Treasurer Joe Hockey has been sounding the drums of economic war by proclaiming the Australian economy faces a 'budget emergency'. Key to this is his claim that Australia is borrowing $100 million a day.
The ABC, bless their hearts, fact-checked this claim and found it was true (1). In fact, they found Hockey had slightly under-stated it. Australia is borrowing $110 million a day using the Hockey formula of dividing the deficit ($40.362 billion as of December 2014) by 365 days which equals a tad over $110 million a day. At the time of the claim, the Australian Office of Financial Management reported Australia's gross debt at $350.734 billion.
These are big numbers. Big scary numbers which fit well with the LNP script to scare the bejesus out of the electorate ... you know, scare us with terrorism (Labor's fault), asylum seekers (Labor's fault), budget emergency (Labor's fault). Labor is all that is wrong with the world if you listen to the LNP MPs who sound more like Doomsday Parrots then members of parliament.
The ABC Fact Check then quotes Professor Jakob Madsen of Monash University who states, 'I think it's a bit alarmist'. You think? He then goes on to point out that measuring the deficit as a percentage of Gross Domestic Product (GDP) is a better measure of an economy's health. The deficit is 2.5% of GDP. Scary stuff that.
That means that GDP is 40 times the deficit. Hardly an emergency.
What it indicates is that in this society of 'lifters and leaners' (to quote one of Abbott's insightful three word slogans), there are some who could lift a tad more.
Numerous economists have been pointing out that Australia does not have a spending problem, but it does have a revenue problem. And that problem isn't because of a lack of sources of revenue, but a structural problem with its tax system that sees the lifters being at the lower end of the income spectrum while the upper end shirk their responsibilities ... are in effect, leaners. ABC Fact Check quotes Richard Robinson from BIS Shrapnel who succinctly sums it up, 'In my opinion, a large chunk of the revenue problem is due to large tax benefits to already wealthy people, with the largest of these being superannuation breaks, capital gains tax breaks and negative gearing'.
Hockey has extrapolated the fear-mongering further by claiming that by 2037 Australia's debt will reach a whopping $1 trillion (2). Another huge number. But what about GDP?
Australia's economy is growing at 2.7% per annum (3). This is around average for the last 20 years in which its growth generally ranged between around 1% to 5%. Erring on the side of the conservative, let's extrapolate this to 2037 using 2.7% as average (it's actually a tad under if anything). If Australia's economy continues to grow on average over the next 22 years as it did over the last 20, GDP will be $3 trillion by 2037. Around THREE TIMES the debt. Hardly a debt crises. By comparison, the United Kingdom's debt to GDP ratio is more than 90% and the United States is 71%. Australia's debt to GDP is the lowest in the OECD (4). At 30% or so, that is an enviable position.
Imagine having a mortage of $33,000 with a $100,000 income.
Would you panic?
No, of course not. You would make sure you were paying for it, but you wouldn't slash investments (spending) if it would cut into your revenue (income). That sort of policy is what's known as austerity ... and it is economic suicide.
LNP economics is one dimensional. It gives one side of the story while failing to consider other aspects. It fails to mention what bang we get for our buck. While some money is wasted, for instance the $1 billion a year on the illegal treatment and human rights abuses of asylum seekers (5), other money is well spent ... such as on infrastructure and tax concessions for the lower paid to increase their disposable income so they can spend it in order to help keep business afloat and increase consumer confidence.
If anything, Hockey's scare-mongering confirms one thing: Australia's economy is sound, strong and resilient. It is able to weather its current debt and deficit without attacking and demonising welfare or workers.
The Australia Institute released a paper in September 2014 that categorically shot down the LNP mantra about budget emergencies and all that fluff. At that time, Australia's debt was 13.8% of GDP (6). This report was signed by 63 of Australia's leading economists warning against austerity measures that had decimated European economies and which the LNP were willing to implement.
