Like climbing mountains, maths is a marvelous thing. It is objective rather than a matter of opinion. It can’t be argued with. A fact is a fact.
But like many other powerful tools, maths can be used for evil in the hands of the unscrupulous.
Take our present government – please.
On a Liberal Party page called “The Prime Minister – securing Australia’s economic future” our fearless leader makes certain claims.
“When the Coalitions (sic) last left office, Australia had a $20 billion surplus and $50 billion in the bank but over six years, Labor squandered this and ran up five record deficits and a further $123 billion in projected deficits and gross debt headed towards $667 billion.”
Firstly, how many Coalitions do we have? There is the one with various forms of the National/Country party – are there other agreements I should know about?
Now, how about those numbers.
From the 06-07 Budget papers:
“Net debt, which reached zero in 2005-06, improved by $25.4 billion over the financial year to -$30.8 billion”.
From the 07-08 Budget papers:
“Over 2007‑08, the level of Australian Government net debt improved to reach ‑$42.9 billion by 30 June 2008”.
Labor won the election on November 24, 2007, so the Coalition left a net debt somewhere between -$30.8 and -$42.9 billion – not the $50 billion claimed by Mr Abbott.
In 2006-07, the Australian Government general government sector recorded an underlying cash surplus of $17.2 billion, not quite the $20 billion claimed but that could have been the case by the time of the election.
When Mr Abbott said we had $50 billion in the bank when these “Coalitions” left office he was speaking about net debt, albeit somewhat inaccurately. Gross debt is another matter. The Howard government never eliminated gross government, and never once since Federation has any government eliminated gross government debt. Nor should it and no government ever will. As at 30 June 2007, our gross debt was $58.284 billion.
In the first decade of the century, Australia struck it lucky. A voracious global appetite for commodities meant that we could sell unimaginable quantities of our mineral resources at unimaginable prices. The result was a windfall to our public coffers of at least $180 billion over and above long-term GDP growth trend over the six years from 2002 to 2008.
In 2001-02, a ton of exported thermal coal sold for around US$27. A ton of iron ore went for US$13. By 2008-09, these prices had reached US$131 and US$106, increases of fivefold and eight-fold respectively.
In 2001-02, we exported 90 million tons (mt) of thermal coal and 165 mt of iron ore. By 2008-09, these figures were 115 mt and 363 mt. Eight years into the decade, growth in exports of these two commodities alone were delivering an extra $49 billion in national income to Australia each year. The gold price increased by 600% from 2001 to 2011, while the value of our liquid natural gas exports almost doubled over the same period to $11.1 billion.
What Tony also fails to mention is that $61 billion of the reduction in net debt came from the sale of Publicly Traded Enterprises (PTEs) between 1993 and 2006.
Telstra $45.6 billion
Commonwealth Bank of Australia $6.8 billion
Airports $8.3 billion
Qantas $2.1 billion
Having a look at the profits of these companies (OK maybe not Qantas), one wonders whether we should have shown less haste in selling off our assets to reduce a debt that could have been paid off from the profits these companies make. We would also be able to afford a real NBN because we wouldn’t be paying Telstra billions for the privilege.
And it’s not like the Howard government stopped borrowing money. Even though they were raking money in from the mining boom and the sale of assets, including most of our gold reserve at rock bottom prices, the Howard government went to capital markets on no fewer than 400 occasions to borrow money.
Between March 1996 and November 2007, there were 135 lines of bonds that were taken to market in various bond tenders which were issued with a face value of $51 billion, while there were over 280 T-Note tenders with a face value of over $220 billion.
Indeed, in the three months before the November 2007 election, the Howard government went to the bond market on 8 separate occasions to borrow money with a series of bond tenders. Even during the election campaign, just 11 days from polling day, it borrowed an additional $300 million in bond tender number 236. In the final term of the Howard government, from October 2004 to November 2007, there were 43 bond tenders or times the government borrowed money. If we had tens of billions in the bank, why was he still borrowing right up until the death?
In its last five years, the Howard government spent $250 billion, including $133 billion in new spending and $117 billion in tax cuts. Australians could be sitting on a $300 billion sovereign wealth fund to rival the oil-rich nation of Kuwait if we had banked the budget windfall of the now deflating mining boom.
