We must end the fear of public debt in Australia | Greg Jericho


Remember when the public debt was unsustainable?

The Liberal Party certainly does this because it has been its mantra for over a quarter of a century.

In 1997, Peter Costello told parliament on the “unsustainable debt position” inherited from Labor.

When the Rudd government embarked on its stimulus spending during GFC, public debt became unsustainable again.

Barnaby Joyce, who was shadow finance minister at the time, while talking about “our net, gross, public and private debt” (a set of words that economists, even at this distance, are still quite unable to understand. untangled for signs of logic) argued that the debt level of 9% of GDP “is getting to a point where we can’t pay it back”.

In 2011then-liberal backbench Josh Frydenberg established the good faith of his Liberal party by suggesting that “the Rudd and Gillard governments have both flaunted their dependence on debt” and that “the messages for the Australia are clear: “A great government is bad within your means before it’s too late. “

Tony Abbott was the king of fears of unsustainable debt.

In 2010 he talked about NBN adding “billions and billions of dollars to Australia’s unsustainable debt”.

In 2014 he accused the ALP of Thinking that governments can “borrow, spend, tax, spend and accumulate unsustainable debt for our children and grandchildren forever” and want to “pay off our children and grandchildren with unsustainable debt”.

Really, won’t someone think of the children (and grandchildren).

Even Malcolm Turnbull got in on the act tell parliament in 2017 when the Prime Minister: “What Labor delivered was unsustainable debt”.

So many words. Too bad they are all superimposed.

This week on Parliamentary Budget Officer looks at fiscal sustainability until 2055.

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He estimated that gross public debt will likely reach 55% of GDP by the end of the decade and still be above 30% of GDP – a rate almost double of anything seen since World War II – by 2055.

And does the PBO conclude that this is the end for our children and grandchildren? Should we quickly invest in stool?

Well no.

The PBO executed 27 different scenarios involving GDP growth, interest rates and the budget balance and concluded that “the government will be able to maintain a sustainable level of debt relative to GDP over the next decades” .

He noted that “reducing the ratio of public debt to GDP to pre-pandemic levels will take decades, even under relatively optimistic scenarios.”

But the issue is not of particular concern as “debt service costs are expected to remain moderate as existing debt has been borrowed at historically low interest rates.”

Indeed, the PBO estimates that when our gross debt level peaks in 2030, the annual interest repayment will be lower as a percentage of GDP than it has been for all but 10 of the last 56 years.

And already, Frydenberg tells us that the budget (at least in 2021-2022) will not focus on austerity, instead claiming that (rightly) the government has taken advantage of the current low interest rates by issuing bonds at 20 and 30 years old.

But sustainability is a curious expression.

The PBO noted that “some challenges, such as an aging population and climate change, are relatively predictable”, yet the report does not include these aspects in its analysis.

The PBO asserts that “a financially viable position allows the private sector to make confident financial decisions about the direction of government policy.”

Yet the same can be said of our current unsustainable level of greenhouse gas emissions, but this is not taken into account.

It’s as if the PBO believes that climate change will be resolved somehow by 2055.

In fact, fraudulent debt fears have been a big reason for the lack of “war-bust” spending needed to bring our economy to net zero emissions.

This report should lead political parties to abandon their scare campaigns and realize instead that our low interest rates should be used to transform our economy out of dependence on greenhouse gas emissions.

Our public finances are sustainable, but without completely putting an end to the fear of indebtedness, our economy will never be.

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