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Debt and Deficit Duplicity

Once you’ve seen through the ‘debt and deficit’ mantra, (which incidentally is all Labor’s fault, according to leaked government speakers’ notes) you can’t go back to believing in the sort of economic analysis that underpins it. But the mantra is everywhere. Whoever is leader of the Liberal Party, you can be sure a promise to ‘repair’ Labor’s debt and deficit will feature in their rhetoric.

In the last election campaign, Tony Abbott said that:

‘The first priority of an incoming Coalition government will be to end Labor’s waste and get debt and deficits under control as quickly as possible.’

It’s been the mainstay of Liberal rhetoric ever since. Here is Treasurer Hockey on the subject: ‘we will be ruling a line under the fiscal damage that Labor has done, sadly the economic damage will continue for some time but we’ll be ruling a line under the fiscal damage that Labor has done and we’ll be starting the repair job’.

More than a year later, Labor’s debt and deficit was still one of Abbott’s main justifications for everything his government has done. Here he is on the ABC’s 7.30 in December 2014:

we are determined to push on because it is absolutely necessary for our country’s future, for our children and our grandchildren’s future that we don’t saddle them with mountains and mountains of debt. I mean, how would we like it if our parents saddled us not with assets, but with debts? How would we feel if suddenly we were working part-time and we had this massive mortgage to pay and that’s the situation that our country was left in by the former government?

And I can’t resist these comments from recent his National Press Club address:

‘Under Labor, government was spending too much; borrowing too much; and paying out too much dead money in interest alone … Our problem is not that taxes are too low; our problem is that government spending is too high …We are writing cheques that our children and grandchildren will have to meet through higher taxes, higher interest rates and poorer services …Governments should never spend more than they must because every dollar government spends is a dollar you don’t spend, now or in the future’.

‘Cleaning up Labor’s mess’ is one of his main arguments about why he should keep his job.

Even those moving against Abbott use this language. The West Australian MP Luke Simpkins is moving for a spill, because he ‘wanted to make sure that the economic vandals do not get back into power and our children and grandchildren are not left to pay Labor’s bill’.

And if you think Malcolm Turnbull would be any different, he’s perfectly happy to talk about’ budget repair’ and how ‘governments, like households, have to live within their means’. And what’s his view of the 2014 budget?

‘I support unreservedly and wholeheartedly every element in the Budget. Every single one.’

This is what you’d expect from the Liberals, but Labor’s not immune from an obsession with debt and deficit either. Aside from muttering about ‘structural deficits’, Bill Shorten and Labor have mostly kept quiet on the subject so far, but the governments of both Rudd and Gillard felt they had to promise if not a surplus, then at least a plan to get back to one. As Ross Gittins notes:

‘So bogged down and obsessed by the budget has our elite become that, in all our fiddling with government spending and taxation, an attitude is developing … that it doesn’t much matter what measures we take so long as they reduce the deficit.’

The Liberals will never give up on it. Having the budget in surplus is a necessary component of their neo-liberal economic world view, and their concomitant election strategies: tax cuts to the rich, spending cuts for the poor, and bashing Labor as big spenders burdening future generations with debt.

It’s tempting to crow about the Abbott’s government’s failure to achieve a surplus – either this year, or for several years into the future. It is, after all, a broken promise that ‘we will achieve a surplus in our first year in office and we will achieve a surplus for every year of our first term’. But to do so buys into the idea not just that a surplus is desirable, but that the surplus/deficit argument is even central to good economic management.

It’s also easy to mock Hockey’s double talk about a ‘budget emergency’. This was the excuse for an unfair budget pursuing the ideological goals that the Abbott government didn’t tell voters about before the election. The LNP government is due to double Labor’s debt by the end of 2015. I’m not saying we shouldn’t criticise their obvious double dealing, partisanship, and the ‘reforms’ themselves. But let’s not forget that the government’s overall – if unstated – economic strategy will inevitably result in weaker growth and higher unemployment. Why did the Reserve Bank have to lower the cash rate? Again, concentrating on the fact of deficit or surplus is obscuring what really matters.

