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Tag Archives: Government debt

No courage, no vision, no plan

In 1946, after World War II, gross debt in Australia peaked at 120% of GDP. Despite this, in 1949, the government of the day had the courage and foresight to embark on the largest construction project undertaken in Australia, the Snowy Mountains Hydro Scheme.

The Scheme cost $1.16 billion and was completed in 1974. By then, gross debt had declined to around 8 per cent of GDP.

In the 25 years it took to build, more than 100,000 people from over 30 countries came to work in the mountains to make true a vision of diverting water to farms to feed a growing nation and to build power stations to generate renewable electricity for homes and industries.

The project is often used as an example for multiculturalism, having employed thousands of migrant engineers and labourers. Their influence radically changed Australian culture for the better in the years that followed.

Sixteen major dams, seven major power stations (two underground), a pumping station, 145kms of inter-connected trans-mountain tunnels and 80kms of aqueducts were constructed. Even before the Scheme was completed, it was named as one of the civil engineering wonders of the modern world. The Snowy Mountains Engineering Corporation now sells its engineering knowledge overseas.

Today, Snowy Hydro continues to play a vital role in the growth and the development of Australia’s national economy, by diverting water that underwrites over $3 billion in agricultural produce and by generating clean renewable energy.

Snowy Hydro currently provides around 32% of all renewable energy that is available to the eastern mainland grid of Australia, as well as providing fast response power to light up the morning and evening rush hours of Sydney, Brisbane, Canberra, Melbourne and Adelaide. Water flow from dams is much easier to turn off than a coal-fired power station.

Had the government of the day worried about the “debt and deficit” disaster, this nation-changing project may not have gone ahead. Thankfully, they realised the future return on their investment and the immediate advantages of the employment and skills training it provided.

Abbott had his chance to be part of a similar boost to our nation with the NBN. He chose instead to go with the rhetoric contained in the daily talking points provided by the red-shoe wearing Mark Textor and destroy this productivity enhancing reform for no reason other than he wants to be able to say he achieved a surplus just like John Howard. He patently doesn’t understand its potential. Gillard started it so it must be destroyed.

Tony’s wants his big contribution to be more roads whether we want them or not.

He seems oblivious to the heat island consequences of thousands of kilometres of bitumen, the pollution caused by more cars on the road, and the effect on climate change from using fossil fuels.

He doesn’t care about cost benefit analyses or the priorities outlined by Infrastructure Australia or the lack of parking in the cities.

He doesn’t seem to understand that if we got cars off the road by investing in urban public transport it would free it up for road freight or that if we built a high speed rail between Melbourne and Brisbane that it would free up the rail lines for rail freight and the airports for air freight.

Climate change think tank Beyond Zero Emissions found that a high-speed rail network on Australia’s east coast could be built for $84 billion and the system would be faster, cheaper and cleaner than air travel. To put this in perspective, the budget allocated $36 billion over 5 years to be spent “building the roads of the 21st century”. State and federal governments spend a combined $18 billion each year on roads.

HSR would allow people to travel from Sydney to Melbourne in two hours and 44 minutes, and Sydney to Brisbane in two hours and 37 minutes — potentially faster than flying once you take into account time at the airport.

Its design envisages a network powered by 100 per cent renewable energy, reducing greenhouse gas emissions from regional travel by 150 million tonnes of carbon dioxide over 40 years.

The rail link would also turbocharge regional development.

“High-speed rail will allow people to live in cities like Shepparton and Goulburn but commute to Sydney or Melbourne for work,” CEO Dr Bygrave said.

“It would allow people to live outside of urban cities but still work in them. It’s a pretty important nation-building exercise.”

This would make living in regional areas more attractive, and in turn alleviate pressure on house prices in capital cities.

“High-speed rail would revolutionise interstate travel, and would also be an economic game-changer for dozens of regional communities along its path. That’s why the politicians need to exercise vision and think way beyond the current political cycle,” Mr Albanese said.

