Dishonesty in the debt debate

A couple of nights ago I participated in another entertaining episode of Q&A on ABC TV. Given that Barnaby Joyce was also on the panel, it’s hardly surprising that much of the evening was spent talking about government debt. In fact, one of our co-panellists on Monday made the point of saying that we can play games with these debt figures till the cows come home.

This isn’t an easy topic to debate when you’re trying to be considered and factual.  For some reason, in a country where most companies and most families have some level of debt, government debt is seen as inherently evil and scary.  In fact, like most things, it’s the level of the debt that matters and your capacity to service it.  Debt is not intrinsically evil, otherwise no one would have a mortgage, and we would all rent until we’d finally saved enough to pay cash for a house.

The Liberal Party often claims credit for leaving government with ''zero debt''.  Unfortunately it usually neglects to add one little word: net.  In fact, when Labor was elected in 2007, the government owed nearly $60 billion.  That debt, however, was more than fully offset by debts owed to the government by others.  As I said on Q&A, if you owe the Commonwealth Bank $50,000 and Westpac owes you $50,000, then you’re square.  You’re much better off than if you just owe someone $50,000.  It’s the net debt figure that matters – what you owe versus what others owe you.

Australia’s net debt is expected to peak at a little over $150 billion in a few years' time.  That’s obviously a lot of money, but it needs to be seen in context.  It is about 9.6 per cent of gross domestic product.  That means it is worth less than one month’s production of all goods and services in the Australian economy.  In other words, there are no problems in managing and servicing our debt.  When the Liberal Party talks about current debt figures, it uses gross debt figures.  When its politicians talk about their record, they use net debt figures.

The most recent budget forecasts project a decline in the deficit in the next few years and a return to surplus in 2015-16.  At that point, surpluses are used to repay the debt.  It’s anticipated that this would happen in the following six years or so.  The government has put in place some critical spending rules to ensure we stick to the pathway back to surplus and paying down debt.

In essence, debt is a challenge, but it’s entirely manageable.  Our peak debt level will still be below the debt levels that prevailed for most of the 1990s. Most comparable nations, such as Britain, the US, Japan and major European nations, have much much higher debt levels.  While Tony Abbott, Joe Hockey and Barnaby Joyce hyperventilate about the debt bogeyman, other western nations regard Australia as a model of good budget management.

Why are we going into debt?  Because the global financial crisis punched a huge hole in our projected revenues, and forced us to act to support the economy and to sustain jobs.  Had we just sat back and watched, as our opponents seem to suggest, we would have seen unemployment rise dramatically.  That would have reduced tax revenues even further, and thus pushed us into deficit anyway.  We’d still have a budget repair job on our hands, but also be dealing with hundreds of thousands more unemployed workers and damaged families.  The Rudd government had no choice but to intervene to protect Australian working people from the ravages of the crisis.  The dishonest campaign about debt being prosecuted by our opponents should be seen for the fraud it is.