier for the “building the education revolution” was probably quite significant.
    Having noted how Roosevelt’s early attempt to return to surplus sent the US back into recession nine years after the Great crash, Warren Joffe breathtakingly knows that about 6 months of stimulus spending in Australia would have been just right to keep Australia out of recession. How he knows this is a mystery.
    How Warren Joffe knows the opportunity cost of the NBN or thinks it essential to calculate it is also a mystery. Opportunity cost is fine to calculate if we assume that the future will be like the present. What the impact of the NBN will be on future Australian business is hard to know and cannot be extrapolated from what Korea, say, now gets from its fibre network.
    Economists too often assume that light can be cast on what happens in a not too competitive economy like Australia by gazing at what a model of a “perfectly competitive” economy can tell us.
    A lot of economic decision making is a shot in the dark and we might one day look back on NBN spending as just what was necessary to ensure that Australia survived the adjustment of the passing of the minerals export boom.
    As to paying of government debt, I am only in favour of not having endlessly increasing government debt, with reduction (but not necessarily to near zero) in times of boom, which Australia is hardly fully enjoying. I am very much in favour of having my children employed so that their taxes can pay off debt, or at least prevent endless increase of government debt. There is no a clear cut difference between expenditure on workings of government and expenditure on infrastructure, for which Australia should now be borrowing more with low interest rates but with an eye to how they might move in future years.
    My disagreement with Eslake is just over the assumption that an Abbott government will not impose unnecessary austerity, as the British government did to find to its surprise that the UK entered recession yet again, despite not being part of the Euro zone.

  70. David Hand

    The NBN is a turd just waiting to land on the table of a hapless future federal treasurer. Its functionality is not in question. What can reasonably be questioned is Conroy’s failure to deliver a transparent cost benefit analysis compared to alternatives – something the coalition and any sensible commercial approach would do.

    That analysis is by definition a look into the future with the uncertainty that it entails. The problem for the NBN, and its relevance to this discussion about debt, is that Conroy has hidden the liability of the taxpayer off the government’s balance sheet by setting it up as a state owned enterprise. Because all the PR says that the NBN will deliver a return, none of the debt is recognised as government debt.

    But we are now faced with the unwelcome reality that the roll out is going at half speed. Any project manager knows that timeline blow out equals cost blow out so expect the $43b to be revised upwards as soon as anyone with a shred of credibility gets the information.

    Then there’s the take-up. Conroy is keeping the number of subscribers a closely guarded secret. The smell is not good. I expect Turnbull to break some pretty awful news about it sometime in October.

    All this points to a fiscal disaster for the government. The network may work quite well but the tax payer will be paying it off for decades to come.

  71. Hamis Hill

    The inevitable Abbott Recession.

  72. GF50

    Mr Denmore +++ Balance in the face of Warren Joffe with his inserts of facts then spun to fit his opinion.

  73. Warren Joffe

    @ Achmed

    I am not sure what point you are trying to make with your list of “Howard sell-offs”. I don’t propose to go back over the minutiae of what I have written to see why you might address your sell-off remarks to me. If you are saying (but then, why not actually say it?) that the Howard-Costello surpluses were, as with nearly all governments, partly based on contestable accounting practices, then I suppose you might be saying that they counted the proceeds of sale in the surpluses. I doubt that though it is true they contributed to the extinguishing of federal government debt.

    Since Saul Eslake is the one identified grown up on these pages (albeit by quotation) I note that he was savage about Costello not counting the GST as a federal tax. The old Treasury head and Senator, John Stone, was also. It somehow doesn’t offend me unless it was to allow some spin about cutting the size of the federal government take and altered the base for comparisons.

  74. Warren Joffe

    @ Hunt, Ian

    I acknowledge that you are in the same conversation with relevant knowledge and points. However, I wonder if you are happy with politicians making big spending decisions at any time, and, particularly, when it is not a case of someone having to make a decision, doing it like the NBN decision process which was totally farcical. Of course you are right that a cost-benefit analysis (allowing opportunity cost to be assessed as well as the inherent viability/profitability of the NBN)would have to make some very uncertain assumptions: there could be unpredictable (though imaginable and hoped for) upside as well as unexpected failure.

