Cross-posted from Independent Australia:
The PM and Treasurer are now spinning their extensive Government debt as “good” after years of depicting Labor’s modest borrowings as “disastrous” and “a timebomb”. Economics reporter Alan Austin unpacks the hypocrisy.
Treasurer Scott Morrison told business economists on Thursday that there is “good and bad debt”. He explained “it can be very wise for Governments to borrow, especially while rates are low”, but that borrowing to pay running expenses, “is not a good idea”.
This was not news to anyone at the Sydney forum, although it may have amused those who recall the Labor years when Coalition MPs only ever spoke of debt in apocalyptic terms.
Is this new spin a pre-emptive move to avert disaster when the Coalition’s actual performance eventually becomes impossible to conceal?
The hard data shows the Coalition has been stacking on debt at an alarming rate. Virtually all of it bad. Several landmarks – looming or already reached – amplify this appalling record.
Landmark 1: Gross debt
Gross debt will soon break the psychological $500 billion barrier — or “half a trillion”, bringing American terminology into Australia’s discourse.
Friday’s gross debt figure from Treasury’s office of financial management was $489.8 billion.
When Labor gained office in November 2007, gross debt was $58 billion. In September 2013 it was $270 billion. So Labor added $212 billion during the global financial crisis (GFC). The rest – a staggering $219.8 billion – has been added by the Coalition.
With gross debt this year increasing at $6.25 billion per month, the half trillion looks just weeks away.
Landmark 2: Rate of gross debt increase
The borrowing trends over time of Labor and the Coalition are opposites. In calendar 2009, during the depths of the GFC, Labor borrowed $59.5 billion.
This reduced steadily each year until 2013, when Labor added just $1.02 billion per month until the September election. That’s an annual rate of $12.3 billion.
Since then, under the Coalition, the trend has reversed. Annual increases were $53.6 billion in calendar 2014, slightly less in 2015 and $66.1 billion in 2016.
On current trajectories, the Coalition will break $70 billion this financial year and $80 billion next.
Landmark 3: Debt to gross domestic product (GDP)
The Coalition set a new high since the aftermath of World War II, when this ratio reached 25.4% in 2016. The highest under Labor was 17% in 2012-13.
The current expansion rate puts Australia in a group of just six developed countries (out of 34 OECD members) which during the current global boom are still increasing their debt to GDP ratio by more than 2.5% per year.
Breaching 30% now appears likely.
Landmark 4: Interest paid
Interest payments – paid on net debt – will soon exceed $50 million per day, either via increased borrowings, increased interest rates, or both.
The daily rate so far this year has been $45.5 million, up from $33.9 million through Labor’s final year — when interest rates were double the current level.
The annual bill this financial year is budgeted at $16.0 billion, up from $12.2 billion in 2012-13.
Landmark 5: Debt per man, woman and child
Then Opposition Leader Tony Abbott was scathing in 2012:
“Labor has turned a $20 billion surplus into $167 billion in accumulated deficits … That is $6,000 for every Australian man, woman and child.”
Today, in contrast, the net debt per person is $13,089. Gross debt per person is $20,197.
Landmark 6: Commonwealth government net worth
Net worth is the difference between total government assets (residential mortgage backed securities, the future fund, loans out and so on) and liabilities (securities on issue, public sector superannuation liabilities and so on).
When Labor took over from the Howard Government in 2007, Australia’s net asset position was a puny $15.2 billion. Within eight months, the new administration improved this to nearly $80 billion, the highest in Australia’s history — just before the onset of the GFC.
Thereafter, as revenues declined through the GFC, net worth shifted into the negative, reaching a low of -$263.8 billion in September 2012. Things then improved gradually through Labor’s last 12 months. Net liabilities were -$205.9 billion in September 2013.
Since then, however, the position has worsened dramatically. By June 2014, net worth was down to -$256.0 billion; by June 2015 it was -$303.2 billion and June 2016 it was -$418.6 billion.
By the end of February, the monthly figure had blown out to -$423.9 billion, with another half trillion record in sight. There’s that word again.
Landmark 7: Commonwealth government liabilities
The blow-out in Australia’s negative net worth is not because assets have been lost, but because debt – most of it bad borrowing – has ballooned.
Total liabilities when the Coalition took office were $567.9 billion, a substantial improvement on the position a few months earlier during the GFC at $618.7 billion.
After the 2013 election, however, the declining trend was quickly reversed and total liabilities have expanded alarmingly. By August 2015, Treasurer Joe Hockey had blown this out to $760.3 billion. Farewell, Joe! A year later, Morrison had expanded this to $901.5 billion.
It is now $917.0 billion and looks set to bust the trillion.
Coalition debt bad
Morrison is correct to note that borrowing to build infrastructure is strategic. IA has consistently maintained this position — usually when rebutting Coalition attacks on Labor’s record of calculated borrowing through the GFC.
What is clear today from the Bureau of Statistics and other sources is that infrastructure spending is now at record lows. The current expansion of debt is almost entirely due to the Government’s failure to collect taxes due from corporations now reporting record profits.
Hence the Coalition’s debt is nearly all bad. No amount of spin can conceal that. But it seems they will try anyway.
You can follow Alan Austin on Twitter @AlanTheAmazing.
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