The perils of popularism

This week we originally were going to be discussing Pauline Hanson’s One…

Cutting High Functioning Autism Funding Re: NDIS

By Jane SalmonThe person who allegedly killed Euridyce Dixon has been said…

Can Trump's Singapore Summit farce alert us to…

“A new story, a new beginning, one of peace. Two men, two…

They know it is wrong but, if it…

Concetta Fierravanti-Wells has written an essay in which she acknowledges that Muslims…

Vaccines Cause Climate Change And Other Logical Conclusions!

While I'm sure that there's a lot of anti-vaxers chomping at the…

Killing The ABC: The IPA's Agenda To Dismantle…

By Loz LawreyI've been resisting the urge to write yet another “rant”…

ABC Interview Prime Minister Malcolm Turnbull

ABC: Good morning PM can we start by asking if you will…

Embers and Death at the Victoria Park Hotel:…

We came across a skeleton of a building bristling with warnings: Asbestos,…

«
»
Facebook

The Coalition’s “debt and deficit disaster”

When Joe Hockey delivered his first fiscal statement in December 2013, it painted a much bleaker picture than the PEFO produced by Treasury and Finance in August based on Labor’s policies.

This was in part due to the Coalition’s decisions, foregoing $7.4 billion in revenue from the carbon tax and unnecessarily gifting $8.8 billion to the RBA for example, and partly due to Hockey changing forecasts, assuming a sustained unemployment rate of 6.25 per cent over the forward estimates for example.

“We have inherited from the Labor Party budget deficits totalling $123 billion over the next four years, and unless we take immediate action, we’ll be in deficit for more than a decade,” Mr Hockey said.

Whatever action they have taken doesn’t seem to have worked because the deficits over the four years since the Coalition took government have added to $159.2 billion with another $20 billion to the end of February this year.

Hockey’s 2013 MYEFO also warned of ballooning debt suggesting that Labor’s profligate spending would see gross debt hit $460 billion by the end of 2016-17.

Under the Coalition’s supposed superior economic management, gross debt was actually $501 billion by the end of 2016-17.

Hockey, Cormann and Abbott went into overdrive about the “debt and deficit disaster”, saying that taxpayers were on track for a $667 billion debt bomb if Labor’s policies and spending was left unchecked over the next decade.

The latest fiscal statement delivered by Scott Morrison in December last year has that figure now projected to blow out to $684 billion.

Despite Hockey’s prediction about unemployment proving wrong, with the unemployment rate dropping from 5.8% in August 2013 to 5.5% in February 2018, there are almost 20,000 more people unemployed now.  Those that are employed are working less hours on average suggesting there is a significant underemployment problem.

Labor governed during a time of global financial collapse and their stewardship got us through relatively unscathed.

The Coalition has governed during a time of global recovery yet we find ourselves in a worse position than when they took over.

Many will argue that deficit spending is a good thing and that it is private debt, not public debt, that is the problem.  That is a valid argument and a separate discussion.  This is about comparing the Coalition’s performance to their promises.

If the Coalition want to go to the election claiming to be better economic managers, a simple look at the figures combined with some footage and quotes should be enough to put paid to that idea.  And that’s before we even look at rising power prices coupled with rising emissions.

But then again, we have the Murdoch media who have that mantra so ingrained in their heads that we are unlikely to see any real analysis from them or from those who blindly believe them.


28 comments

  1. wam

    Beauty, Kaye.
    Must be a slogan here?
    ‘The Coalition has governed during a time of global recovery yet we find ourselves in a worse position than when they took over.’

    Hope billy and tanya read this and heave a few simple sounding but unanswerable questions at karl baby???

  2. nonsibicunctis

    Good piece, Kaye. Succinct and informative. Thank you.

  3. townsvilleblog

    Again, well said Kaye. It must be remembered that any tory government does not come into power to help ‘people’ but rather to further assist corporations and business in general. They have been very successful in fulfilling their ideology which is precisely why we have millions of people suffering. We can’t do anything except encourage our family and friends who may vote tory to cease and desist and never vote that way again, and for the reasons you have outlined Kaye. Thanks again for another wonderful piece. In fact those with tory voting relatives I would suggest emailing a copy of Kaye’s letter to them…

  4. Andreas Bimba

    MMT economist and successful Wall Street investment banker Warren Mosler demonstrated that for a national government with it’s own sovereign currency that all federal government spending was met by currency issuance by the central banks and all federal taxation extinguishes money. All deficits therefore also represent money issued by the central bank and DO NOT INCUR ANY DEBT AND DO NOT NEED TO BE REPAID. Government or Treasury bond issuance does not fund deficits and is a parallel activity that enables the central bank to control interest rates.