    It was one thing for Howard to come out early in one year with his great Murray-Darling plan without consulting even Cabinet. The NBN – involving 4 or 5 times the expenditure and on something on which few people have any relevant expertise – was cooked up by Conroy and Rudd after the embarrassment of finding that their promised $4 billion [about one tenth the NBN cost] broadband scheme had big problems. Nothing in Australian federal history can match the appalling Piggy Muldoon – an embarrassment to conservatives if he claimed to be one – but, on the whole, Labor governments are more likely to squander money as if the genius of John Maynard Keynes (with a little help from those Canadian funny money types of early last century) had made spending something which was nearly always to be given the green light. Under Hawke, like NZ Labor before him, that was not true, but the state governments and now Gillard-Swan seem to be picking up where Whitlam left off. (I was about to say Hawke and Keating but wonder now if the restraint under Hawke – not equalled under Keating as PM – had a lot to do with Senator Peter Walsh as Finance Minister).

    Many saw Charles Court as a great visionary builder and no doubt he was. But the damming of the Argyle River and attempts to create an agricultural province in the NW was, as I understand it, not economically sound. The Snowy River scheme may now be justified by the spin-off of giving a whole lot of “New Australians” a start in this country but its visionary aspect doesn’t seem to have been matched by good economics.

    So, I am sceptical, and trebly so about the NBN because of the defective processes.

  75. Warren Joffe

    Government Debt and Abbott recession

    Surely we want our politicians to have old-fashioned pro-saving instincts as well as their well known genuine desire to do good by spending money earned by others (and they wouldn’t actually mind doing good by being more efficient if only they knew how). Nonetheless I acknowledge that the typical Liberal MP back in 2008-2009 was a bit obsessed about deficits when clearly the Treasury got it right to go early, go hard, go households – with Coalition support. As it happens their somewhat primitive Friedmanesque (they may have thought Hayekian) antipathy to fiscal deficit would have been a good thing if the Coalition had been in government because the kind of stimulus used to follow the first $10 billion (and the shoring up of the banks) would have had to be sold much more rigorously: those mentioned but not spelled out “needed infrastructure expenditures” would have filled the bill in a way which building school halls over the following two and a half years did not.

    Of course a dollar is a dollar and in that sense the debt to finance current expenditures isn’t easily distinguished in every instance from that used to finance needed infrastructure of an economic character like railways and ports. But, in practice, one would hope that the infrastructure was financed by low cost long term borrowings and the current expenditure matched by short-term borrowings which would be paid off as soon as the cycle turned up.

  76. Warren Joffe

    Oh, yes, Abbott recession….

    Nah! Abbott won’t be under the control of anyone who might want “austerity” and his Santamaria affiliation and Catholic social ideas will be a counterweight to even the toughest Treasury mandarins trying to keep Hockey’s backbone straight.

    There will be problems of readjustment while the big development phase of major resource extraction is winding down, coal and iron ore prices drop and there is a tussle between the need for a lower dollar to help our substitute exporters (including tourism and education) and a high dollar resulting from our comparative economic health and sound policies. Can’t you see Abbott announcing a great East coast high speed rail project (starting at its southern end with a fast service to Melbourne Airport and perhaps taking in Canberra)?

    Irish housing bubble, someone mentioned, and the Spanish one might have been added to that. Barely relevant to Australia. Just look at the mad Irish development fuelled by ridiculously easy low interest loans because of the membership of the Euro Zone and an out of control banking industry in league with dubiously honest incompetent politicians. Now the Irish who might have used some of the housing are leaving and coming here, amongst other destinations, thus reinforcing the fact that we still need housing for an expanding population. Spain, likewise, with far too much building for a tourism industry which the GFC did in.

  77. tom murray

    Talk about loving the Labor party….Claiming Rudds cash give away helped save the economy is rubbish!! They wasted and squandered a decade of savings as quick as they could i9n pursuit of votes to fuel Rudd’s ego…It would be nice if the Labor government could rack up some debt on public works and infrastructure in lieu of throwing it away

  78. Ian

    I am neither a specialist in Australian politics or its economy nor a supporter of Labor or the LNP but I have a very good idea what is going on in the northern hemisphere.

    In Europe imposing austerity has been an unmitigated and continuing disaster that has basically impoverished many countries. In the US all the QEs have served to fuel more bank speculation and failed to trickle down to the real economy. The UK has similarly propelled itself into a near third world economy by its austerity measures.

    So what about Australia which was lucky to have somewhat better economic management (short term) than the other countries and was propped up by its resource exports and resource infrastructure building activity at the time. While the Rudd stimulus no doubt had many flaws it did help create economic activity quite quickly as it was designed to do and that must have helped the country stave off some of the worst repercussions of the crisis.

