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What about the debt now?

The Government’s leadership question has been decided for the time being. The result of the spill motion to declare the leadership positions vacant failed 39 votes to 61.

Interesting result that. The 39 who voted for the spill were likely those who will lose their seats at the next election. When the rest of them see no improvement in the polls in the months ahead, this little wave will likely grow to something much larger as it crashes in to shore.

But for now, there’s another matter that they will want to consider. If there was a debt and deficit disaster in 2013 under Labor, what do we call it now?

When Tony Abbott, Joe Hockey and probably every member of the Coalition were out on the hustings in 2013 arguing Labor’s fiscal mismanagement, did they really know what they were talking about?

problem Of course they did. Labor was running up unsustainable debt and if it was allowed to continue, it would bankrupt the country. It was unequivocal.

Joe Hockey promised an end to the reckless spending. He promised he would have a surplus budget in his first year and every year thereafter.

A compliant media were with him all the way. Yes, Labor may have shown they couldn’t govern themselves after two leadership changes but the state of the economy was the central issue . . . wasn’t it?

They even had this big truck travelling around the country with the national debt displayed in big red letters just so those with poor eyesight could not miss it. It was a good story and easy to understand.

But what was the debt? As at the end of August 2013 gross Commonwealth debt as expressed by the Australian Office of Financial Management was $284 billion.

Today, in February 2015, 17 months later that same office shows gross debt at $354.5 billion, an increase of $70.5 billion, up 24.6%. If there was a debt and deficit disaster in 2013, what do we call it now?

right Clearly, something is not right.

Now that the leadership question has been set aside for the time being, they might want to re-think that stale old mantra.

I’m sure after the gloomy news delivered to them by Glen Stevens recently, they will want to address the question of debt differently. So what do we call it now? And how will the same old team explain the ballooning debt?

Could we see a change in direction and a new approach to the subject of debt? After all, by the time the Prime Minister (whoever that might be) is due to call an election, debt will, on current trends, have passed $430 billion.

If you recall Treasurer Joe Jockey’s first MYEFO, it contained the startling claim that Commonwealth debt, left unchecked, would surpass $600 billion in ten years.
But if the Coalition continue to spend as they are now and we factor in the Reserve Bank’s latest estimates on growth, we will have annual deficits of $50 billion per year for the foreseeable future.

That means Joe Hockey’s original claim of a $600 billion debt by 2025 will actually be reached by 2019. Which really doesn’t say much for his economic management, does it.

good debt So watch out for some pretty fancy new words to explain debt in the near future. I suspect debt is about to become a good thing, something that will enhance our quality of life, provide greater employment opportunities etc. etc.

Gosh! We might even be told that debt is really just the issue of bonds offsetting excess reserves in the banking system; to ensure the Reserve bank controls the overnight cash rate.

Wouldn’t that be something coming, as it will, from a neo liberal conservative mindset?


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  1. hannahquinn

    Like always, it will still be Labor’s fault. The night before the next election, everything will be Labor’s fault.

  2. diannaart

    We will indeed have ‘good debt and ‘bad’ debt.

    Labor @ August 2013 gross Commonwealth debt $284 billion = Bad, very bad debt.

    LNP @ February 2015, $70.5 billion debt = Good, very good debt.

    See how it’s done? Climate deniers do the same thing all the time.

  3. Rod

    Here is a quote from a power point presentation by Gerald Hodgson Head of Treasury Services , Australian Office of Financial Management.
    “Treasury bonds are not issued for budget funding purposes- issued to support Treasury Bond futures market and market for interest rate risk management in Australia”
    Another quote from a speech by the RBA
    “In order to support a liquid and efficient bond market it will aim to maintain the stock of outstanding Commonwealth Government Securities at around 12 to 14 per cent of GDP, a level which the Reserve Bank views as appropriate for this purpose.”

    So the RBA is quite happy for the government to pay interest on bonds of around $600million/month.
    while the LNP scream lies about the debt and deficit disaster and all the interest that taxpayers are burdened with.

  4. John Kelly

    Rod, do you have links to those RBA statements?

