Who’s to blame for our $1 trillion in foreign debt?

From Adam Creighton, who is capable of better:

If net foreign debt of $180bn was enough to help Howard win the 1996 election, Shorten needs to fire his political advisers because Australia’s net foreign debt will burst through the $1 trillion mark before Christmas. It climbed to $994bn in September, from $968bn in June, according to the Australian Bureau of Statistics this week.

…it’s crickets when the debt figures come out…a particular economic view, one advocated strongly by the Australian economist John Pitchford in the early 90s, has come to dominate. It concludes that foreign debt doesn’t matter much if it is largely in private hands — that is, a product of voluntary and presumably mutually beneficial contracts among households and firms here and abroad.

While Pitchford’s “consenting adults” view of foreign debt has mothballed criticism, the share that isn’t consented to — public debt — has been rising…That is mainly owing to Rudd government stimulus during the GFC (so perhaps debt trucks aren’t a good Labor strategy, after all) and, more recently, the chronic, worsening and seemingly irreparable federal budget deficit.

So Australia’s rising external debt simply reflects fiscal ineptitude.

Right but for the wrong reason. The fiscal ineptitude is not Rudd’s, though it is fair to say his stimulus should have been curtailed earlier. The real fiscal ineptitude is that of Peter Costello and John Howard who together triggered the great Australian property bubble and its reliance on external debt when they cut the capital gains tax on housing, ushered in the pre-GFC Wallis Inquiry reforms and pissed away the mining boom on household tax cuts for which we had no income across the cycle.

The consenting decisions by private adults have ever since been horribly distorted by the negative gearing tax haven and a false sense of their own future income gains, and private and external debt have mushroomed to today’s $1 billion bill.

Of course, other governments have not done anything about it but the source of the problem is obvious.