    On the other hand I strongly suspect that austerity measures here, if imposed, would have had a similar effect to those experienced elsewhere ie reduced government revenues, increased unemployment, and increased budget deficits – not a good outcome for now.

    As for the long term; well we need to stop relying on growth and future generations paying for our ongoing propensity to spend more than we earn. Really the whole thing is a Ponzi scheme as many eminent economists have observed.

  79. Ian

    My comment is awaiting moderation. I can’t understand why and it’s annoying.

  80. Achmed

    Warren – you stated

    “Costello sold off 70% of Australia’s GOLD reserves.”

    You may be right though on what advice and for what reason I don’t know and I also don’t know what price was obtained.

  81. Achmed

    David Hand – read the Liberal manifesto “Real Solutions for all Australian”.

    In it Abbott states he will repeal the CT(sic) and the MRRT. These provide an “income” that pays for a number of programs including the tax cuts and compensation associated with the Carbon Price. Abbott states he will keep the tax cuts, Hockey says they won’t. But in the manifesto Abbott states that he will provide tax cuts despite reducing “income”.

    Abbott also states he will provide a tax cut to business…this flies in the face of his 2% tax increase to pay for maternity leave.

    His claims that he will pay off debt fly in the face of his reduced “income” with repeallng the CT and MRRT and tax cuts to workers and business…he will have more outgoing and less incoming….

  82. David Hand

    I posted a comment at midday that is still in moderation. I posted it again just now with a few changes but no luck.

    Ah well, maybe next week.

  83. Adam Ridley

    Sack 12,000 public servants if they are making $50K a year that saves $6 million….a bit short of paying off debt

    Say that over in your head a few times…

    There was stimulus needed at the time that Labor did it but the way they went about it was crazy, the cash hand outs were not too bad but the education revolution and insulation etc needed to be managed.. so much cash in the whole program.. spent corectly and that could of been a great thing.

    Do you really think that Labor would not ruin this country if in power for another 10yrs?

    I think we need libs three terms labor one term… and repeat constantly..

  84. Mk8adelic

    News Ltd is just manufacturing another dodgy line of bias against the government by misreporting its own sources to create an Australian debt problem out of nothing. Seems unnecessary when the government is so adept at destroying itself.

  85. Achmed

    @Adam – really?? around 5% unemployment, low inflation around 2%, consistent 3-4% growth, low official interest rates, Triple A credit rating (one of the few countries in the world), one of the lowest debt to GDP ratios in the world

    And this after a GFC that sees countries like Italy 100% debt to GDP, Greece 105%,UK and USA around 70% with unemployment between 9% and 20%

  86. Achmed

    Describe one Liberal policy that will reduce debt. First read “Real Solutions or all Australians” this manifesto should be required reading for all.

    It well shows the hypocricies of Abbott and the Liberals

  87. Are you free?

    @67 David Hand
    “Comparing Australia’s debt with other OECD countries and saying there’s no problem ignores the parlous state of those economies. […] And what they need to do of course is to reduce government debt from the unsustainably high levels they are today.”

    What utter deceit. The Eurozone governments’ problem is that they are using a foreign currency. If Australia had no federal government, but a common currency, then Tasmania could easily be Greece. When each Eurozone government was sovereign in its own currency the current solvency problems were not possible. Levels of government debt are irrelevant to consideration of the Eurozone countries (they were cactus the moment they signed up to it) and to the Australian government’s (which issues its own fiat currency) solvency. There is no such thing as “unsustainably high levels”.

  88. Are you free?

    @75 tom murray

    “Talk about loving the Labor party….Claiming Rudds cash give away helped save the economy is rubbish!!”

    At critical times during the GFC when the private domestic sector and the external sector were drains on national income (including the mining industry), only the government sector was contributing to growth. It is undeniable that without the government stimulus spending Australia would have experienced a recession.

    “They wasted and squandered a decade of savings…”

    Do you not know that the Australian government’s capacity to spend does not depend on previous years’ budget outcomes? It is not at all like a household.

    “It would be nice if the Labor government could rack up some debt on public works and infrastructure in lieu of throwing it away”

    The necessity at the time was to spend the money rapidly, not to build something useful. If plans for major infrastructure projects had been drawn up, masses of people would have lost their jobs before a sod of earth had been turned. By the way, there is no financial reason that the government must issue debt to match net spending. It’s just a carryover from gold standard days in Britain. It’s also useful for propaganda purposes to brainwash people that federal government budgets are the same as household ones.