  5. Pingback: What about the debt now? | THE VIEW FROM MY GARDEN

  6. John Fraser


    Ohhhhhhh god ! …….. no , no ………………….. not the DEBT !

    I'm having enough trouble with this :

    Abbotts made it the "new" top single in 2015.

    Back to the past with Abbott …….. again !

  7. Matters Not

    Even when CGS issuance is not required to finance the government’s activities, successive governments have continued to issue CGS for policy purposes, such as to maintain a liquid CGS market. A well‑functioning CGS market supports the Treasury Bond futures markets (used by financial institutions to manage interest rate risk), supports the corporate bond market by providing a risk‑free benchmark, and provides a low‑risk investment vehicle

    Who would have thought, they go into ‘debt’ when it is not required to finance the government’s activities. Even Costello learnt that. But not Joe perhaps.

  8. Rod

    I don’t know if Costello knew that because when they were paying off debt with their surpluses the financial markets started complaining that there wasn’t enough debt issued. So the government had an inquiry in to why their mates in the big banks were complaining about paying off debt .
    I would love to find a copy of that report and send it Joe

  9. Ross

    The LNP can’t explain “debt” because the truth doesn’t fit with their ideology.
    Correct me if I’m wrong, but didn’t the Howard government want to eliminate government debt in its entirety to then find out it’s not advisable on one hand and impossible to achieve in a modern economy on the other.
    The current, but shaky, PM, treasurer and most of the front bench were all part of that government, did they learn nothing? Sorry answered my own question in the first sentence.

    This comment is in addition to Rod’s

  10. Matters Not

    because when they were paying off debt with their surpluses the financial markets started complaining that there wasn’t enough debt issued. So the government had an inquiry in to why their mates in the big banks were complaining about paying off debt

    All true! That’s why he must have known.

    As you know, when the Government was elected the Commonwealth debt was $96 billion, and we have now managed to repay $60 billion of that Labor $96 billion debt. Now some in the market say, well, because you have re-paid so much debt there are not enough bonds on issue to keep the market liquid. And superannuation funds like buying these bonds, although they are not high yield bonds, they are safe and they want to keep the bonds going, not because we need the borrowing but because they see them as a useful investment for their members and a useful investment to price interest rates. So, today I am releasing a paper to fairly and squarely raise this issue as to whether we need a bond market at all. If we had the capacity to re-pay debt, I would prefer to repay all our debt. If our privatisation programme were to continue, we would have the capacity to re-pay all of our debt. But I want to raise that fairly and squarely, let the financial markets put in their bids, and see whether or not they can convince us that we do need to keep that bond market. Now I stress that this is not something that is going to happen next week or next month, this is something we would face in a year or two and particularly as our privatisation programme proceeds.

  11. Rod

    So in the end Costello decided to support his mates rent seeking and continue issuing CGS.

  12. Zathras

    So despite Howard leaving us with a :massive surplus” Costello was still continuing to “borrow money”.

    I wonder how much he was borrowing?

  13. stephentardrew

    It’s bloody hilarious Abbott has to back off from Big Bag Debt hero Hockey while stating that he is behind his team yet he has to somehow throw Hockey, Corman and Co to the wolves because the nice people don’t like the nasty budge.

    Sweaty is swinging in the wind. Did anyone see him on the live cuts to Canberra.

    The circus is just starting and the long knives are being sharpened.

    This is just the beginning.

    Oh golly gee all off that lovely infighting while the fake smiles and empty platitudes fly around like loose confetti.

    One crazy big bugger up.

    The dills are playing switch and match yet nothing seems to fit.

    A case of constipated diarrhea.

