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Feb 3, 2015

Remember Labor’s ‘skyrocketing debt’? The Coalition’s is much worse

The "grown-ups" of the Abbott government were big on rhetoric but not so big on delivery when it came to reducing the debt. Freelance journalist Alan Austin runs the numbers.

Figures released Friday night on Australia’s finances are grim reading for anyone seeking respite for the embattled Abbott government.

The Coalition that promised in 2012 to reduce Australia’s debt by $30 billion delivered in 2014 an increase of more than $60 billion. Clearly Prime Minister Tony Abbott and Treasurer Joe Hockey have failed spectacularly to reduce Labor’s “skyrocketing debt”.

Outcomes for the full calendar year 2014 are now online at the Finance Department’s website. Commonwealth monthly financial statements show year-to-date net debt and the projection for the full financial year. Hence it is simple to calculate the debt incurred — or repaid — each month.

Australia’s net government debt — that is, money borrowed minus money loaned out — was $239.16 billion at the end of December. This was a hefty increase over the level a month earlier of $224.35 billion. In just one month, the debt rose almost $15 billion, or 6.6%. Compounded, that rate would double the debt in less than a year. Fortunately, the December rise was abnormal.

So what was the full-year increase through 2014?

At the end of 2013, the actual net debt was $177.74 billion. Hence the increase over the full year was $61.42 billion ($239.16 – $177.74). That’s a rise of 34.6%.

That December 2013 actual figure is pretty close to the level that can reasonably be attributed to Labor. As Crikey explained last October, the best measure of Labor’s debt is the projection for the end of the full year 2013-14 at the September 2013 election. At that time, projected debt at year end was $178.1 billion, although actual debt then was marginally lower. That year-end projection of $178.1 billion was affirmed in Finance’s statements for October and November 2013. It did not shift until well after Joe Hockey had taken control of the levers.

So is it possible that debt has peaked and will soon tumble, as promised? No — Friday’s figures also show a higher estimate for total debt at year end, still six months away. This is now projected to be $244.84 billion.

If $178.1 billion is the debt level attributable to Labor, then it can be argued that by the end of this financial year the Coalition will have blown out Labor’s debt by $66.7 billion ($244.8 billion to $178.1 billion) or 37.5%. In one budget.

This gets extremely uncomfortable for Abbott, Hockey and their backers when pre-election promises are recalled. Abbott told the Victorian Employers Chamber of Commerce and Industry just a year before the election that the Coalition had “identified $50 billion of savings, for an $11 billion improvement in the budget bottom line and a reduction of $30 billion in net debt”.

Had that claim been realistic, the projection for this year would be $148.1 billion ($178.1 billion minus $30 billion), instead of $244.84 billion (assuming the debt reduction could be effected in the first full year, which might not have been the intention).

Of course, this debt increase is not of any immediate economic concern. A case can be made that Australia’s borrowings in recent years have been much too low given negative real interest rates and the need for investments in productive infrastructure.

Australia’s net debt is only about 15% of its gross domestic product, even with the recent surge under the Coalition. That is well below levels in Switzerland, Canada, Germany and the UK — all of which have triple-A credit ratings and no problem.

Where burgeoning borrowings will impact taxpayers is in the interest payable. Before the election, Abbott told the Economic and Social Outlook Conference in Melbourne that the Gillard government was “spending about $20 million a day just to pay the interest on what it has already borrowed”.

The bill now? Friday’s report shows interest paid in December was $1.217 billion for the month, which is $39.3 million per day.

How likely, then, are continuing debt blow-outs and further interest increases?

Friday’s Finance report reveals that the deficit in the underlying cash balance in December was $98 million worse than estimated in the Mid-Year Economic and Fiscal Outlook, released only last month. It attributes this to “higher than expected cash payments”.

The December fiscal balance was also worse than predicted just a month ago by $765 million. This, the report said, “is largely due to lower than expected revenue”.

If declining revenues and increasing outlays continue, greater debt must be the result. With the government now under unprecedented pressure, can Hockey effect the drastic measures needed to turn this around?

If he can, he deserves a knighthood.

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26 thoughts on “Remember Labor’s ‘skyrocketing debt’? The Coalition’s is much worse

  1. Honest Johnny

    Blame it on the “opportunists” Labor. Blame it on the “economic vandals” Greens. Blame it on the “recalcitrant” Senate. Didn’t Abbott say that putting the adults back in charge would mean an end to the blame game?