And what does really matter? The notion that a surplus budget in Australia at this time is an economic necessity is plain stupid. We do not have an unmanageable debt. We are not burdening future generations. There is no budget crisis. We have economic challenges – but they are in making the economy work for society, not the other way round. What really matters are those policies that will generate a productive and sustainable economy. Policies which will promote full employment and greater equality, which of itself will promote growth. These are the yardsticks by which good economic management must be judged – not the simple fact of surplus or deficit. This is the alternative narrative that Labor has to learn. It’s not hard; it ought to be in their DNA.

Budget surpluses or deficits are not economic decisions forced upon us by economic ‘facts’. They are political decisions. Decisions around the level of taxation (revenue collection), service provision (government spending), inflation and unemployment are also political decisions – not economic ones. It’s just a different kind of politics.

My point is that we have to change the narrative around debt and deficit to one about full employment and equality. The task is urgent.

If you want my take on the economics behind this, read my recent post on Modern Monetary Theory. It contains links to economists who argue the case far better than I can.

25 comments

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  1. John Kelly

    Kay, if I am not mistaken you have some connections to, or network with, the Labor party. I have emailed the shadow cabinet, local members, other members far and wide pushing for a new approach to the debt and deficit mantra of the Liberals. I never get a reply. I have suggested how they could approach selling the basic rudiments of Modern Monetary Theory. I have suggested a softly softly approach that would encourage the electorate to come on the journey with them. I get nothing back. I have suggested ways to explain Commonwealth Government Securities. I get nothing back. What approach would you advise?

  2. stephentardrew

    Good on you John thanks for the effort.

  3. Phi

    I think Kaye’s articles are extremely informative and the links she provides add a great amount of support to her views.

    It concerns me a lot that the Labor representatives that John Kelly has tried to communicate with seem to be giving him the cold shoulder as that encourages speculation as to motives.

  4. James Cook

    Great article, Kaye. Gives me more info to pass on to friends so they can spread the wotd too. John, I’m really disappointed to hear of your non-response from Labor. They should be falling over themselves tp find an alternative economic narrative to the LNP crap.

  5. Keith

    Prior to the last Federal election I communicated often with our Labor representative and received replies back promptly with an answer that corresponded to the question asked..
    I have written to the now neocon member, and get replies sometimes a long time after having made contact.. The replies have an ideological ring to them.
    I have signed some Labor Party petitions and now often receive emails about what Labor is doing. The point being that I have sent emails back to Labor, the last one about my concern about TPP, but have had no response from them.
    God knows what the abbott gang would be prepared to give away through signing the insidious TPP agreement and Labor needs to urgently get on track in relation to this.
    It’s my roundabout way of saying I agree with John. I am not a member of a political party, though clearly my support doesn’t go to the obnoxious abbott gang.

  6. John Kelly

    Perhaps this will help in the explanation process. It come from the Green Modern Monetary Theory and Practice Facebook page:

    Green Modern Monetary Theory and Practice
    Would you like to be a progressive politician?

    I have a dream, where Christine Milne says the following, but perhaps you can say it instead –

    ‘There is no budget problem.

    There is an ecological problem – we will deal with that.

    There is an inequality problem – we will deal with that.

    There are unemployment, underemployment and insecure employment problems – we will deal with those.

    There is a problem of social exclusion, and one of indigenous disadvantage – we will deal with those.

    There is no budget problem.

    The budget is there for us to use to balance the economy, and to support policies which will address our real problems.

    It is likely that the budget will remain in deficit over the medium term. This will provide the non-government sector with a supply of safe assets, and will allow us to encourage the development of safer and more secure household finances.

    There may be a problem with certain influential individuals in the Treasury and the RBA. We may need to address a range of issues with these people and these institutions.

    There is no budget problem.’

  7. stephentardrew

    Great post John I totally agree.

    Simple precise and to the point.

    A case where fewer words are more informative.

  8. John Fraser

    <

    Sounds like the piglet Hockey :

    "Among people who were condemned by the revolutionary tribunals, about 8 percent were aristocrats, 6 percent clergy, 14 percent middle class, and 72 percent were workers or peasants accused of hoarding"

    Nope ! …………… its the French "Reign of Terror" 1793 – 1794.

