I spoke in parliament last week about a piece of financial framework legislation, and the broader issue of government borrowing. The speech followed on from a diatribe against the government from Andrew Robb (the member for Goldstein), so I couldn't resist responding.
Financial Framework Legislation Amendment Bill (No. 1) 2011
23 June 2011
Dr LEIGH (Fraser) (10:28): I was trying to think, as I was listening to the confected outrage of the member for Goldstein, where I last heard so much passion for such low stakes. I realised it was in the current debate over the Liberal Party presidency. I know the member for Goldstein is an Alan Stockdale man and I am sure he would also have views on some of this overblown, overheated debate that has been going on in the public arena. Peter Reith is the policy candidate, isn't he?
The DEPUTY SPEAKER ( Hon. Peter Slipper ): I remind the member that we are debating the Financial Framework Legislation Amendment Bill (No. 1) 2011 and he ought to be relevant to the bill.
Dr LEIGH: As you rightly point out, Mr Deputy Speaker, we are focusing today on a piece of legislation which is the eighth financial framework legislation amendment bill since 2004. It is part of an ongoing program whereby the government will address financial framework issues as they arise, taking a whole-of-government approach. This bill, if passed, would amend a number of different acts. It would amend the Commonwealth Authorities and Companies Act 1997, updating arrangements regarding the corporate plan for a government business enterprise to enable the content requirements of corporate GBE plans to be specified in regulations, rather than in the act. It would amend the Financial Management and Accountability Act 1997 to clarify the legal status of determinations, instructions and guidelines issued under the act. It would also clarify specific provisions and make consequential amendments in these two acts and a further six acts, updating the Commonwealth’s financial framework and improving the governance arrangements for several Commonwealth agencies and bodies.
I was struck by the member for Goldstein's aspersions cast on the former member for Melbourne, Mr Lindsay Tanner. They particularly surprised me given that the member for Goldstein has been admirably open about the relationship between his own personal life and his job, given some of the real challenges we face here. So I found it somewhat disappointing that he would reflect on Lindsay Tanner's stated decision to resign to spend more time with his wife and children and cast aspersions on Mr Tanner, suggesting that his decision to leave the parliament was in some way policy related. I would like to use this opportunity to pay tribute to Lindsay Tanner for his extraordinary work as the minister for finance in the last term of government and commend him on his recent book Sideshow, which has opened up an important debate about how we deepen policy discussion in this country.
When we think about the financial framework of the Commonwealth it naturally draws us into appropriate levels of Commonwealth borrowing. It is useful to use this opportunity to dispel a few myths which have been out in the community—sometimes written on bunting surrounding polling booths—about the level of government debt. According to the 2011-12 Budget Paper No. 1, net debt is forecast to peak in 2011-12 at 7.2 per cent of GDP. It will fall to 5.8 per cent of GDP in 2014-15. It is extremely low by international standards. Average net debt levels in the major economies measured for all levels of government are projected to be around 80 per cent of GDP in 2011. So Australia's net debt will peak at less than one-tenth of that of major advanced economies.
What have we bought for this debt? We have two things. Firstly, we put in place substantial fiscal stimulus during the global financial crisis, stimulus which was timely, targeted and temporary and which saved around 200,000 jobs. But, of course, those opposite would have had us do something much worse. Most of the rise in government debt is a result of the fact that revenue is written down in a downturn. Corporate profits in particular fall substantially. By taking a no-debt position those opposite would have had the federal government cut spending in the global financial crisis. There is a precedent for this. During the time of the Great Depression, President Herbert Hoover cut spending as the slump began. It is generally regarded as one of the worst macroeconomic decisions in history—and that is the approach that those opposite would have the Australian government take. A no-debt approach suggests not only a no-stimulus approach; it actually suggests that when downturns come governments should cut spending. There could be no clearer definition of fiscal irresponsibility.
The billions that have been wiped off budget revenues and the hit on the budget as a result of recent natural disasters have meant that it has been necessary to increase the government borrowing limit a little earlier than anticipated. That increase to $250 billion has been supported by one of the many predecessors of the member for Goldstein as shadow finance minister. Senator Barnaby Joyce has said that the National Party will responsibly support this amendment, but the member for Goldstein rails against it, instead shouting about 'sovereign risk', an argument that is the last refuge of a shadow finance minister who has run out of every other idea. The Commonwealth government borrowing limit is lower than would have been the case under the projections in the period of the global financial crisis. In the 2009-10 budget, gross debt was expected to reach more than $300 billion. The $250 billion limit is, of course, noticeably lower than that.