Compared with gross debt, net debt is a better measure of a government’s overall indebtedness as it also captures the amount of debt owed to the government. Which begs the question as to why Hockey and Abbott use net debt when referring to Howard and gross debt (projected in ten years’ time no less) when referring to Labor?
For some historical perspective, gross Australian Government debt increased from around 40 per cent of GDP in 1939 to around 120 per cent of GDP in 1945. By 1974, it had declined to around 8 per cent of GDP.
Net debt reached 10.4 per cent of GDP in 1985-86. It took only three years (from 1986-87 to 1989-90) to reduce net debt by around 6 percentage points of GDP.
Ignoring the war years, net debt peaked at 18.1% of GDP in 1995-96. According to Mr Hockey’s own budget, gross debt in May 2014 was $319 billion and, in 2014-15, net debt for the Australian government is estimated to be $226 billion (13.9 percent of GDP) as opposed to the $667 billion bullshit.
Tony tells us that Labor ran up 5 record deficits. Whilst this may be true if you look at scary numbers with lots of zeroes after them, it is completely false if we talk percentages of GDP. For example, the deficit in 83-84 was 4.2% of GDP, as was the peak deficit in 2010 at the height of the stimulus spending. Since 2010 the deficit has been decreasing and was 1.2% of GDP in 2013.
Then there is Tony’s claim that Labor left “a further $123 billion in projected deficits and gross debt headed towards $667 billion”.
This claim is based on MYEFO which can only be described as a Coalition propaganda sheet rather than any sort of realistic fiscal outlook so I will treat that document with the ignore which it deserves and go back to PEFO which was an independent assessment of our fiscal outlook just before the change of government, based on Labor policies.
According to PEFO, the cumulative underlying cash balance (total deficit) over the forward estimates was $54.6 billion with a surplus in 2016-17. Mr Hockey’s budget shows a cumulative deficit over the same period of $107.4 billion – a deterioration of $53 billion in 9 months, with no surplus predicted over the forward estimates.
Mr Abbott then goes on to say:
“Our plan will strengthen the economy, create jobs and reduce Labor’s debt by almost $300 billion. We need to take action now or an even greater burden will fall on our kids’ generation. Now, the Labor Party is desperately trying to scare people by spreading untruths about the Budget. For example, they won’t tell you that funding for schools and hospitals increases each and every year under our Budget. And that the rate of the pension will continue to go up twice a year, every year.”
By Mr Hockey’s own words, the debt is projected to rise to $226 billion in the next financial year – reduce Labor’s debt by $300 billion? I don’t think so.
And speaking of our kids, how about the danger you are placing them in, both physical and fiscal, by taking no action on climate change.
And what the Coalition won’t tell you is about the myriad of cuts to health and education and pensions. Yes, there will be increases on current funding each year but they will be much smaller than previously agreed to and many programs and concessions have been cut. They also do not take into account population increase which necessitates yearly increases in funding regardless of any reforms.
Joe Hockey said “Of the 17 top surveyed IMF countries, Labor left us with the fastest growth in spending of anyone in the world … and they left us with the third highest growth in debt of anyone in the top 17”. This is true if you look at percentage increases but if you spent $10 last week and then $20 this week, that represents a 100% increase, so these figures mean nothing without context.
Saul Eslake, chief economist at Bank of America Merrill Lynch, says Mr Hockey’s comments “represent only a partial summary of what the IMF actually says in this section of it its report”. He says Mr Hockey omits one important conclusion, “namely that Australia would still have the second-lowest general government net debt as a per cent of GDP among the countries shown by 2018”.
In its generally upbeat assessment of Australia’s economic position, the IMF says “gross debt is expected to peak at around 32 percent of GDP in 2015 and is among the lowest in advanced nations”.
Elsewhere, in the fund’s recommendations for Australia’s fiscal policy, it says “Australia’s modest public debt gives the authorities scope to delay their planned return to surpluses in the event of a sharp deterioration in the economic outlook”.
There is only one side of politics trying to scare people by spreading untruths. Maths doesn’t lie.