Monday, May 7, 2018

Today by Paddy Manning

Budget on borrowed time
The debt truck is gone but the debt is still rising


Pre-budget speculation has raised hopes that tomorrow’s budget will confirm that the hard work of returning the federal budget to surplus is done. What’s more, there have been some solid hints that Treasurer Scott Morrison may pull a rabbit out of the hat and declare that the Commonwealth books will be balanced a year earlier than forecast, in 2019–20. Props to ScoMo – whether he deserves them or not, it’s on his watch – we suspected as much. But what about our national debt, which the Coalition once portrayed as a ticking time bomb, and has only continued to rise? It seems the short answer is “move along, nothing to see here”.

In 2009 when Opposition leader Malcolm Turnbull was desperate to distract from plunging opinion polls in the wake of the OzCar debacle, the Coalition reprised an old Howard-era scare campaign, decking out its debt truck with a signboard warning of “Labor’s debt bombshell”. The scary figure on the bomb with a lit fuse was $315 billion.

Then treasurer Joe Hockey’s speech explaining the horror 2014 budget sounded the alarm that national debt was on a trajectory to rise to $667 billion. Clive Palmer did not make much of a contribution to Australian politics (although he did save the Renewable Energy Target and the Clean Energy Finance Corporation in a dramatic press conference with Al Gore in 2014). And yet, as a businessman he immediately and instinctively rejected the debt boogie man as a justification for a raft of austerity measures, including the temporary budget repair levy and a Medicare co-payment. He accused the Liberals of trying to “create a fear among Australians that we are in a difficult position so the government can introduce a lot of retrospective situations that we do not need”. Palmer told the ABC that the budget was a “con” and put Hockey’s $667 billion figure into context. He explained that Australia had a GDP of about $1.5 trillion, so government debt standing at around $300 billion amounted to “about two months of our activity. Is your personal debt less than two months of your activity? That’s what we are as a nation. You know, we’ve got debts which are less than one year of our total activity. I mean that’s not difficult.”

Courtesy of deteriorating terms of trade, particularly, as it happens, over the term of the Abbott and Turnbull governments, government debt has risen to near the level Hockey was predicting anyway. In the latest March figures, gross Commonwealth government debt is listed as $586 billion. December’s Mid-Year Economic and Fiscal Outlook predicted that gross debt would hit a short-term peak of $591 billion in 2019–20 before subsiding a little. Ultimately, the relentless upward march in the face value of our government debt recommences and is forecast to hit $725 billion in 2027–28. But by itself, the face value is meaningless.

In an interview this morning on ABC RN Breakfast, Finance Minister Mathias Cormann insisted that Australia’s debt now is much lower than it would have been under Labor, because the Coalition had “more than halved the spending growth trajectory that we inherited from Labor”. Such counterfactual scenarios are hard to sell at the best of times. Australia’s total government debt as a proportion of GDP, approaching 50 per cent, remains much lower than that of many of our peers, and the OECD believes [$] it has peaked. Many comparable economies like the US, UK and Canada have public debt figures higher than GDP, and Japan’s is twice as high.

As the ABC’s business editor, Ian Verrender, writes today, the bigger problem for Australia is private debt: “While our government debt is still relatively manageable, our private sector debt and particularly that of households, is not. It recently shot to $2.466 trillion, almost 200 per cent of disposable income, amongst the highest in the world”. Verrender warns that the Australian economy remains tepid, and highly vulnerable to a slowdown in China. Recovering revenue, not spending restraint, has brought the deficit back towards surplus. No matter how much good news the treasurer has for us tomorrow, Australia can hardly afford to pop the champagne corks.

since this morning

The days of double-digit growth in house prices for Sydney and Melbourne are over as the two big cities head for a house price tumble, a new forecast [$] from SQM Research confirms.

Westpac Banking Corp has delivered [$] a 6 per cent rise in interim cash earnings to $4.25 billion, driven by growth in mortgage lending and lower bad debts.

Crikey’s Margot Saville on [$] how #metoo went from theory to real-time upheaval at the Sydney Writers’ Festival.

in case you missed it

The Australian’s Alan Kohler writes [$] that an arbitrary hard limit on tax receipts as a percentage of GDP is “ridiculous” and that “the Coalition’s ‘branding’ as a low-taxing party does not actually match reality. It is, to be clear, bulldust.”

The Daily Telegraph reports that the budget will contain $24 billion worth of infrastructure spending, the majority of which will go to Victoria.

A tanker carrying more than 130 Sri Lankans believed to be heading for Australia and New Zealand has been intercepted by Malaysian authorities, the SMH reports.

by Mungo MacCallum
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by Shane Danielsen
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Paddy Manning

Paddy Manning is contributing editor (politics) at The Monthly and has worked for the ABC, Fairfax, Crikey and The Australian. He is also the author of three books, including a recently updated unauthorised biography of Malcolm Turnbull, Born To Rule?


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