Debt denial and its consequences

 

 

2013-04-24 04.49.50 amNICK CATER

The Australian, January 28, 1015

MARTIN Parkinson must be pleased to be out of it. In his latter years in the public service, Parkinson attracted sceptics like cow paddocks attract flies.

As founding secretary of the Department of Climate Change (a directorate, incidentally, that has since been abolished), naysayers must have been the bane of his life. When Julia Gillard made him Treasury secretary in 2011 he might have expected he was moving to a less contentious portfolio. Not a bit of it. The evidence of Australia’s deteriorating fiscal position was unambiguous, but nevertheless debt and deficit denial was gaining strength.

Late last year in a farewell speech to the Committee for Economic Development of Australia, he lamented that “the implications for fiscal sustainability of failing to take action seem to have been lost in the public debate”. It was “as if this does not matter to Australia’s future prosperity.”

Economics is an unfashionable discipline these days. The notion that we are diminishing our children’s futures with profligate public spending is, if anything, greeted with greater indifference than the supposed link between carbon emissions and a burning planet. Labor insists debt is barely worth worrying about, and journalists seldom try to challenge them. The words “debt” and “deficit” have not appeared in transcripts of Bill Shorten’s interviews for almost eight weeks. The Labor leader has been treated with kid gloves since Leigh Sales gave him a touch-up on ABC’s 7.30 on December 3.

It is not as if Parkinson is alone in warning that the spending habits acquired during the boom years must change. The realisation that the government is spending more of other people’s money than its citizens could reasonably afford to lose has been gathering ground since the shock of the global financial crisis. Labor assumed office with $50 billion in the bank. When it left it had run up the best part of $300 billion in debt which will cost each man, woman and child in the country $550 to service next year. It is not a trivial sum: we could build a new hospital a month with the $1.1 billion monthly interest repayments, and if the government keeps spending at current levels, it will only get larger.

Is this, as the denialists claim, the unavoidable price of avoiding recession? Hardly. New Zealand entered the financial crisis in far worse fiscal shape than Australia, yet the cautious and prudent Key government is predicting a return to surplus this year and GDP grew at close 4 per cent last year, the fastest in a decade. Australia, according to the latest Treasury forecasts, will have to wait another five years to reach that happy position.

Unlike previous threats to our prosperity, however, the effects of the structural deficit are barely noticed around the kitchen table. Unemployment has risen, and youth unemployment in particular is troublingly high yet it has not yet reached the levels of the early 1980s and neither has inflation. The stock market has recovered from the crash of 2008. There is no recession, and with mortgage interest rates below 5 per cent, there is no appreciable rise in home repossessions. Petrol is 99c a litre. Crisis? What crisis?

With hindsight Tony Abbott and his Treasurer Joe Hockey should have invested more time spelling out what to them was blindingly obvious; that the nation was living beyond its means, and it had to work more productively, rein in expenditure and eliminate public sector waste or face the consequences: falling wages and falling export earnings eventually leading to falling confidence; rising unemployment and rising taxes leading to rising despair.

Coalition members should have been falling over one another to grab the microphone to repeat the story of Labor’s folly: the $900 cheques posted to the deceased; the $308 million set aside by Steven Conroy to help granny retune her telly; the $1 billion used to equip children with underpowered, outdated laptops that are cluttering storage cupboards in schools around the country.

If the Coalition had highlighted one item of egregious waste each day since coming to office it would have barely scratched the surface. Yet it held fire, allowing space for Labor to write its self-exonerating narrative: there is no budget problem; the government was making the whole thing up. According to Bill Shorten, trimming the costs of Medicare is just an act of vindictiveness. “I think we have got a very good system, the Medicare system,” Shorten claimed recently. “Let’s get some facts on the table before we see the government just attack GPs as they have been doing shamelessly in the last few weeks. Our health system, we spend about 9 per cent of our GDP on healthcare in Australia compared to about 17 per cent in the United States.”

Let’s get some more facts on the table, the facts cited by Parkinson in a speech last April. Health spending will rise from $65 billion in nominal terms to $116 billion in a decade unless action is taken. Pension payments will increase by 6 per cent a year adding another $39 billion to the bill in 10 years’ time. The net cost of the NDIS to commonwealth taxpayers will add up to $64.5 billion by 2023-24.

“Mr Shorten,” asked Leigh Sales last month, “when are you going to start acting like an alternative prime minister and face up to some of these economic challenges?” Shorten’s prevaricating and largely nonsensical answers to Sales’s persistent questioning are worth watching in full. In the meantime, here is the abridged version, for which we are indebted to Bill Leak, who thought the words worth quoting in what might be the longest speech bubble in Australian cartoon history:

“We’ve got to go for growth, and the way you go for growth is you spend money … if you’ve got growth you’re creating national wealth then a lot of pressure comes off the budget so what you’ve got to do is you’ve got to built the infrastructure of the future … you’ve got to have the skills and training of the future … it’s about the future… if you don’t know where you’re going any road will get you there.”

Thanks Mr Shorten, we’ll get back to you on that.