A deficit of truth

About a decade ago then leader of the opposition, the incomparably inept Tony Abbott pointed at the Labor government’s budget deficits in dealing with the Global Financial Crisis (GFC), and the consequent increase in net and gross government debt and claimed that it was a “debt and deficit disaster”. The GFC response by the Rudd government was huge, with stimulus packages totalling well over $50 billion1. This led to a rapid rise in net government debt from about 1.2% of Gross Domestic Product [GDP]) in 2009 to about 16.0% of GDP by 2013 when the Abbott government was elected. They ran on a ticket of fiscal responsibility. However, gross government debt continued to rise, reaching 27.6% of GDP in 20192, before the Covid-19 pandemic hit the world and Australia. The current government’s stimulus package from the 2020-21 budget currently amounts to about $300 billion, with another $200 billion in the 2021-22 budget. The net government debt in 2020 was 39.4% of GDP, and is expected to increase to 43.8% of GDP by 2023-24. That net debt is likely to be almost $1 trillion3.

What did the Abbott government say when they were in power? Even though the debt continued to climb, it was all sweetness and light; nobody mentioned the words debt and deficit4. The same is true now when the debt is skyrocketing. While some of this is due to the pandemic, a large proportion of this debt was borrowed before the pandemic hit5.

So, what are many of the pundits saying? Not much, actually. Shane Wright, in an allusion to Dr Strangelove, even quipped that the 2021-22 budget might need to be titled ‘How I learned to stop worrying and love debt’6. Back in 2015, he was much more concerned about debt levels, and stated that the country needed to have a serious debate about how to deal with government debt, taxation and spending7. At that time debt levels were half what they are now.

David Crowe simply noted that as a result, in part, of the 2021-22 budget, the debt burden “will reach $1.2 trillion in 2025 and see the country’s finances remain in deficit for at least a decade”. However, during 2009, early in the GFC, he stated that the problem of debt could lead to a “Potential blow-out in inflation or currency collapse due to debt fears [that] could force interest rates up sharply just when the economy is recovering. An even larger debt burden would undermine economic growth for many years and preclude tax cuts for even longer.” It seems that is not too much of a concern now.

Is it economics that is so bereft, or is it journalism? Given Alan Austin’s analysis of the difference between the economic story spread by newsrooms before the 2019 election and that afterward9, it seems to be the latter.

Sources

  1. https://blotreport.com/2017/09/27/gfc-solution-liberals-hated/
  2. https://knoema.com/atlas/Australia/topics/Economy/Financial-Sector-General-Government-finance/General-government-net-debt-percent-of-GDP
  3. https://www.abc.net.au/news/2020-10-09/federal-budget-2020-debt-deficit-blowout-explained/12741472
  4. https://www.smh.com.au/politics/federal/what-budget-emergency-abbott-government-ministers-ditch-doom-and-gloom-talk-20150302-13soit.html
  5. https://www.abc.net.au/news/2020-08-13/fact-check-budget-debt-coronavirus-pandemic/12545628
  6. https://www.smh.com.au/politics/federal/debt-and-deficit-disasters-gone-as-frydenberg-aims-for-low-unemployment-20210428-p57n7u.html
  7. https://thewest.com.au/opinion/shane-wright/put-on-the-debt-level-brakes-ng-ya-133253
  8. https://www.smh.com.au/politics/federal/spending-splurge-to-create-250-000-jobs-in-two-years-more-money-for-aged-care-and-mental-health-20210507-p57pue.html
  9. https://independentaustralia.net/politics/politics-display/newsrooms-tell-the-truth-about-the-economy–after-the-election,12811

6 Comments

  • Michael Peters says:

    Debt as %age of GDP mentioned in article – is the movement in GDP available?

  • Arthur Baker says:

    In Saturday’s SMH Letters column, some lady wrote “For Heaven’s sake, there is only so much money”. Here we go again, making the elementary error of likening a national budget to that of a household. No, ma’am, in a country which has control of its own fiat currency, there is NOT “only so much money”. There is as much money as you feel like creating, whenever you like. Its creation may have consequences of one kind or another, down the track, but its extent is unlimited. Very, very unlike a household’s budget. As a government, if you want more money, you print it, or you write it into bank accounts. Just like The Almighty Creator is alleged to have said “Fiat lux”, “Let there be light”, and there was light.

    • admin says:

      Arthur,
      I fact, I’d like it if household budgets were more like national budgets. I could do with printing some extra cash.

  • Russell says:

    So Arthur, when giving quotes in Latin, I guess if “Fiat lux” means “Let there be light (by order of the omniscient, omnipresent, omnivorous, omni-absent, omni-cruel, omni-non-existent (- ?huh?) God”, then there’s an equal term for the economy today. The man with illusions and tragic delusions of near-Godlike omnipotence, Holy Scowmow, now declares “Fiat Bucks”.

    And the Penta-Lord said “Fiat Bucks”; and lo, behold, zillions of Aussie bucks pour from Denison Street, Deakin ACT !!

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