The HSR advisory group was disbanded after Abbott won the election and the funding for long term planning was cut in the budget.

While politicians continue to foolishly and needlessly pursue a surplus, we are committing intergenerational theft by refusing to invest in the infrastructure they will need in the future.

This government has no courage, no vision, and no plan.


“The visionary lies to himself, the liar only to others.”

The Charter of Budget Honesty was introduced to stop incoming governments from claiming the previous government lied about the true state of the nation’s finances. The heads of the Treasury and the Finance Department are required to put out their own set of numbers, the Pre-Election Fiscal Outlook (PEFO), during the election campaign. This gives a neutral baseline against which we can assess the new government’s figures. PEFO is the only set of Budget forecasts that truly belong to the bureaucrats – all other documents (like the Budget) are issued by ministers.

The outlook in PEFO was remarkably close to the figures in the Economic Statement issued by Chris Bowen and Penny Wong just before the election was called. The public servants in PEFO projected the Budget balance out for a decade. They found that the Budget was on track, before the election, to return to surplus in 2016-17 and keep improving from there, eventually hitting a surplus of about 1% of GDP by 2023 with net debt approaching zero.

Despite the Charter and the neutral numbers in PEFO, Joe Hockey still played the Budget black hole card. The new government’s mini-Budget (MYEFO) contained dramatically bigger deficits than the bureaucrats’ PEFO projections, with no surpluses in sight.

The line Hockey has been pushing is that not only did Labor hide the level of deficits in the current budget cycle, but that it left a series of hidden spending commitments in the unpublished years beyond forward estimates.

“From 2017-18, payments are projected to increase substantially (a real increase of almost 6 per cent in just one year) because Labor back-ended expenditure in a number of key areas and hid it from the public.”

Strange…this member of the public was able to find all those figures without the aid of any staff. In fact PEFO specifically says “Specific program estimates are included across the ten years for DisabilityCare Australia, the National Plan for School Improvement, and the Nation Building 2 and Nation Building 3 programs.”

Labor in fact revealed the funding for the National Disability Insurance Scheme in the budget last May, with new spending broken down out to 2019.

“The Australian Government will provide $19.3 billion over seven years from 2012-13 to roll out DisabilityCare Australia across the country. This brings the Australian Government’s total new investment in DisabilityCare Australia to $14.3 billion over the period.

The Australian Government will provide funding of $11.7 billion to DisabilityCare Australia in 2019‑20, the first year after full national rollout. This represents 53 per cent of the $22.2 billion total cost of running DisabilityCare Australia, with the States and Territories providing the remaining funding.”

This was to be funded by the increase to the Medicare levy.

Likewise the spending for the Gonski reforms was spelled out in detail as was its funding.

“The Budget provides an additional $9.8 billion over six years from 2014‑15 for new needs-based school funding arrangements.

To ensure that the National Plan for School Improvement will be fully funded, the Government has needed to make tough decisions — redirecting savings from higher education, self-education tax deductions and business taxation; and better targeting family payments.

In addition, a range of national partnerships for education will be ceased (or not renewed) and funding will be redirected to the National Plan for School Improvement. As well as helping pay for this historic reform, these saving decisions will also will help improve the position of the budget in the next few years.”

Labor copped a lot of flack for its proposed cuts to university funding, which were really a smaller increase rather than an actual cut. The reason they are opposing these savings now is because they made the cuts to fund education reforms, not to spend on roads.

Hockey also bemoaned supposed hidden funding increases to foreign aid and defence.

“The fact is Labor’s left us with a massive forecast increase in foreign aid, a massive increase in defence – for example in one year, there’s meant to be a real increase in defence spending of 13 per cent, a 66 per cent increase in foreign aid.”

The increase in foreign aid was also in the budget papers - it was actually a reduction on previously proposed spending, with the government’s Millennium Development Goal commitment to lifting foreign aid to 0.5% of gross national income put back another year to 2017. The government spelt out its planned increase in foreign aid up to and including 2017-18.

