LIBS SUFFER TRUTH DEFICIT
The Daily Telegraph, Herald Sun and Courier Mail, 29 March 2019
Con artist George Parker was 20 years old when he first sold the Brooklyn Bridge. The trick was to start by asking a passing tourist for help on the tollbooth of the newly opened bridge. When the tourist got interested in the economics, Parker professed not to be much interested in the big picture, and suggested that the passer-by might want to purchase the whole structure. Parker reputedly sold the Brooklyn Bridge many times over, at prices ranging from $50 to $50,000.
When the Coalition hand down the budget next week, think of George Parker. In 2013, the Coalition pledged to have the budget in surplus in their first year, and in every year afterwards. They assured Australians that there would be no cuts to health or education, to the ABC or SBS, that taxes would be lowered, and that they would deliver a European-style wage replacement parental leave scheme.
But it turns out that not even the most compliant Senate can repeal the laws of mathematics. Upon winning office, the Coalition set about breaking promise after promise, including their pledge to start paying down debt. At the end of 2013, the Coalition quietly dropped dozens of tax measures, including reforms to close multinational tax loopholes. The budget was left billions of dollars worse off.
Gross government debt now exceeds half a trillion dollars, five times as large as in 2009, when then opposition leader Malcolm Turnbull launched his ‘debt truck’ gimmick. If they were being honest, the Coalition would now be commissioning a five-carriage debt road train.
Even accounting for the government’s assets, it’s still in the red. The latest Monthly Financial Statements put net government debt at $371 billion, almost $15,000 for every person in Australia. When the Coalition won office, net debt was just $175 billion.
But wait, didn’t the former Labor Government also take on debt? As every household knows, there are times to borrow, and times to save. When Australia was hit by the worst global downturn since the Great Depression, government receipts plunged, and income support payments increased. In addition, Australia implemented a fiscal stimulus package comprising household payments and infrastructure spending, described by Nobel laureate Joseph Stiglitz as ‘One of the best-designed Keynesian stimulus packages of any country’. What the IMF commended as ‘quick implementation of targeted and temporary fiscal stimulus’ saved hundreds of thousands of jobs and tens of thousands of businesses. Unlike virtually every other advanced nation, Australia avoided recession.
Was there a debt-free path through the global financial crisis? I’m yet to meet a serious economist who thinks so. Since the drop in tax receipts and increase in welfare payments accounted for most of the increase in government debt during that period, we would have had to engage in reverse stimulus - cutting expenditure in the face of the crisis - to keep the budget in surplus. The impact of the economy would have been mayhem.
To use a household analogy, Australia’s problem isn’t that we used a credit card to buy a fire hose. It’s that the government took a voluntary pay cut (by refusing to get tough on multinational tax avoidance), and then pulled out the plastic for boondoggles like moving the pesticides and veterinary medicines authority to Barnaby Joyce’s electorate.
At 18 percent of GDP, Australia’s net government debt remains below the OECD average. But after a string of Coalition deficits, it’s well up on the 11 percent that the Coalition inherited in 2013. As Shadow Finance Minister Jim Chalmers has pointed out, the main reason that the 2019 budget will be in the black is that tax revenues are up. In the past 50 years, only the Howard Government has a higher tax to GDP ratio than the Morrison Government. Spending has been higher under the Abbott-Turnbull-Morrison Government than under the Rudd-Gillard Government. It will be many years before Australia has paid off the debt accumulated from six years of Coalition mismanagement.
We need fiscal buffers to be ready for another downturn. The US economy is slowing and the IMF recently downgraded its 2019 global growth forecasts, citing the risk of an escalating tariff war. Another risk is that Australia’s household debt to personal income ratio is among the highest in the OECD. We can never be sure where the next crisis will come from, but the last thing we want is to be left with inadequate budgetary capacity to fight it. That’s why Shadow Treasurer Chris Bowen has pledged that Labor will deliver larger surpluses than the Coalition: both over the 4-year forward estimates and over the decade.
Meanwhile, having promised never to use the national credit card, the Coalition are cock-a-hoop about putting it back in the wallet after a six year binge. If you reckon they deserve praise for that, I’ve got a lovely bridge you might like to buy.
Andrew Leigh is the Shadow Assistant Treasurer, and his website is www.andrewleigh.com.
Authorised by Noah Carroll ALP Canberra.