Treasurer Joe Hockey is continuing to throw rocks from the cheap seats rather than manage a huge structural transition in our $1.5tr economy.
His hyper-exaggeration of a "debt crisis" and a "budget emergency" continues. Australia faces no such prospect.
Net debt in Australia is one of the lowest of any advanced economy, as the graph below demonstrates. That’s why Australia has a AAA credit rating from the three major global rating agencies. There is a world of difference between debt levels in Australia and debt levels in the United States.
The divisive and catastrophic debt debate in the United States shows what goes wrong when economic discussion and sensible public policy is hijacked by hyper-partisan language of the type repeated by Mr Hockey today.
It’s damaging to confidence within a nation and standing within the global economy.
Over the past 18 months in the United States a Tea Party faction in the US Republican Party has been prepared to shut down the U S Government and hold the global economy to ransom. This could have caused the United States to default on its debt obligations and a global economic meltdown would have followed.
The Tea Party rhetoric about the size and role that debt plays in modern government is aimed at abolishing the social safety net, in particular health care for uninsured Americans. The equivalent of these events in Australia would be to defund Medicare and stop the roll out of disability care because it is funded by the Medicare levy.
Yet again Mr Hockey didn’t choose today to acknowledge the strength of Australia’s fiscal position as the government moves to increase Australia’s debt cap.
During the global financial crisis and recession, when demand fell off a cliff, Australia activated stimulus measures to support consumption and to invest in infrastructure to support jobs and growth. In doing this Australia sensibly borrowed to support our economy. It was a modest price to pay to maintain the strongest economic fundamentals of any developed economy. Since 2009, the Labor government put in place significant fiscal consolidation, recognising the importance of a clear pathway back to surplus.
As the pre-election fiscal outlook shows, this path of consolidation has brought down budget deficits progressively to enable a clear pathway to surplus and the elimination of net debt.
Last year a sudden drop in corporate tax revenue meant that the Government took the responsible position to slow the path back to surplus by two years.
Hockey and his colleagues have repeatedly said that debt was because of Labor’s “legacy of waste and reckless spending”. This statement is untrue.
In 2013-14, Australia remains within the debt cap legislated in May 2012 and it was always the case that it would have to be lifted as gross debt peaked at $370bn over the next four years. Today Mr Hokey said that this figure had increased by $30bn. But as a matter of government choice he added an additional $100bn to the debt cap.
This is not a consequence of Labor’s commitment in the 2013-14 budget to implement and fund DisabilityCare and the Gonski School Improvement Program. Both were fully funded by Labor for the next decade.
If Mr Hockey has a spending problem, it’s of his own creation. He intends to substantially reduce government revenues by abolishing the MRRT, the carbon price and reinstating tax breaks through the the fringe benefit tax. He also plans to spend big on the world’s most expensive paid parental leave scheme.
These policies are a triumph for wealthy miners, big polluters and high income wage earners. While this is an agenda that is not as nihilistic as the United States Tea Party, it is an agenda that reeks of fiscal irresponsibility, the beneficiaries of which are those on the highest incomes.
It will have to be funded in the long run by large cuts to the social safety net and key investments in education and health. His commission of audit announced today will be used to camouflage this fiscal recklessness. In fact, Tony Shephard, who the government appointed today to run the commission of audit, is on the record time and time again advocating an increase in the GST and reducing conditions and penalty rates for Australian workers. Mark my words, the losers from Hockey's commission of cuts will be those on modest and middle incomes dependent upon quality health and educational services to lift their living standards and those of future generations.
Australia will still hear plenty from Mr Hockey about debt and deficit caused by irresponsible Labor spending.
In truth, our deficits are modest and our spending responsible. The Liberals have different priorities and what the Abbott government and its commission of audit is really about is hacking away at public investment in health and education and the social safety net.
Originally published on the Guardian Australia.
