The Turnbull Government has just set several new records in economic mismanagement — each of them points to a dismal future. Alan Austin reports.
DOCUMENTS released late last Friday night show the country’s finances are now much worse than when Malcolm Turnbull and Scott Morrison replaced Tony Abbott and Joe Hockey.
They are poorer than the most pessimistic pundits could have predicted.
Four appalling records
Australia’s net debt – which the Coalition promised in Opposition to reduce by $30 billion – has smashed through the $300 billion barrier. Gross debt – on which interest must be paid – has breached $450 billion. Interest paid in hard cash to mostly foreign investors is now above $40 million per day. And the Coalition Government’s net financial liabilities are above $600 billion for the first time ever.
None of these appears to have been reported anywhere in the mainstream media.
Rapid recent deterioration
There is no excuse for the media blackout on these disasters, although some economics writers might claim they were caught unawares by the speed of events. This has probably been the most rapid budget deterioration in any developed country since the end of the global financial crisis (GFC).
Over the entire period of the first Kevin Rudd Government, debt was added at the rate of $2.85 billion per month. This was required to deal with the early onset of the global meltdown. This rate of borrowing increased slightly through Julia Gillard’s term until the GFC was over in early 2013. Through her last eight months, the gross debt added each month averaged just $1.02 billion. For Labor’s entire duration, the monthly increase averaged $3.06 billion.
Then came the appalling maladministration of Tony Abbott, during which $4.75 billion was added each month — without any justification related to global conditions. This resulted from wasteful spending on a colossal scale and refusal to collect taxes from the rich.
Malcolm Turnbull then successfully challenged Tony Abbott for the prime ministership in September last year.
“ ... not been capable of providing the economic leadership our nation needs.”
Fair enough.
So what happened thereafter? Did the new regime start to repay the debt, as it had been promising to do for years?
Not at all. Further fresh debt was added in Turnbull’s early months at a rate just below Abbott’s figure. That has since blown out disastrously, with more than $8.5 billion borrowed per month over the first four months of this financial year. Turnbull’s total rate has been $4.78 billion per month.
Gross debt is now $450.79 billion. This is $173.4 billion higher than the $277.4 billion Labor left in September 2013 — up 62.5%.
Net debt has also risen alarmingly. We only have the figures until the end of August, but these reveal a rise of $15.9 billion just since June – up 5.35% in two months – to $312.3 billion. This is $137.7 billion above Labor’s $174.6 billion legacy — up 78.9%.
Does debt really matter?
There is a lively debate in many forums on the intriguing matter of modern monetary theory. This view asserts that governments can issue debt without having to repay it provided, as in Australia and the U.S., it is issued in the country’s own currency.
While that is an intriguing hypothesis to discuss, four urgent challenges arise from Australia’s recent debt blow-outs.
Global loser
With the post-GFC global recovery well underway, many comparable countries are reducing their debt. These include New Zealand, Ireland, Denmark, Germany, Iceland, Netherlands, Israel, Switzerland, Turkey, Slovakia, Hong Kong, the Philippines, Greece and others.
Of the 34 wealthy members of the Organisation for Economic Cooperation and Development (OECD), only 11 have increased debt in each of the last three years. Of these, five have expanded it by more than 5.5% since 2013 — Finland, Japan, Mexico, Slovenia and Australia.
Observers abroad are astonished at Australia’s bizarre economic mismanagement following the 2013 election. This dismay – along with the stream of gaffes by Tony Abbott, Julie Bishop, Barnaby Joyce and others – feeds the general perception that Australia is no longer the global player it once was — and no longer a desirable trading partner. This probably contributes to Australia’s record run of trade deficits.
Loss of land and resources
Interest on Australia’s gross borrowings this year will exceed $45 million per day. That’s more than $16.6 billion over the full year. These are real Aussie dollars paid to lenders, about two thirds of whom are foreigners.
Since the Aussie dollar collapsed in late 2013, much of that money is now spent in Australia buying up agricultural land and other assets as they come to auction.
Blaming Labor
There is nauseating hypocrisy in the discourse from the Coalition and the mainstream media. Throughout the Labor years, the rising debt level was constantly used to depict Labor as incompetent or evil and as the main imperative for changing government. Almost daily, headlines decried ‘Labor’s financial mismanagement’ or ‘Debt spiralling out of control’ or ‘The budget in freefall’ or ‘Labor's debt timebomb’.
The commentators who pilloried Labor when the gross debt hit $200 billion in 2011 are contemptibly silent now it has breached $450 billion.
Shift of wealth and income
The blow-out in debt is primarily the result of policies which have redistributed wealth and income from the poor and middle to the rich and very rich. Corporations and high income earners no longer pay the tax they once did. Government spending favours foreign corporations over domestic needs.
When urged to attend to welfare, the jobless and overseas aid, the Government now shrugs and points to the deficit and debt and says: We wish we could do more but “Labor set fire to the budget”.
Such is Australia’s doom.
You can follow Alan Austin on Twitter @AlanTheAmazing
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License
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