It is useful to put Australia's debt levels into perspective. One way of thinking about this is to think about an individual earning $100,000 per year who owes $7,200. That is substantially below what the typical Australian household owes, for example, on their home, and it looks more like the kind of loan one might take out to purchase a modest hatchback car. In fact, many Australians carry credit card debt of more than $7,200. They probably should not, but it is certainly an indication that the Commonwealth debt levels are extremely modest compared to household debt levels. They are also extremely modest compared to debt levels in other countries. For example, US net debt will hit 85.7 per cent of GDP in 2016, UK net debt will peak at 79.5 per cent of GDP in 2013 and Japanese net debt will hit 163.9 per cent of GDP in 2016. The Australian government's financial positions have been backed by the RBA, whose statement of monetary policy has said that 'with the budget projected to return to surplus over the next few years, the impact of fiscal policy will be contractionary'. Compared with Australian households and compared with other developed economies, Australia's net debt levels are low and manageable.
Global rating agencies and the IMF take exactly the same position. Standard and Poor's said recently that Australia has 'exceptionally strong public sector finances' underpinned by 'low public debt and strong fiscal discipline'. In response to the budget, S&P noted the 'sound profile of Australia's public finances, which remain among the strongest of its peer group'. Net debt will return to surplus in the next budget and to zero in 2019-20.
It is important to recognise that the government borrowing limit not only takes into account net debt but also takes into account investments the government makes for policy purposes on which we need to borrow to fund, such as, for example, the National Broadband Network. The member for Goldstein would have Australians remain in the slow lane of the information superhighway.
We on this side of the House see superfast broadband as being a key infrastructure investment in the future. It is a network which will transform the way in which we deliver education, health and the jobs of the future.
Opposition members interjecting—
Dr LEIGH: Those opposite are happy to interject, to rail against the investments of the future, but one wonders what they will say in their dotage when their grandchildren ask them: 'Why is it that Australia was left behind? Why did Australia not invest when other countries were investing?' That is the position they take on many other debates as well: 'Australia should not try to clean up its economy; Australia should not make the investments in the infrastructure of the future; Australia should not make investments in the education of the future.' The increase in the government debt level is required to make productive investments like the National Broadband Network. It is also required for other instances in which the Commonwealth borrows money in order to make important policy investments—for example, HELP, where government makes loans to young Australians to go to university; which students will of course pay back. The HELP policy is supported by both sides of this House. One would naturally expect that as more students go to university there are more HELP debts and it would be necessary for the Commonwealth to factor this in when thinking about our borrowing limit. We have invested in the residential mortgage backed securities market. We have a small stake in the IMF, and that too necessitates an increase in the borrowing limit.
The utter lack of understanding by those opposite of the importance of government borrowing has a long history. It is not just something that those opposite are misunderstanding now; it is something that they misunderstood while in government. In 2002 the then Treasurer, Peter Costello, made an ill-fated attempt to shut down the government bond markets, suggesting that it would be appropriate to retire all government bonds. On The 730 Report on 30 October, 2002, Ken Farrow, from the Australian Financial Markets Association, pointed out:
'What's at stake is the fundamentals of the financial market of this country. We have a zero, risk-free, curve that the Government bond market creates. Off the back of that curve, most other financial products are priced. Our futures market is priced off that bond curve, and our derivatives market.'
Mr Farrow pointed out in the same interview:
… if you remove the government bond market, we'll see an increase in interest rates.
Peter Costello eventually backed off that attempt to shut down the government bond market, but those opposite have clearly learned nothing from that episode. Clearly, they misunderstand the many roles that the government borrowing limit plays.
There has been a quite sensible proposal made that, instead of the government borrowing limit being expressed in dollar terms, it should instead be expressed as a share of GDP. That proposal is presently being considered by the government.
Naturally, as the size of GDP and the size of government proportionately increases, one might expect that the government borrowing limit would need to increase. That is a proposal that is on the table at the moment. I commend the bill to the House.
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