  89. Hamis Hill

    Warren is getting a bit rattled and obsessive about the possibility of, Shock Horror, the mind reels at the very thought of it, an Abbott Recession.
    Get used to it Warren, IT IS INEVITABLE; even the journo’s are talking about it in subdued asides and whispers as if, superstitiously, merely mentioning it will make it so!
    Could it possibly be true that Lucky Australia is doomed to abandon the world’s best government, and, at last, join The GLOBAL FINANCIAL CRISIS?
    Vote Labor! Suckers!

  90. Hamis Hill

    Ironically if we do not begin to seriously consider the possibility of AN INEVITABLE ABBOTT RECESSION voters will walk into the September election in a MSM,ABC,LNP trance and we certainly will have a recession, because the only thing standing in its way is the world’s best government, which needs another three years and a workable majority to complete their work.
    Yes, that is right we need a government that works,and an oppposition that has never raised a sweat for six years cannot learn how to work in government overnight.
    Sacking the workers and relacing them with Montgomery Burns’ slack jawed lay abouts while the house of national recovery remains half-built, yes that’ll work.
    Recession here we come!

  91. David Hand

    Hey Are You Free,
    Thanks for pointing it out. I think those slacker Green voters in Tasmania need a kick up the bum as well!

    Preach it brother!!

  92. Hamis Hill

    Where is the article titled: “Mateship and Sport, The Strange Antipodean Gateway to Po-fterdom and Misogyny: A Foreigner’s Guide to the Australian Polity”?
    A whole subject tailored to Australia’s Prime Minister in Waiting?
    The MSM will have to start talking about Tony some time, or others will start setting the agenda.
    Julia needs to get into those sporting arenas every weekend, there in the stands bearding her opponents in their dens.
    After all, what nation would be proud to change government simply because of a generations long, ingrained, fear and hatred of women?
    S’truth, Moights, we’re not really like that are we?
    September will reveal all.
    While the world looks on in wonder.
    Is there no shame?

  93. kim hassall

    The collapse of the old CUB wall on Swanston St between Victoria and Quensberry St is tragic and could have been far worse as both RMIT and Melbourne Uni students walk this block in droves. Police are seeking further information on a very tall ‘wolf like’ individual who was seen inside the construction site just prior the collapse.

  94. klewso

    “Austerity measures – the living standards of the thin, miserable and innocent being sacrificed to save those of the fat and selfish (some/many of whom were responsible for the dire straits those economies are now in)”?

  95. Hamis Hill

    “Why Australia Can’t Have a Woman Prime Minister”.
    Now there’s an article pregant with oppotunities to denigrate Julia.
    Hasn’t anyone in the MSM written it yet.
    The temptation must be extreme!

  96. Hamis Hill

    Here is the real story of debt, how a life Murdoch man is shepherded into the ultimate position of power.
    Dr Faustus for PM?
    Aren’t his colleagues not even a little bit jealous?
    Hockey is looking a bit “Lean and Hungry”.
    Leadership knives being sharpened in the opposition, or are they all MSM Lackeys?
    They’ll win better without Abbott, the polls tell them this, and Murdoch? Who needs him then?
    Gee Rupert, they’re just using you and Tony to get into power then watch the media controlling legislation get up.
    Machiavelli was a Liberal. You’ll be sorry!

  97. Hamis Hill

    Knife the life-long Murdoch Man.
    We will decide who controls the Liberal party and the manner in which it is controlled!

  98. Matt

    @Recalcitrant Rick:

    Mining contributes, by value, for a minimum of 40% of all of Australia’s exports – that’s just in the top three exports, iron ore, coal and gold.

    Data here c/o DFAT: http://www.dfat.gov.au/publications/stats-pubs/cot-fy-2011-12.pdf

    (Be careful, it’s a big .pdf document)

    More specific to China, our exports to China account for 30% of all Australian exports, and the total dollar value of exports to China has DOUBLED over the last three years, even as other Western economies were contracting.

    (source: http://www.dfat.gov.au/geo/fs/chin.pdf)

    Now imagine an Australia where Chinese exports had not increased over that time period – an Australia short $40bn annually from lost exports. Sounds like a pretty grim place to me.

    I’ll happily concede that the Howard Government followed sound (i.e., Keynesian) macroeconomic policy in their time in office – building up surpluses and paying down debt during the upswing of the business cycle – but we’re not IN an upswing of a business cycle, and unless I miss my guess, we’re not going to BE in one for at least another three years.

