Paddy Manning at Crikey argues we need more debt today:
Could we possibly put this galling, imitation debt ceiling debate to good use? In this country, as a bond trader tells me, “there is no adult appreciation of what debt markets do”.
Australia has no debt crisis — our government debt is exceeded by our credit card debt, as one commentator pointed out yesterday. Our public debt as a proportion to GDP is among the lowest in the OECD. We have a triple-A credit rating from all three agencies (for what that’s worth).
…The end result is a chronic lack of modern infrastructure: in transport, energy, communications, you name it. No second airport for Sydney. No fast rail. We waste hours and hours in traffic jams. Don’t even mention dirty old coal-fired power stations or ageing copper phone lines.
…But if we’re not going to abolish the ceiling, perhaps the Treasurer could take the opportunity to spell out not just what the debt might be used for, but what kind of money he would like to borrow.
The problem is not the one identified by Maurice Newman in this CEDA address on Monday, when he complained “already the yield on Australia’s five-year government bonds is the highest of any triple-A sovereign borrower”.
That difference is driven by our higher official interest rates — which anchor the debt markets. Which is in turn a reflection of our relative economic strength, coming through the GFC as well as we did.
Sigh. We do not need more debt. We need more competitiveness. Until we get that we’ll have to borrow to fill the investment gap that results from not producing anything. And while we keep borrowing our competitiveness will keep shrinking. It’s a road to nowhere.
I’m no fiscal austerian. I can see a plan of productivity enhancing debt-funded infrastructure investment contributing to our competitiveness. But that’s what it has to be, productivity targeted borrowing, or it’s just kicking the can.
And the program cannot be huge, either. The public balance sheet guarantees the private. Thus it has less scope for expansion than Manning argues.
Australia has more than enough debt already if you include the private sector. What we lack is an ability to compete in just about everything that we turn our hand to.