  2. James O'Neill

    Alan, it is no wonder that the figures were released on a Friday night. I think that what is needed is a genuinely radical reappraisal of the revenue side of the equation. That would include but not be limited to removing tax breaks for multinationals; the feasibility of a Tobin tax; making GST both universal and at a high rate (with compensatory tax breaks for low income people) and the dismantling of Howard’s middle class welfare largesse. On the expenditure side an equally radical reappraisal is needed, not in cutting the welfare bill which is the favoured Tory approach, but asking hard questions about “defence” expenditure. The F35 boondoggle is but one area where billions have been and will be wasted for no obvious strategic purpose.

  3. Harry Smith

    Ummm might it have anything to do with the Labor and Greens blocking it in the Senate?

    So the actions of Labor are still racking up debt.

    See it for what it is. Labor causing more debt.

  4. Honest Johnny

    No Harry, its actually got more to do with the big ticket spending items of the Abbott Govt as well as the removal of effective revenue streams all approved by the Senate with the help of Palmer. What is being blocked in the Senate are unfair cuts to welfare, health and education, all spending cut items, minor in comparison to what the Senate has put through. Don’t be fooled by Abbott/Hockey rhetoric, seek out the truth.

  5. westral

    Thankfully we have been delivered from the years of Labor chaos and now have responsible people in charge of the government of this great country. If the debt has increased under the coalition it is because Labor has been so intransigent as to oppose the government’s entirely reasonable programs which have created a higher class of chaos than Labor could ever aspire to. The pity is that most of Australia does not realise who to thank for this, it is in fact that great captain toxic Tony, long may he rule to create knights and dames in plenty.

  6. Harry Smith

    “Unfair” cuts to welfare, health and education? Well, what you may call unfair, frankly, others won’t.

    Palmer has no problem with high debt levels just like labor. The revenue streams (eg carbon tax) that the public opposed were rid of, but the spending that were supported by that tax were blocked by Labor, Greens, and Palmer.

    At the end of the day, this article aims to place blame on the incumbent, when they are actually dealing with ALP’s scorched earth exit from government (long, locked in committments), and a hostile senate. So you can’t blame the Libs for that.

    Honest Jonny, you are being fooled by the Left.

  7. Brightside

    So Harry, on your reasoning, structural deficits resulting form ‘middle class welfare’ dolled out during a temporary resources boom can be lay fairly at the feet of the Howard government? In any case, argument over history is a moot point. the real issues is the lack of viable policy ideas, to fix the revenue/budget problem, that are acceptable to the majority.

  8. Honest Johnny

    Fooled by the left eh? As an economist and accountant in Public Practice, I don’t listen to hyperbole and rhetoric, I look for the facts (that’s why I read Crikey). Hockey, himself stated the repeal of the mining tax was a $6.5 billion hit to budget bottom line but was ‘damn good deal’ for Australians, all the associated measures that aided small business were also repealed except the school kids bonus, and in an unfair hit to retirees, the super guarantee increases were pushed back to 2021. It’s now estimated the repeal of the carbon tax will take $6.931 billion out of the budget in net fiscal terms (this comes from Hansard). On top of this $12 billion will be spent on 58 more next-generation F-35s, including 1.5 billion on a facility at Williamtown. Also the Government gave an unnecessary 8.8 billion one-off grant to the Reserve Bank. Then you’ve got the waste, (Abbott said he would stop the waste) too much to mention here but lets start with a $20 million ad blitz for scholarships not yet approved? That’s at least $35 billion the Abbott Government has added to the debt and you’re blaming it on a Labor and the Green’s “scorched earth Exit”? Please Harry, stick to the facts.

  9. alan austin

    Intriguing comments. Thank you.
    James O, meeting the revenue shortfall could be just a simple matter of getting high income earners to pay their fair share. That should be simple, shouldn’t it?
    Several of your tax suggestions certainly have merit. Maybe not increasing the regressive GST, though.
    Harry S, when you say “the spending that were supported by that tax [carbon tax] were blocked by Labor, Greens, and Palmer”, can you point to a Coalition policy now blocked in the Senate which was not ruled out before the last election?
    Thanks, Harry.
    Happy to discuss. AA

  10. Harry Smith

    Haha if you think you’re going to get “the facts” here free from hyperbole, you’re dreaming.

    The JSF program has bi-partisan support. The purchase was even acknowledged as being worthwhile by independent think-tanks.

    Several billion dollars are held up in the budget stalemate. To pull the deficit figure out and blame Abbott is not acknowledging the full position.

    PS, the ad blitz wouldn’t be necessary if it wasn’t for the exaggerated scaremongering about deregulation that constantly erupts from the apparatchiks.