From the Ross Gittins:
Another thing we’ll hear a lot of on Tuesday night is that the government is “living beyond its means” and must mend its ways and live within its means, just as households do.
This is nonsense. It’s Scott Morrison doing his best Joe Hockey impression. If you measure them the way Morrison does for the government – that is, by including borrowing for investment in with day-to-day expenses – our households are living way beyond their means.
Indeed, Australia’s households have one of the highest debt ratios in the developed world.
Do you think it’s a crazy, irresponsible thing for so many households to borrow many multiples of their annual income to buy the home they live in?
Of course not. For most it makes lots of sense. Is a government – state or federal – that borrows to build public infrastructure that will serve the community for decades, adding to our productivity, living beyond its means? Of course not.
National governments may be said to be living beyond their means when their recurrent spending exceeds their revenue, but even that is too simplistic.
Why? Because governments aren’t the same as households and it’s ignorant to pretend they are. Governments have responsibilities households don’t have and also have powers households don’t have – such as the ability to impose taxes and even, for national governments, to print money.
One highly relevant government responsibility is to help limit economic slowdowns by running operating deficits – by allowing their recurrent spending to exceed their revenue – while spending by the private sector is weak.
Does that sound too Keynesian for a Coalition government? Too Keynesian for Turnbull who, while opposition leader in 2008, vigorously attacked Kevin Rudd’s fiscal stimulus?
How about a moment in the “real world” Rosco? It is crazy for households to have borrowed so much against income. So crazy that they would long ago have crashed and burned if they had not been bailed out by the Budget given the household borrowing has come largely from offshore and the government was forced to guarantee it in 2008 (and ever since). What person in his right mind would not stop to consider whether leveraging up the guarantee is also a good idea?
It’s all very well to live in a Keynesian bubble but you have to accept that there are limits to these things when it comes to the folks who are actually lending you the money. At some point they will ask for a higher return as your credit addiction mounts up, and we are already there in the current environment.
I do not argue for no public borrowing but it should be high quality – that is directed at thoroughly vetted productivity-enhancing infrastructure not repeat spending, except in crisis – and it should bear in mind the AAA rating lest you blow yourself up with higher interest rates across the economy in short order.
Keynesian rants about endless debt make good copy and bad policy advice.