  9. Jexpat

    Reality check:

    The public believes that there are budget concerns (whether long term or short term). Simply denying that is not persuasive.

    If government wants to introduce new spending for (_________) fill in the blank new project, people (and especially the corporate media) are going to want to know where the money will come from- in fairly simple terms.

    Telling them in essence to “just print it” isn’t going to fly. Nor will complicated notions about the money supply or how banking systems work, etc.

    What is persuasive is to point to specific wasteful expenditures and subsidies as well as potential revenue streams that draw from “where the big money is” or put another way, from those individuals and corporate entities with the most ability to pay and who often avoid their responsibilities to Australian society. Very few, for example are going to cry over Gina Rhinehart paying her fair share.

    John Quiggin has a bit about all of that here: http://johnquiggin.com/2011/10/18/money-for-nothing/

    And as has been pointed out many times here and on other independent and progressive sites (and even scattered pieces in the corporate media) there are numerous, relatively painless -and popular methods to increase revenue that would not only bring the budget back into balance, but would also allow us to “have nice stuff” and also invest in the future like other nations do.

    That’s much more attractive than austerity.

  10. Jexpat

    Quick point of clarification: by “expenditures” above, I’m referring to “tax expenditures” as in say, negative gearing on rental properties- as opposed to direct spending on say, a new train line.

    Many of these tax expenditures are weighted largely (or entirely) to those who have the least need for them, with few is any benefits accruing to the rest of us.

    To put it in perspective:

    The Commonwealth has some 280 tax expenditures under the income tax, worth around $100 billion. This is around 6 per cent of GDP. Direct expenditure of the Commonwealth for the same period was around $360 billion, which is around 24 per cent of GDP.

  11. mikestasse

    There is no budget problem. But there is an energy problem. A nett energy problem. In the past 100 years, the nett energy that drives our complex system has dropped by 90%. We have to ‘produce’ 10 times as much to just stay where we are. It should be good for employment, but the problem is that the PEOPLE are so far in debt that most of the work they do is to service debts. That’s why today both parents in a family have to work while when I was a kid only my father had to work.

    The people of Australia owe FIVE TIMES as much money as the government. People who owe that much money have limited means to spend on discretionary things, and that slows the economy.

    When the economy slows, some debt isn’t serviced. I personally know five bankrupts. They can’t even have a credit card now. They are also largely unemployable because of that burden……. none of them have worked in years, at least not in what anyone would consider ’employment’. They generate zero government income……. so the deficit worsens, bit by bit.

    As Limits to Growth worsen, this all becomes more and more of a problem, and there’s nothing neither side of politics can do about it, it’s just plain mathematics, it was meant to happen. We were warned 45 years ago… And still the median house price in Sydney has hit $875,000. More than double what my place is worth. First home buyers are abandoning the Sydney housing market in droves because now only the filthy rich can afford to buy, and then they charge rents like wounded bulls such that more and more people have to be stuffed in those houses just so they can afford the rent.

    Stop concentrating on whether the government’s debt/deficit is a problem. We all know it’s not an issue by now, it’s been discussed ad nauseam. There are far more important things to worry about.

  12. Florence nee Fedup

    Change the narrative to investing in this nation for future wellbeing.

  13. Kaye Lee

    “Stop concentrating on whether the government’s debt/deficit is a problem. We all know it’s not an issue by now, it’s been discussed ad nauseam. ”

    Ummm….you obviously haven’t been listening to any of our government MPs…the ones that make the decisions. They ALL think it IS a problem, which makes it our problem to change that perception.

  14. Florence nee Fedup

    While they concentrate on debt as a problem, every action they take, leads to debt growing.

  15. diannaart

    The notion that a surplus budget in Australia at this time is an economic necessity is plain stupid.

    Unequivocally agree.

    What is needed is well reasoned and informed discussion. Passing on blame is not a solution – even worse when not true.

    How can Abbott et al claim a Labor black hole of debt when they have been asking us to endorse massive spending on military, a PPL for the wealthy, chaplaincy programs, expensive refugee punishment AKA Stop The Boats and much more.

    There never was a budget crisis. However, now that the LNP has cut much of government revenue we may well be on the road to one.