    The whole “surplus now!” chant is both (a) very dangerous, and (b) getting rather old. There are times a sensible government runs surpluses – those times are not now, they are when private-sector demand is robust enough to fill the gap left by withdrawn public-sector demand.

    The fact that our cash rate is still below 4.5% – that the RBA thinks that private-sector demand is sluggish enough that it wants to tempt people into investing and borrowing – indicates to me that this is not yet the case.

  99. Warren Joffe

    @ klewso
    Current references to “austerity” which naturally tend to pose the question as to whether tough restraints on spending which will inevitably fall hardest on those with net debt or little income tend, by oversimplification, to divert attention from other questions and perceptions. If we are suffering from too much debt and/or willingness of people to spend money on what we or our country have to sell a natural response is “why not bankruptcy or at least a scheme of arrangement?” But that is, you may say, part of the package. The trouble is that it hasn’t been done as it would have been if the German, French and other banks which over-invested in Greek government bonds simply had to take their losses. So, the banks shareholders get wiped out? Tough. That’s functioning capitalism. So a lot of big lenders to the big banks have to take big haircuts too. Also tough. The banking system can be kept going as we have been seeing in the last five years when the UK actually has gone so far as keeping some banks going with the government as major shareholder.

    I have ideas about why the EU’s long drawn out agonising adjustments has been preferred to short sharp wiping out of a lot of debt as has often happened in individual countries in the past and I doubt whether the majority of Europeans will be better off as a result of the course taken but, still, “austerity” tends to mislead. Sure it means paying people less in pensions and wages and services but that is an approximation to what would have happened in an honest sovereign default and leaving of the Eurozone by Greece. The payments in the New Drachma would not have been indexed to remain as valuable as they had been in Euros so the devaluation by restored drachma would have had the same effect as the necessary “internal devaluation” within the EZ because that inevitably involves “austerity” with impacts mostly on the same people. A major problem for Greece was that its politicians had allowed far too big a proportion of the population to get ahead of Greece’s real economic strength in what they were getting in unearned wages (typically the railways) and in pensions.

  100. Warren Joffe

    @ Hamis Hill

    You seem to think Abbott is a “Murdoch man”. Why so? In what sense? Their personal similarities and histories are and have been few, no? Do you mean no more than the obvious, namely that the preponderance of people writing and editing for News are keen to see the end of the Gillard government and would support the Coalition under any conceivable leader?

    You are surely not saying that Abbott will be some easily manipulated client of the Murdoch media, or maybe you are? Your analysis spelled out would be interesting…..

  101. Hamis Hill

    Not detecting much predictive power in your latest post, Warren, especially as to the real story of private debt in Australia.
    Are you willing to go out on a limb with some erudite prophecy?
    We have plenty of relevant facts figures and opinions to consider, now for the inevitable conclusions?
    Otherwise what is the point of the interminable verbiage?; do, instead, test your intellectual assertions with something of the fruits of your labour and tell us what an Abbott administration portends.
    No-one, in this day and age surely, will accuse you of dabbling in the Dark Arts or heretically anticipating an act of god by predicting the nature of the coming government.
    Let it rip, Warren!
    We might expect a Labor administration to continue in the path that it has followed so far, but using the same concept, that the past is a guide to the future, what will that future be under Abbott rule?
    The MSM is incapable of prognostication on this subject, understandable considering that they perform like a collective of cretins, but there seems, in the sum of your previous posts to be a pretension of wisdom.
    If you are that tree that bears no fruit, can your empty offerings, even when consigned to the flames, illuminate the least thing of value?
    It must have been such, surely, during the building of the Tower of Babbel, just prior to its collapse.
    Should Australian banks be allowed to fail if the GFC visits during the Abbott “mal-adminstration?”, as the free market dictates?
    Will poor little, cultural cringeing Australia be on its own once more abandoned to its fate, in a surrounding sea of sharks, merely because, somehow, the developed world’s best government is just not good enough and the alternative floats, unexamined, in the impenetrable void, exciting not even a smidgin of genuine intellectual curiosity, in the ubiquity of “white noise”?
    A bunch of bloody, willy wombats indeed.

  102. Tristan Jones

    Despite it’s rhetoric, I doubt an Abbott Coalition government will have the willingness to undertake the significant cuts in government expenditure across the board, to achieve a budget surplus in it’s first term. For example; I doubt such a government will abolish spending like the Baby Bonus, Private Health Insurance rebate and so forth. Also since GST revenue goes straight to state governments, any broadening or raising of the rate of the GST is not going to be considered by an Abbott government, unless the Coalition state governments pressure them to do it.

