Turnbull and Morrison are now trying to convince voters there is a difference between good debt and bad debt. Theirs, they want us to believe, is good.
There is one simple test of good debt: is it serving to build the nation’s net worth, or is it destroying it? On this definition, the Turnbull government is piling on bad debt at a staggering rate.
In his last budget, Treasurer Scott Morrison forecast that this financial year would end with Commonwealth government net worth at negative $300.9 billion. That is nearly $40 billion worse than the lowest level Labor reached during the depths of the global financial crisis. With net worth down to -$423.9 billion in February, that target seems unreachable.
The Coalition has drastically worsened the nation’s net worth, and thus doomed future administrations to crippling interest payments on the bad debt, or cuts to services, or punitive tax hikes, or all of the above.
Government sector net worth for June each year is shown in appendices to the budget papers and the mid-year economic and fiscal outlooks. Monthly levels are shown in the statements issued by the Finance Department.
These show that after governments have taken on extra debt — for economic stimulus or to cope with wars or disasters — Australia has always cycled back into net worth surplus. That is, commonwealth assets — investments in the future fund, residential mortgage backed securities, loans out, etc — have exceeded liabilities — securities on issue, public sector super liabilities and so on. Until now.
When Labor took office from the hapless Howard government in 2007, the net worth position was a modest $15.2 billion in the black. Within eight months, new treasurer Wayne Swan improved this to nearly $80 billion — just before the onset of the GFC.
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That was the strongest position in Australia’s history — although no media outlet reported this at the time (or any other Labor accomplishment).
As revenues declined and borrowings increased through the GFC, the net worth shifted into the negative, bottoming out at a low of -$263.8 billion in September 2012. Things then improved steadily through Labor’s last 12 months. Net liabilities were $205.9 billion at the September 2013 election.
That positive shift — from net liabilities towards net assets — should have continued through the rest of 2013, then accelerated as global conditions and the local economy both improved through 2015 and 2016. There is no excuse for any net liabilities now that the GFC is well and truly over, export trade is booming and corporations are delivering record profits.
Developed countries now in budget surplus — and paying down their debt — include Canada, New Zealand, Germany, Netherlands, Greece, Luxembourg, Lithuania, Norway, Sweden, the Czech Republic, Estonia, Malta, Hong Kong, Singapore, Cyprus, Dominican Republic, Belarus, Kuwait, the United Arab Emirates and Qatar. Switzerland, Latvia and Bulgaria are in balance.
In contrast, Australia’s budget deficits are deepening and bad debt is expanding. By June 2014, net worth was down to -$256.0 billion; by June 2015, it was -$303.2 billion, and in June 2016, an appalling -$418.6 billion. Despite the global boom.
Morrison’s forecast for net worth at -$300.9 billion by June this year would be a definite improvement on the -$332 billion Joe Hockey left behind in September 2015 and on Morrison’s disastrous levels since then.
But by the end of February, the monthly figure had blown out to -$423.9 billion, 41% above the target, with just four months to go. And, incidentally, more than 60% deeper than Labor’s nadir.
Of course, the June target of -$300.9 billion is certainly achievable, especially now the Australian Bureau of Statistics shows company profits are running at 40.1% higher than a year ago. But that would require the Turnbull government to collect company taxes at a fair rate — which it has shown no inclination whatsoever to do.
Instead, it seems resigned to the fact that deficits will continue to blow out, debt will accumulate for the foreseeable future and the nation’s net worth will deteriorate further and further.
But by depicting the Coalition’s debt as good — and trusting that the mainstream media will go along with this hypocritical mendacity — they might get away with it.