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.