    Although as the current government has done it might resort to all sorts of creative accounting to achieve a surplus figure.

  103. Warren Joffe

    I wouldn’t want to go into competitive predictions with you Hamis Hill given that I have no particular reason to believe myself a better predictor than say Alan Greenspan and, as the housing bubble was just about to get right out of hand in the US, Bernanke. And I see no evidence that you are a contender.

    I think an Abbott government will not get the budget into surplus in its first term, or only just, in the third year. It will go into government having made as few promises as possible so it can make a virtue of being a trustworthy government which is just being prudent and attempting to remedy a very poor legacy. (The worst of the legacy, especially if the Greens hold the balance of power in the Senate, will be Gillard legislation and contracts which will hang over the government for years. That may not be precisely how it is portrayed by the new government of course. Big frightening numbers may be what it prefers.).

    On the question of the banks being allowed to fail if there is another GFC (which I very much doubt there will be. I am certainly putting my money where my mouth is against it for the foreseeable future) I don’t think the question would arise but the obvious answer is no, if there is only a liquidity problem. And if there is a solvency problem it would still be better, given that we have just four big banks, that the failure be, not the bank as a business, but the value of shareholders’ equity in the sense that that the 90+ per cent shareholder would and should be the government until the bank can be refloated to private and institutional investors.

  104. Warren Joffe

    @ Tristan Jones

    I think you have probably got your modest predictions right. What you say about the GST gives me an idea. The Abbott government might enlist Nick Greiner, whose views are already known, to get the states to put pressure on the federal government to raise the GST, possibly just .75 per cent and possibly with virtuous earmarks (not necessarily all going to the states). Maybe “temporary” – say for three years.
    If it doesn’t reduce or go back on the reductions of Baby Bonus and Private Health insurance rebate I hope it does that for the right reason. While pensioners, including retired public servants and politicians, pay very little tax and many receive very valuable health benefits, the young successful professional and business people who are treated as rich by the Gillard government often have very tight budgets indeed from bearing and rearing and educating children, taking out private health insurance as well as paying for extras if their children have the usual range of ailments, paying off a mortgage etc. If one wants to punish them for holding views which are ideologically unsound to the point of paying school fees that actually reduce the cost of educating their children compared with their finding and sending their children to a suitable state school then one would squeeze them hard no doubt. But ensuring that all the financial squeezes on them are much greater than on prosperous grey nomads or a childless gay couple with Premium first night seats for the opera and ballet seems more than vindictive and absurd. It is surely against the national interest if successful and/or highly educated people who have put off having children to their late 20s or 30s are so squeezed that they have only one or two children instead of the three or four they would have like to have. Because, let’s face it, that is how they are likely to adapt. Do we want that? Any of us? (I know the mad Greens, like Paul Ehrlich of the way-out predictions of disaster, would advocate that even the brightest and best give away their breeding in favour of corals and lions and whales and rare plants…..).

  105. Hamis Hill

    Warren, you can read my predictive power, in my article “Housing and The Economy” Tertangala 1986, copy in the archives of the Mitchell Library, Sydney.
    Remember the collapse of the US Thrift Societies at the end of the Iraq-Iran War? No? The four largest US banks threatened with collapse? No?
    The precursor to the GFC caused by unsustainable housing loans.No?
    And the Trillion dollar, ten year, Howard, middle class, mortgage orgy, a time bomb buried in those beloved McMansions, complete with an Abbott austerity trigger? Duh!!
    An agility in cranio-rectal contortionism may account for your vision problems.
    Yes, the slothful response to my challenge is to state that the Abbott administration will be “Laissez Faire”
    Well, Warren, we already knew that.
    Thanks for nothing.

  106. Hamis Hill

    Warren, your confected (one can just imagine you blinking at your high school debating audience) disbelief at the very concept of Abbott as a “Murdoch Man” ignores that person’s long history a recipient of the Murdoch largesse, from his teenage years onward.
    And his weekly visits to Holt Street do not futher enlarge the Master/Servant relationship?
    Unprecedented in any putative PM and surely worthy of consideration in dear Mr Abbott’s case.
    “Murdoch Man”, flutter, flutter, what could that possibly mean???
    Those suffering from self-inflicted cranio-rectalism do have an excuse for not noticing.
    We must make allowances?

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