Some commentators drew parallels between the deep deficits and soaring debt the Coalition embraced in last week’s Budget and Labor’s past policies. Alan Austin shows why they are vastly different.
ANYONE THINKING THE Morrison Government has now adopted Labor’s approach to debt is wrong.
The policies remain worlds apart.
Yes, the Coalition now embraces huge budget deficits and extensive borrowing for years to come — after condemning Labor relentlessly over the last decade for modest deficits and debt.
It may suit the Coalition to have voters believe it is now following Labor’s highly successful program of ten years ago. It isn’t.
The fundamental goals differ
The broad difference is that Labor and the Greens borrowed in order to stabilise the economy by building the national estate. The Coalition is borrowing primarily to replace capital lost by foreign corporations through mineral wealth exported with inadequate royalties, company taxes not collected and extensive hand-outs to media companies and others.
Building productive infrastructure
Annual infrastructure spending was above $1,600 per person under Labor. That was when gross debt added per person per year averaged just $1,764, which was a fairly close correlation.
In stark contrast, Coalition infrastructure spending now averages below $1,350 per person per year. Yet, gross debt added annually has averaged $3,174 per person.
Clearly, virtually all of Labor’s borrowings built the nation’s assets. But only a fraction of Coalition borrowings are staying in Australia to benefit its citizens.
Ensuring a healthy job market
During the Global Financial Crisis (GFC), Australia’s prompt stimulus ensured fewer jobs were lost than in most other countries.
The jobless rate nearly doubled in Sweden, Norway, Switzerland, New Zealand, the United Kingdom, Hong Kong, Taiwan, Turkey, Chile, Bulgaria, Slovakia and the Czech Republic. It more than doubled in Italy, the U.S., Mexico, Denmark, the Netherlands and Luxembourg. And it trebled in Ireland, Spain, Greece, Portugal, Iceland, Latvia, Cyprus, Estonia and Lithuania.
The highest Australia’s jobless reached was 5.86% in June 2009, up from 4.33% when Labor took office.
Today, almost two million Australians are underemployed or have no job at all. The latest unemployment rate of 5.62% ranks a lowly 14th in the OECD, down from sixth when Labor and the Greens were in office.
Wealth retained inside Australia
Through the critical two years, 2009 and 2010, while gross debt deepened by $117 billion, Australia’s net worth declined by $64 billion. So not all of that $117 billion in debt liability was wiped off the nation’s balance sheet. More than half was added to the assets side of the ledger.
Fast forward to today: over the last two years, gross debt deepened by $283.1 billion. Over that period, Australia’s net worth collapsed from minus $450.6 billion to minus $746 billion, an overall decline of $295.4 billion. Thus, all the borrowings were wiped off the books. No offsetting assets were added.
Net worth is the measure of federal government assets minus liabilities. Assets include investments, land, buildings, equipment, infrastructure and cultural assets. Liabilities include government borrowings, debts to suppliers, superannuation and other employee charges.
Building the best economy
The small debt Labor added through the GFC was applied extremely well. By December 2011, Australia’s median wealth was the world’s highest; the Australian dollar was worth more than one U.S. dollar; the jobless rate was 5.2%; job participation was a near-perfect 65.1%; wages were growing at 3.6%; economic freedom was the highest in the OECD, annual growth in gross domestic product (GDP) at 3.44% ranked seventh in the OECD; gross debt was the OECD’s fifth-lowest; and Australia had just gained triple-A credit ratings with all three agencies for the first time.
Australia’s economy performed the best by some margin. The next-ranked countries – Switzerland, Luxembourg and Norway – were a long way back.
Today, in contrast, Australia’s economy overall ranks outside the world’s top 25.
Averting destructive recession
Those justifying the Coalition deepening gross debt from $271.7 billion in 2013 to $839.6 billion today and to $1,199 billion – forecast for 2025-25 – claim this was necessary to prevent recession, as in 2008-10.
But it didn’t (except in a narrow, technical sense). Australia has had negative annual GDP growth for the last three quarters. These were minus 6.31% in June 2020, minus 3.70% in September and minus 1.12% in December. We await the March 2021 result.
There were no negative quarters of annual GDP growth during the GFC under Labor. Nor were there any during the early 2000s global recession under Prime Minister John Howard. The last was in 1991 during the global recession.
Australia was the only OECD member to avert recession and widespread job losses in 2008-10. In contrast, many countries are now faring much better than Australia on GDP growth, including South Korea, New Zealand, Ireland, Luxembourg, Lithuania, Turkey and Israel.
Political non-equivalence
The main difference, of course, between Labor and Coalition debt is that the former is used to ensure a reformist government never gains office again. Coalition MPs and the mendacious pro-Tory media continually depict Labor’s debt levels as a 'debt timebomb', 'terrible' and 'a disaster'.
Debt stacked on by the Coalition, which is forecast soon to reach six times larger than Labor’s, is greeted with characterisations such as this:
'As the Coalition proves, good government adapts to challenges.'
And this:
'War-like debt here for generations, but it is sustainable.'
Alan Austin’s defamation matter is nearly over. You can read the latest update here and contribute to the crowd-funding campaign HERE. Alan Austin is an Independent Australia columnist and freelance journalist. You can follow him on Twitter @alanaustin001.
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