    If the Conservative Coalition federal government has a larger deficits than the Labor Party would have had, then the Conservatives are better economic managers in this vitally important respect.

    It is simply reckless and stupid for any political party to claim they will have smaller deficits than the alternative government when real levels of unemployment and labour underutilisation are so high.

    The reason we have such high ongoing levels of unemployment and underemployment is due to a shortage of money circulating around in the economy. Our federal deficits should have been much larger. In the neo-liberal era the money supply has grown to a large extent from increasing levels of private debt which is now at record levels but all borrowing is matched with an obligation to repay the loan at a later date so any economic expansion will be followed by an economic contraction as the rate of private debt stabilises and then reduces.

    We are at the cusp of a recession as our levels of record private debt will at some point subside and the real estate speculation bubble and share market speculation bubble will deflate. Only federal government deficit spending of sufficient magnitude that helps build a sustainable, non speculative productive economy that serves the needs of all citizens within environmental constraints, can ensure any recession is minimised and that we can return to the full employment policies of the immediate post war period that were foolishly abandoned globally in the late 1970’s and 80’s under the lobbying influence of international capital and the global corporate oligarchy.

    The Chinese national government knows the power of deficit spending and currently runs deficits of about 15% of GDP according to economist Steve Keen which compares to Australia’s federal deficit of about 2.4% of GDP. Similarly the Japanese government has usually maintained national government deficits and economic development policies of sufficient magnitude since the 2nd World War to ensure full employment.

    Steve Keen explains why we are facing a private debt crisis:

    https://m.youtube.com/watch?v=vCFubyGd_R0

    The huge economic cost of unemployment and underemployment:

    https://www.austeritysucks.com/the-united-states-lost-output-clock.html

  5. Kaye Lee

    Andreas,

    As I said in the article, that is an entirely different discussion which I was hoping to forestall.

    I will say again, whilst that may be possible, it is NOT what happens now and would require legislative change to make it possible. Under current legislation, deficit spending must be funded by bond issuance. Rather than selling bonds on the open market, they could be held by the RBA…but they aren’t.

    So can we get back to the Coalition’s broken promises?

  6. John Kelly

    A good summary of a litany of broken promises that clearly show the majority of Australians were hoodwinked and remain hoodwinked.

  7. economicreform

    Irrespective of any arguments about whether ongoing deficits are a good or necessary thing, it is clear that the Coalition’s previous ranting about the deficits run up by their political opponents reek of hypocrisy, double standards and distortions. And there is no bigger distortion than the claim that a successful economy must operate on the basis of budget surpluses. Incidentally, the sad reality is that both of the major parties have been perpetuating this nonsense. Wayne Swan was committed to it. However the historical record in many countries clearly shows that a regime of budget surpluses – and in many cases even balanced budgets – is inevitably followed by recession. I believe that statistic is trying to tell us something important about how modern economies operate.

  8. Kaye Lee

    BHP has never been out of debt. Neither has Gina Rinehart.

    Whilst we have unused productive capacity, I look on deficit spending as an investment in the future.

    The thing that I really don’t understand is the over $150 billion we have sitting there in the Future Funds. It should be being spent on productivity-enhancing investments in our economy rather than overseas shares. Some of the funds are only generating a return of 2.4%. I can get better in a term deposit at the bank. What’s the point in it just sitting there? Just like the billions sitting in defence accounts that they have to find creative ways to spend, and sometimes even give back because they can’t possibly spend all they are given.

  9. Glenn Barry

    Were they really broken promises, I always considered them bold faced, outright lies…

    The 2018 Edelman trust barometer findings for Australia were very insightful

  10. diannaart

    I agree Glenn; the COALition always speak in the shouty, accusatory method of those who know they are wrong, but believe they have too much to lose by being honest.

    Although I don’t get why Edelman barometer claims CEO’s have increased their trustworthy factor.

  11. Doug Anderson

    If deficits are good for us why did the coalition not campaign on having larger deficits than the opposition?.

    Doug.

  12. Andreas Bimba

    But government bonds have never funded national government deficits. The strongest proof is the world war mobilisations where private capital markets could not possibly have funded the huge deficits of up to 28% of GDP in the case of the US. Central bank currency issuance funded all deficits.