  16. totaram

    Jexpat: You are suggesting we allow people to continue with their delusion, as a pragmatic tactical measure. There is some merit in your argument, but I am not sure about how good a tactic this is. There is an element of dishonesty involved in it, which bothers me. If and when this dishonesty is discovered, people may be very angry or offended. I certainly would be. It might also deflect discussion from the real elephant in the room, which is private sector debt.

    Also, it seems to me, that if we don’t convince people that the economy is not like a household, we will forever be falling victim to some pernicious lie about the macro-economy.

  17. JohnB

    An interesting/handy reference document – (1Mb .pdf)
    History of Federal Government Surpluses, Deficits and Debt:
    “….Surplus years have been few and far between. Aside from the early years of balanced budgets (before Canberra existed!), the only surplus budget outcomes have been the following:
    • 1933, 1934 & 1936 – resulting from the depression austerity plan under Joe Lyons (UAP)
    • 1949 (just) under Chifley (Labour)
    • 1988-9-90-91 under Hawke/Keating prior to the deficit spending in the 1990-1 recession
    • 1998-99-2000-1 under Howard/Costello – prior to the “tech wreck” slowdown
    • 2003-4-5-6-7-8 under Howard/Costello (although Kevin Rudd took power during the 2008 fiscal year)

    https://www.google.com.au/url?sa=t&rct=j&q=&esrc=s&source=web&cd=14&cad=rja&uact=8&ved=0CC4QFjADOAo&url=http%3A%2F%2Fwww.centricwealth.com.au%2FArticleDocuments%2F251%2FAustralian%2520Budget_23May2013_LR.pdf.aspx&ei=le7eVN-XDYv58QWM84IY&usg=AFQjCNGCSsPUvBPJ9dDiIUwd_vlRLfgjxw&bvm=bv.85970519,d.dGc

  18. mikestasse

    My point was that everyone HERE knows there is no budget emergency, and I would be flaberghasted if Hockey came here for advice, so discussing it over and over to the converted is really a waste of time….

  19. Sad sack

    Debt is the only consistent, 43 years worth, winner the libs have.
    But what a winner!!! Every one outside Aust praise swan but the reality is too hard for labor to explain so inside he is a bumbling debt merchant. A scene unchallenged by the labor leadership.
    So they obfuscate mention GFC and roll with the punches.
    The lie is REAL to 90% of Aust because labor has no competing slogans to change perception.

  20. Florence nee Fedup

    If debt/deficit disaster of Labor is found to be a myth. If the public come to understand that deficit/surplus in itself is neither good/bad. Debt that we have is servable. If the future trillion is less in ratio to what we have today.

    If their is no great mess, budget crisis of Labor to clean up, this mob is left with nothing,

    If it is found, Labor ran a tight ship with years of fiscal consolidation, with debt trending down.

    If it is as it seems. their efforts of cutting all benefits to the lower income earners in the name of what they describe as budget disaster of massive spending by Labor. If there was no fat to cut. Where does that leave the economy mow.

    Especially so, along with cutting to the bone, they repealed revenue producing CEF suite of bills, along with MRRT for starters. There were other revenue cuts as well.

    Yes, what we get, is the economy coming to a halt, unemployment growing. Yes, and doubling of debt. Second class NBN fast broadband. Health and education cuts Wind back of NDIS. Cuts of money available for unemployment., The list seems to be endless. Thousand taken from low income family and pensions. In fact we seem to be heading for a recession. They will deal with this by further cuts to lower end and taxation cuts, that only benefit those at the top. The recession will only worsen, as this does not work. No way, will theyu follow the actions taken by Rudd, which succeeded,

    In fact we now have as budget crisis. All the work of this mob, Doubling debt.

    All this, and they are talking about cutting more. refuse to look at revenue or cutting handouts to high income earners and miners.

    Abbott is right, he has no choice but to keep his focussed and attack on Labor, His cupboard is bare.

    Abbott, with his lies, stunts and screaming that Labor has created debt that our grandkids will never pay off, cannot deal with the real structural imbalances that are indeed in the budget.