Where is the emergency? Well, I'm glad you asked. The emergency is in touted expenditure cuts. One of the reasons for Australia's decline in revenue is because of increases in unemployment as pointed out in the Australia Institute report. Only last week, Australia's unemployment reach 6.4% (7). The highest it has been in 10 years ... ironically, the last time it was this high, Australia's now Prime Minister, Tony Abbott, was Employment Minister. Coincidence? I think not.
We started with an ABC Fact Check so let's end on an ABC Fact Check. A few months after the 2013 election, Shadow Treasurer Chris Bowen claimed the LNP doubled the deficit within eight months of being elected. ABC checked this out and found it to be true (8). Reasons for this included:
- axing the carbon price - $2.8 billion over four years. (Remember, 'axe the tax' - another of Abbott's mindless three word slogans which was factually incorrect as the carbon PRICE was not a tax if anyone took the time to read the legislation, particularly Section 100, subsection 11 which states, ' ... it is not a law imposing taxation within the meaning of Section 55 of the Constitution' (9). I encourage you to read it, it's a ripping good yarn).
- giving the Reserve Bank of Australia $8.8 billion
- immigration detention - $2.8 billion over four years (obviously understated given the later report mentioned above that found Australia is spending $1 billion per annum)
- land transport infrastructure program - $5.6 billion over four years
- Students First Package - $1.2 billion over four years.
There will be an emergency however, if the government fails to increase revenue by sourcing the wealthy and continues programs that cut jobs, pay and conditions for the lower paid ... those cuts will plummet Australia into recession which won't be good for the economy.
1. ABC News, 'Fact check: Hockey over-eggs 'borrowing $100 million a day' claim', 13 February 2015, http://www.abc.net.au/news/2015-02-13/hockey-100-million/6085378. Accessed 14 February 2015.
2. The Daily Telegraph, Andrew Carswell, 13 February 2015, 'Australia’s debt crisis is a staggering $1 trillion nightmare, http://www.dailytelegraph.com.au/news/national/australias-debt-crisis-is-a-staggering-1-trillion-nightmare/story-fnpn0zn5-1227217818739?nk=6381409c52c7ccad94a77deb7f404b1c. Accessed 14 February 2015.
3. The Sydney Morning Herald, Gareth Hutchens, 4 December 2014, 'Australia's economy is still growing, so why does it feel like we're struggling?, http://www.smh.com.au/business/the-economy/australias-economy-is-still-growing-so-why-does-it-feel-like-were-struggling-20141204-1200xg.html. Accessed 14 February 2015.
4. Central Intelligence Agency, The World Factbook, 'Country comparison: public debt', https://www.cia.gov/library/publications/the-world-factbook/rankorder/2186rank.html. Accessed 14 February 2015.
5. The Sydney Morning Herald, Sarah Whyte, 20 October 2014, 'Offshore detention centres: annual costs hit $1 billion, http://www.smh.com.au/federal-politics/political-news/offshore-detention-centres-annual-costs-hit-1-billion-20141020-118s6i.html. Accessed 14 February 2015.
6. The Australia Institute, Economists’ Statement on Commonwealth Budgetary and Economic Priorities, http://www.tai.org.au/content/economists%E2%80%99-statement-commonwealth-budgetary-and-economic-priorities. Accessed 14 February 2015.
7. The Sydney Morning Herald, Mark Kenny, Gareth Hutchins, 13 February 2015, 'Abbott government rocked as unemployment hits highest rate since 2002', http://www.smh.com.au/federal-politics/political-news/abbott-government-rocked-as-unemployment-hits-highest-rate-since-2002-20150213-13d9lr.html. Accessed 14 February 2015.
8. ABC News, 'Fact check: Has the Government doubled the budget deficit?', 10 June 2014, http://www.abc.net.au/news/2014-05-06/has-the-government-doubled-the-budget-deficit/5423392. Accessed 14 February 2015.
9. Australian Government, ComLaw, 'Clean Energy Act 2011 (repealed)', http://www.comlaw.gov.au/Details/C2011A00131. Accessed 14 February 2015.