    Issuance of government bonds that match deficits one for one in the case of Australia and the US, give the illusion that such bonds fund the deficit but they do not. Canada for example does not issue bonds in equal proportion to their federal deficits. Former FED Chairmen Alan Greenspan and Ben Bernanke have publicly confirmed that the US government faces no funding constraints and that all federal expenditure is met by central bank currency issuance.

  13. Kaye Lee

    The RBA does not issue currency other than deciding when we need more banknotes in circulation. They do not fund deficit spending and they will not allow the government to go into overdraft on its accounts except in exceptional short term situations. It is the Treasurer who decides to issue more CGS which, as you say, always equal the deficit.

    We certainly could change the legislation so that what you are saying could happen but, under our current laws, it cannot.

    But I really didn’t want to have that conversation again on this thread because we will just go back and forth saying the same things we always do and that is not what the article is about.

    For those who voted for the Coalition to fix the ‘debt and deficit disaster’, they got sold a dud.

    Interesting comment on Facebook from Luis Rojas…..

    1983 – The Coalition under Malcolm Fraser with John Howard as Treasurer hand over to Labor an economy ranked 20th in the world

    1984 – Paul Keating wins Euromoney’s Finance Minister of the Year

    1996 – Paul Keating and Labor hand over to the Coalition an economy now ranked 6th in the world

    2007 – John Howard and the Coalition hand back an economy to Labor that had slipped down to 9th place in the world

    2011 – Wayne Swan wins Euromoney’s Finance Minister of the Year

    2013 – Labor under Rudd/Gillard hand over to the Coalition the best performing economy in the world, boasting AAA credit ratings after navigating Australia through the GFC (The worst financial crisis since the Great Depression)

    2017 – The Coalition under Turnbull/Abbott have presided over an economy that has now slipped back down to 18th in the world

  14. Matters Not

    Re:

    those who voted for the Coalition to fix the ‘debt and deficit disaster’, they got sold a dud.

    Yep! Logically they did (given certain assumptions). But perhaps that matters not when it comes to how and why the punters vote as they do. Specifically, we have no reliable knowledge as to the voters’ rationale at that (voting) moment in time. More generally, we have no evidence that voters behave rationally at crucial times. (I suspect they don’t.)

    I suspect that emotion wins (or loses) many more votes (and elections) with logically derived evidence simply an irrelevance – of interest to the few and certainly not the disinterested many.

    That theory is useful in the light of developments in Australia and elsewhere of recent times because it explains irrational developments. Trump seems like the most recent frightening example.

  15. economicreform

    Kaye is correct in saying that Andreas has the financial dynamics wrong (i.e. in Andrea’s statement that “all federal expenditure is met by central bank currency issuance”).

    In regard to Kaye’s statement “the RBA …. will not allow the government to go into overdraft on its accounts except in exceptional short term situations”, it is of course true that bond sales by the Australian Federal Treasury do match net spending (deficit spending) these days, and so appear to top up the notional Treasury balance at the RBA. However this is a relatively new development, having been voluntarily introduced in Australia under the guise of ‘sound financial policy’ in 1982. However this form of ‘sound financial policy’ is not the practice in some comparable countries, such as Canada.

    The Australian Treasury has not, since 1982, borrowed directly from the RBA – by selling bonds directly to the RBA (sometimes described as Overt Monetary Financing) or by using any other accounting mechanism, other than for exceptional short term situations as Kaye has said. However prior to 1982 it did sell bonds directly to the RBA, which meant – to take the logic to its obvious limit – that any number which appeared within the federal government account at the RBA was rendered functionally meaningless. This means that the credits appearing within that account were not matchable to the conjunction of private sector taxing and external borrowing.

    The post-1982 voluntary constraint on the government-RBA relationship does not in any sense undermine Australia’s monetary sovereignty, but it does appear to do so – by obscuring the fact that the Australian Government cannot become insolvent in its own currency, and is not limited by its ability to attract ‘money’ into its account at the RBA.

  16. Kaye Lee

    That I can agree with.

  17. Zathras

    It just goes to show how voters are affected by emotion, and fear in particular, whether it’s looming debt or hordes of immigrants at the border.

    I recall Howard’s “debt truck” campaign that showed the gross National debt but once in power he only spoke about Government debt because the National debt ballooned dramatically under his watch.

    All the ALP has to do is recycle some of the Coalition’s previous assertions about the economy under the ALP and just update the figures to show the difference.

    Current TV ads asking people to “sponsor an Australian child in poverty” are a damning indictment of where we are now.