  21. rikda

    Every time I read about the economy, it turns my stomach.
    In the run up to the election Bingo Joe & his bullshit numbers were all over the media.
    Nobody could be convinced that the IMF & the 3 economic assessor knew what they were talking about.
    Nobody wanted to know that the IMF rated the Australian economy the best managed for the present & forthcoming 2012-2014 of the OECD countries.
    They didn’t want to know about it.
    They couldn’t stitch together that if there was no need for changes of Labor policy, That they “Were on a unity ticket with Labor on education” these were all endorsements of the Labor fiscal management.
    “Why change to a government who is going to adapt the same policies?” question,never evolved.
    It was & is the craziest craziest political period of my politically active 55 years.
    Every day, the news reports that our governments major achievement is that they have continued to lie & deceive almost daily without getting arrested.

  22. Jexpat

    totaram wrote: “You are suggesting we allow people to continue with their delusion, as a pragmatic tactical measure.”

    No, I’m not suggesting that people continue to tolerate the “tear your hair out” hyperbole about a “budget emergency,” that Hockey himself has been already been caught out on.

    That’s simply a transparent (and late to the party) ploy to invoke the shock doctrine (see Naomi Klein’s writings on the same) to degrade services and denigrate civil society in Australia, as it has elsewhere.

    However, in the longer term, the vast majority of the public -along with most progressive economists, would agree that, in times of low unemployment (or full employment, if you will) and a vibrant economy, a balanced budget is desirable. And that attitude is quite independent on whether they harbour illusions of governments being like households or firms.

    Moreover, as mentioned, people will invariably ask: how are we going to pay for say, high speed trains, a transition away from coal or Denticare for all. With certain projects, it’s perfectly reasonable and persuasive to propose borrowing (at record low interest rates) to finance investments (even households and firms do this- and smart or lucky ones do so at low interest rates where a positive rate of return is easy to gain).

    More often though, particularly for ongoing services, we’ll want to rely on revenue streams.

    That’s a budget reality. Where those revenue streams come from is, and since time immemorial always has been, a political question.

  23. Keitha Granville

    it seems to me that the LNP narrative works very well for a large portion of the electorate for different reasons. The wealthy, because they are the winners from all the LNP policies, and the disinterested swinging voters with less grasp, or interest, in understanding anything other than a three word slogan. They don’t want to try and understand economics – they just listen to governments telling them they will hand out this, that and the other thing, and that it’s all the other side’s fault. As soon as it begins to impact on the bottom line of this particular voter, then he will change his vote. And that’s where the huge pork barrels come into play just prior to an election. It’s the last thing they hear, so it’s how they vote.
    Labor has to start talking smarter NOW, both to the interested side of the electorate who will understand and to these swingers, in simple plain terms. My argument to a few people I know who voted for these drongos is alwasy ” Do you have a mortgage ? Why ? Why isn’t your household budget in surplus ? That’s terrible, you obviosuly can’t afford to have a house if you need to borrow”. The same is true for the country.

  24. Pingback: Debt and Deficit Duplicity – » The Australian Independent Media Network | dbrarz

  25. mikestasse

    AUSTRALIA at 213% debt to GDP ratio……

    If anyone has stopped to ask just why global central banks are in such a rush to create inflation (but only controlled inflation, not runaway hyperinflation… of course when they fail with the “controlled” part the money paradrop is only a matter of time) over the past 5 years, and have printed over $12 trillion in credit-money since Lehman, the bulk of which has ended up in the stock market, and which for the first time ever are about to monetize all global sovereign debt issuance in 2015, the answer is simple, and can be seen on the chart below.

    It also shows the biggest problem facing the world today, namely that at least 9 countries have debt/GDP above 300%, and that a whopping 39% countries have debt-to-GDP of over 100%!

    http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015/02/Global%20debt%20to%20gdp.jpg

    We have written on this topic on countless occasions in the past, so we will be brief: either the Fed inflates this debt away, or one can kiss any hope of economic growth goodbye, even if that means even more central bank rate cuts, more QEs everywhere, and stock markets trading at +? while the middle class around the globe disappears and only the 0.001% is left standing.

    Finally, those curious just how the world got to this unprecedented and sorry state, this full breakdown courtesy of McKinsey should answer all questions.

    http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015/02/global%20debt_0.jpg

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