Former ACCC head, Allan Fels, is the latest to lampoon the Coalition’s “good debt”/”bad debt” idea, arguing that many areas of recurrent government expenditure, like spending on mental health, can actually be “good”. From The Australian:
The examples provided of investments that could be funded by “good debt” have largely referred to physical infrastructure projects, or capital investment…
What appears to have been overlooked, however, are the significant gains to be had from investing in perhaps our most important economic asset — the productive capacity of the Australian people.
The benefits of doing so are possibly best illustrated in relation to mental health.
On OECD estimates, the economic cost of mental ill-health in Australia is about 4 per cent of gross domestic product, or upwards of $60 billion a year. These costs include substantial productivity losses, welfare payments, acute hospital services and crisis supports — spending that the National Mental Health Commission considers vital but also indicating failure within our mental health system.
The economic gains from mental health reform, and investment in prevention and early intervention, dwarf the gains from many other reforms on the economic agenda. While projects such as roads, rails and telecommunications are much needed and can deliver long-term economic gains, so too would investment in people and communities deliver substantial economic returns…
In the dichotomy of good and bad debt (and implicitly good and bad costs), it is important to acknowledge the critical role of our social and economic safety net. As other commentators have pointed out, health, welfare and education spending in some circumstances can be characterised as productivity enhancing…
Well put. There are many ways to boost productivity and community well-being other than increasing public investment in infrastructure.
Even straight out welfare could be considered “good debt” if it prevents families from becoming destitute, prevents crime, and reduces the associated losses in productivity (opportunity costs), or actual costs to the health and law enforcement systems. The same goes for other recurrent Budget expenditure items, like education, which can also drive productivity.
On the other hand, funding a dodgy infrastructure project with poor potential returns should be classified as “bad debt”. Possible examples include the proposed loan to fund the Adani rail line, as well as controversial infrastructure projects like WestConnex in Sydney, the now defunct East West Link in Melbourne, the ACT Light Rail Project, and Victoria’s disused desalination plant.
Ultimately, debt is debt. It all must be repaid regardless of whether it is used for recurrent of capital expenditure. It is the quality of spending that counts, not the type.