As Crikey pointed out in April,

“Labor invited the Prime Minister to spell out the government’s MDG policy, which he duly did: aid is to reach 0.5% of GNI when the budget returns to surplus. Which raises the question of why, in Hockey’s Mid-Year Economic and Fiscal Outlook in December, Hockey left Labor’s MDG aid funding increase intact, in defiance of the government’s own policy. The answer, of course, was that it would inflate the budget deficit for 2017 and beyond.”

And on defence, the budget tells us that defence spending for the 2014-15 financial year will rise by $2.3 billion to $29.3 billion, a real increase of 6.1%, with a commitment to building defence spending to two percent of GDP within a decade. So it seems that wasn’t a nasty surprise either.

Interestingly, the Labor budget also said “Government has chosen not to offset the hit to revenue in the near term, as it would come at significant cost to jobs and growth.”

In a budget press release, Joe Hockey said

“While the former Government left Australians with $123 billion of deficits and no path back to surplus, our budget repair efforts have meant that deficits in our first four years are now projected to be $60 billion, with a surplus of well over one per cent of GDP projected by 2024-25.”

Ummmm, according to Treasury and Finance, Labor policies would have got us to surplus in 2016-17 with a surplus of 1% of GDP by 2023.

Hockey goes on to say

“Gross government debt is now forecast to be $389 billion in 2023-24, compared with the $667 billion left behind by the former Government. This reduction in projected debt of nearly $300 billion also assumes that we provide future tax relief to address bracket creep.”

I am not sure why he keeps talking about gross debt, I assume because it is a bigger number, but he really should look at the government’s own website which says

“The August 2013 Pre-Election Economic and Fiscal Outlook (PEFO) estimated that net debt would rise to 11.7% of GDP in 2013–14 and peak in 2014–15 at 13.0% of GDP. These levels of net debt are not unprecedented in Australia. Between 1970–71 and 2011–12, net debt level as a percentage of GDP exceeded 10.0% ten times (mainly in the 1990s)..…compared with other advanced economies, Australia’s net debt levels are comparatively low, and have been for some time.

The PEFO projected a return to surplus of 0.1% in 2015–16.

Although Australia’s fiscal balance fell to a low in the context of the GFC, its structural budget balance is reasonable compared to other advanced economies.”

When Hockey says that Labor left us with a debt of $667 billion, he is quoting a figure from his own MYEFO document which included his decisions to cut revenue from the mining tax, the carbon tax, the 15% tax on superannuation income over $100,000 a year, and the Fringe Benefits Tax rort on novated leases.

It also included his inexplicable decision to hand $8.8 billion of borrowed money to the Reserve Bank. The sale of Medibank Private - a $4-5 billion contribution to the budget - will be spent on roads because Abbott wants to be an “infrastructure prime minister”, when it could cut the budget deficit or the debt. That could be $13-14 billion off the deficit and debt right there - or an interest saving of more than half-a-billion dollars a year. Scrap the company tax decrease, scrap the Paid Parental Leave scheme, close a few corporate tax loopholes and tax concessions for the wealthy and we would be well on the way to addressing the challenges of the future.

So what it boils down to is that Hockey confected a large future debt to justify ripping the heart out of our most vulnerable so he can say he is being “responsible” by getting the young, the sick, the unemployed, the elderly, the disabled, the single parents, and anyone else who doesn’t have a voice, to pay for his claim that he might improve his own fictional bottom line in ten years’ time.

In the mean time we will give up the Gonski reforms, the real NBN, all action on climate change, environmental safeguards, research, renewable energy, hospital funding, universal healthcare, the ABC…all while sending a large percentage of the population into poverty.

The carbon tax doesn’t sound so bad now, does it?

“I’m not upset that you lied to me, I’m upset that from now on I can’t believe you.”

― Friedrich Nietzsche


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