  14. Kyran

    As always, the common sense in your depositions are worth the time, Mr Kelly. I was over on the ABC website earlier and read an article by Terry Barnes titled “Abbott fights on, but must change his ways”, which was a dissertation on effluent. And a lot of it. Barnes is a “policy consultant” and “previously an advisor to Tony Abbott in the Howard government”. This fellow has quite probably drained the farm at Werribee to “ferment” his “argument”. The terrifying thing was the number of comments comprising nothing more than liberal slogans, which somehow are meant to be an argument of some rational economic theorem. I have read several articles of late on the economic pressure building on Murdick’s Newscorpse pertaining to shareholder dissatisfaction on the shareholder structure favouring family and the pouring of millions of their money into buoying his “print empire”, which is not quite that profitable. Spin or substance. Clearly, enough people are seeing the spin and Murdick’s enterprises are floundering. Regrettably, the ABC seems insistent that their once great substance should now emulate the spin cycle. Take care

  15. Sad sack

    ‘Gillard debt ‘baadd’ ‘Abbutt debt ‘goodd
    (Apologies to Orwell whose sheep had an edge on intelligence)

  16. Johnny

    The argument is the same. We are going around in circles. I believe we need to investigate radical economic solutions, not only for Australia but for the benefit of the globe.
    A World Bank which demands interest is a bully and a thief. If wealth already exists in numbers who do we owe interest to?
    Debt is a lie if wealth already exists. Why build from the bottom when we can build from the top. Think Bigger.
    Where are our mathematicians and economists aware of a system flawed from the outset?
    Let’s build our nations upon wealth in numbers, not upon exorbitant interest charges that by default creates control and a modern form of slavery. eg. spend not from zero into minus figures but spend from a million trillion down to zero.
    End our ties with our creditors, if this means bankruptcy then so be it. We are our creditors. We are our bank. Let’s restart with an abundance of numbers. We should take control and refuse this current mismanagement of world economics.
    By doing so we would no longer need to grow wealth but instead spend it, reforming our nations goals towards fixing inequality and the problems our society are faced with. New Freedom. This new perspective on wealth would create all manner of new industry, it would take time to learn how to govern it but it would work.
    To begin with try keeping the dollar so that we can remain within the global sphere and simply generate a wealth of virtual currency.
    Thank you.

  17. John Armour

    In addition to Rod’s links above (yesterday 2.00 pm) here’s another to a speech by the same RBA officer, Guy Debelle, that emphasises a couple of points about the role of bond issuance that are not well understood even by economists.

    The Committed Liquidity Facility

    “Within the Reserve Bank’s monetary policy framework, the supply of ES balances is effectively market-determined. That is, the Reserve Bank stands ready to supply whatever quantity of ES balances is necessary (against eligible collateral) to keep the cash rate trading at the Board’s target.”

    “ES balances” in the parlance of the RBA are reserves.

    This contradicts the common belief that the central bank (1) controls the money supply and (2) confirms that the central bank issues bonds to maintain the cash rate.

    All a bit “wonkish” I suppose but the readership here seems increasingly able to get its head around this stuff, unlike the phalanx of stupidity on Q and A last night.

    The one bright spot was a twitter thingy that flashed by saying “Alan, macroeconomics is not home economics”.

    I don’t know how Q and A finished up, I had to turn it off before I did something rash. The last bit I saw was Chris Bowen withering under an assault by Alan Jones, unable to respond because he believes the same bullshit about debt and deficits as Jones does.

    All in all, another free kick for “The Myth”. Well done (Not!) the ABC.

  18. iggy648

    Whether debt and deficit are good, bad or indifferent, they STILL haven’t grasped the idea of unfairness. They still seem to expect the sick, elderly, poor and unemployed to pay for making things better. Has anyone heard Joe or Tony say “Yes, well maybe a few things were a little bit unfair”? All I’ve heard is effectively “We should have introduced the unfairness a bit more slowly”. And ffs, when someone mentions “intergenerational theft” next, somebody ask them whether they would have built the Sydney Harbour Bridge.

  19. John Armour


    Fairness is like beauty, it can be debated.

    The “debt and deficit” argument however is bullshit. It is wrong on the facts.

    When you rail against unfairness you’re missing ‘the elephant in the room’.

    Expose the myth and you destroy this government.

  20. Armchair Economist

    Costello wanted to get rid of the bond market? That’s embarrassing for him, and it doesn’t even seem like he knows why!

    I’m now convinced the Liberal Party truly do not know the difference between a state government (like NSW) and the Federal one. If correct, that is a disturbing fact.

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