  18. Stomper

    Wait until they are forced to write down the book value of the NBN !!!

  19. Andreas Bimba

    When the federal government spends, the RBA credits the applicable bank accounts or issues cheques and when the federal government receives taxation or other revenue that money is extinguished. When spending exceeds revenue, which we call the deficit, this is also met from RBA currency issuance.

    Endorsements from neoliberal organisation like Euromoney and credit agencies like Moody’s and Standard & Poor’s have no credibility. The Australian federal government using the RBA are the sole issuers of Australian dollars and credit ratings are irrelevant.

  20. Harry

    Whilst I think Andreas Bimba and Economicreform are basically correct I tend to think MMT is probably unsaleable at present given entrenched beliefs in the electorate about the undesirability of debt and deficits. Better to get on with practical politics and kick out the Coalition. For now.

    And Andreas is correct about the rating agencies;ignore them. Japan has a debt to gdp ratio of over 220% but has low unemployment and rising living standards. The sky has yet to fall in ?

    Doubt it!

  21. Glenn Barry

    Zathras, I think your condemnation of Australian poverty is somewhat hasty…

    Here we have a domestic industry, the charity sector, demonstrating real opportunity for growth whilst keeping the money in Australia – damn we should have those little triangular “Australian Made” tags with the Kangaroo logo on all children who are in receipt of charity assistance because of their poverty.

    This too could also be a source of national pride – that we also are content to have people driven into poverty as working poor, so no social enhancements through inequality are not purely the domain of the US of A.
    We will not be left behind in a competition with the greatest nation on earth – the US of A – on any matter!

    Now where’s Dick Smith when you need him, he’s always one for shameless self promotion.
    I think we can have a two pronged campaign on this one – he donates 0.5 cents for every dollar made, after tax, for each and every Aussie made Dick Smith product. Also it can tail nicely into his anti-immigration rhetoric – along the lines of we don’t need to import our poverty any more, because Aussie made poverty is better for Australia.

    And Malignant Turnbull and Froth Pondscum are going to love the jobs statistics – jobs to be created delivering food and clothing to the poverty stricken, who don’t have enough money to put petrol in their cars, because they have nowhere to drive to anyway.

    Joe Hockey was right about poor people not driving, but for the wrong reason. They have nowhere to drive to because no-one wants to see them – poverty is the leprosy of our time, and I think Joe in his heart of hearts knew that, but was too kind to say it out aloud for fear of hurting their feelings.

    So there you have it, I think we’re on a real winner with this one – in fact I think we should petition the government to establish a national empathy quotient that can measure just how much of a caring nation we have become under the stewardship of this most wonderful and caring coalition government.

  22. Kaye Lee

    Andreas,

    The RBA doesn’t issue currency (except extra banknotes when we need them). I am not sure where you get the idea that they do?

    The RBA and Finance/Treasury are separate entities.

    “The Reserve Bank provides a facility to the Australian Government that is used to manage a group of bank accounts, known as the Official Public Account (OPA) Group, the aggregate balance of which represents the Government’s daily cash position. These banking arrangements include the provision of a term-deposit facility for the investment of surplus funds, the sweeping of balances to and from agencies’ accounts held with transactional bankers, and access to a strictly limited overdraft facility.”

    I think Bill Mitchell is responsible for a great deal of confusion about this.

  23. Harry

    Kaye Lee: From Bill Mitchell–

    “Federal government spending, however, is largely facilitated by the government issuing cheques drawn on the central bank. The arrangements the government has with its central bank to account for this are largely irrelevant. When the recipients of the cheques (sellers of goods and services to the government) deposit the cheques in their bank, the cheques clear through the central banks clearing balances (reserves), and credit entries appear in accounts throughout the commercial banking system. In other words, government spends simply by crediting a private sector bank account at the central bank. Operationally, this process is independent of any prior revenue, including taxing and borrowing. Nor does the account crediting in any way reduce or otherwise diminish any government asset or government’s ability to further spend.

    Alternatively, when taxation is paid by private sector cheques (or bank transfers) that are drawn on private accounts in the member banks, the central bank debits a private sector bank account. No real resources are transferred to government. Nor is government’s ability to spend augmented by the debiting of private bank accounts”.

    https://modernmoney.wordpress.com/2010/08/23/what-the-government-budget-constraint-gbc%C2%A0means/

    The RBA and Treasury may seem independent but are not. It is a branch of government. A sovereign government could ask the RBA to write a $100 billion cheque if it wanted to; this would be most unwise but the government is in charge, despite the pretence that it is constrained by the unelected RBA Governor and his Board.

  24. economicreform

    Kaye, it seems that Andreas is conflating currency (coins and banknotes) with banking reserves (exchange settlement funds). Admittedly they are basically interchangeable – at least in the context of commercial banking, however I think it is incumbent on Andreas to at least get the terminology right.

  25. Marcus

    I am a strong advocate of MMT and understand that Gov debt is grossly misunderstood, however this is irrelevant to the question posed by Kaye. The LNP are by far the worst economic “managers” not just by their own criteria, but objectively in terms of economic growth, national income per person, broader economic diversity, and economic risk. In category after category the LNP have failed to act in the national interest, and have demonstrably weakened the economy. For example:

    In terms of economic complexity in 2016 Australia ranks below Kazakhstan, Mauritius and Chile http://atlas.cid.harvard.edu/rankings/2016

    Gross Disposable Household Income has been decreasing (we are getting poorer not richer) https://www.macrobusiness.com.au/2017/12/special-report-gerard-minack-australias-per-capita-economic-slump/

    Gross Household debt has peaked and real wages have stagnated under LNP
    https://www.macrobusiness.com.au/2017/10/aussie-household-debt-closes-200-income/
    http://bilbo.economicoutlook.net/blog/?p=36648

    Environmental policy and outcomes have been worse across the board https://theaimn.com/josh-dont-believe-word-party-says/

    The so-called “jobs growth” the LNP claims to have engineered is highly questionable https://independentaustralia.net/business/business-display/australias-unemployment-its-worse-than-youre-being-told,11329

    Indeed, there is more evidence LNP destroy jobs not create them http://theaimn.com/how-do-you-starve-a-region-of-jobs-just-vote-lnp/

    Lets also visit the supposed “economic growth” myth https://www.macrobusiness.com.au/2017/06/debunking-australias-fake-growth-record/

    AND lets not forget the “heartland industries” of mining and agriculture the LNP constantly bleat about (esp mining) make a comparatively small contribution to the economy https://theaimn.com/agriculture-and-mining-make-comparatively-little-contribution-to-employment-and-the-economy/

    Lastly, this is a good overview of the LNP’s claim of being “better economic managers” (even by their own standards) is just another LNP lie https://independentaustralia.net/politics/politics-display/the-lies-turnbulls-liberals-spin,10374

    And this is only the tip of a very deep iceberg of failure of the LNP. They have no vision, ideas, plans, or hope for Australia…other than for their donors.

    In conclusion as far as I can tell LNP blindly pursue power, not because they want to build a better nation, but to prevent anyone else from making progress, and enriching themselves and their business partners in the process.

  26. diannaart

    Marcus

    Lest we forget foreign investment remains steady, and is not in decline nor threatened by current interest rates.

    LNP – poor economic managers because they tell lies to pursue power.

  27. Kaye Lee

    Excellent collecting Marcus.

    Harry,

    “A sovereign government could ask the RBA to write a $100 billion cheque if it wanted to”. Not under current legislation – that is the point I am trying to make. They could certainly change the legislation or, as economicreform and I previously discuassed, the RBA could buy government bonds which would functionally be the same as just crediting an account

  28. Onlineviagra

    Thank you TIna, and Andreas re how money works that Newstart could be paid without adding to the deficit. Funding deficits by borrowing from the private banks is an entirely political decision. China gets it, that”s why they are leading the world on so many fronts, not all good I admit, but they understand that they can spend by just spending. And Matters Not, I am an economist and there are many like me. Bill Mitchell, Stephanie Kelton and Michael Hudson are some you may have heard of. MMT is not a theory it is a description of how the Australian Government could choose to operate, funding deficit spending internally, using taxes to ensure wealth is more evenly distributed, when all taxes do is destroy money that the government has already issued. Such spending on real resources could give a lot of fast trains and social housing. Just say”in. Re your point though, Tina and readers, my twitter feed gave me the story of a man who was in Centrelink, when he collapsed and couldn”t get up. Staff indicated that they thought he was faking it. In the end, customers rang the ambos who came and de fribbed him. Some of the Centrelink staff I have met are okay, but a lot of them lack compassion and seem unhappy in the work they”ve been given to do. And who can blame them when they are implementing the draconian decisions of the psychopaths in power?

Leave a Reply

Your email address will not be published. Required fields are marked *

Return to home page
Scroll Up
%d bloggers like this: