Worst debt blow-out in the developed world refutes Coalition claims of economic competence

The AIM Network

3 years ago

By Alan Austin

Last Friday morning, just as Scott Morrison was spruiking his credentials on 3AW, Treasury updated Australia’s gross debt – a thumping $874.2 billion. The Coalition has now added a neat $600 billion to the nation’s debt.

Morrison told Melbourne voters “we know how to manage money” and “we will always manage better than Labor” and “Australia one of the strongest economies in the advanced world” and “you’ve got to keep control of your expenditure.”

Simultaneously, the debt data declared emphatically, “No, you don’t; no, you won’t; no, it isn’t; and yes, but you didn’t.”

There is no justification for adding $600 billion over the last eight and a half years, most of which has been global boom times. Over that period, all well-managed nations repaid much of the debt they needed during the global financial crisis (GFC). When the Coalition took over from Labor in 2013, Australia’s gross debt was just $271.7 billion. Labor had the misfortune to govern for only ten months of benign global conditions before the GFC whacked the world. Over that period, Labor reduced the debt by $4.7 billion.

Between the crisis hitting in late 2008 and the end of the GFC, which coincided with the end of Labor, the government borrowed an average of $43.5 billion per year. All of that was needed.

In the ensuing recovery, from the 2013 election until August 2018, when Morrison became PM and Josh Frydenberg Treasurer, debt increased by $53.4 billion per year to $538.6 billion. None of this was justifiable. During the Morrison years, which included the pandemic, debt blew out by $94.9 billion annually to today’s $872.4 billion. Some of this was warranted.

Why does debt matter?

There are two answers to this question – economic and political.

In economic terms, debt requires interest payments which in Australia today effectively replace spending elsewhere. Interest this year, according to last month’s budget, will be $17.5 billion, increasing to $26.3 billion by 2025-26. That’s money not available for health care, infrastructure or other priorities.

Interest payments also send wealth and income offshore. Last Friday’s Treasury data shows nearly half goes to non-residents. To the extent these are wealthy, foreign donors to the Coalition parties, this will be regarded by some as perfectly fine. To those troubled by the accelerating flow of wealth offshore, this is undesirable.

The debt does not pose any risk of Australia defaulting on repayments. Australia issues bonds in its own currency and can always print more Aussie dollars.

Coalition and media treachery

The real damage inflicted by debt in Australia is political. The Coalition and the mainstream media successfully persuaded millions of voters at the last four elections that debt under Labor was “spiraling out of control”, a “debt time bomb”, “skyrocketing”, “terrible economic mismanagement”, a “budget emergency” and “Gillard’s debt disaster.”

Of course, this was all malicious fabrication. The International Monetary Fund has published time series debt data for all 38 wealthy members of the Organisation for Economic Cooperation and Development (OECD). In Labor’s last full year, 2012, Australia’s general government gross debt was just 27.5 per cent of GDP, the OECD’s fourth-lowest. Only Estonia, Chile and Luxembourg had borrowed less.

It is now a thumping 77.0 per cent, ranking 23rd out of those 38 developed countries. That explosion of gross debt by 49.5 per cent of GDP is the worst in the OECD by far. Second worst is Costa Rica (41.2), then Greece (38.5) and Spain (30.4). Countries which reduced debt from 2012 to 2022 include Denmark, the Netherlands, Germany, Ireland, Iceland, Portugal and Hungary. See green chart, below:

So why no screaming headlines about disaster and destruction today? Because the purpose of economic data, according to the mainstream media, is not to provide information but to destroy Labor’s reputation by falsifying it.

The current campaign

If this is a general principle – that data is to be manipulated to condemn Labor – then is this occurring in other areas? The answer is yes.

Morrison said in Friday’s radio interview, “we need to keep going in the way we have, which has made Australia one of the strongest economies coming out of this pandemic in the advanced world.”

This has been a constant refrain since Morrison became Treasurer in 2015 and is the opposite of the truth. It has never been queried by any mainstream “journalist”. By any measure, Australia’s economic strength has slumped dreadfully since 2013.

Using the usual metric, annual GDP growth, Australia ranked in the OECD’s top nine through most of Labor’s tenure. In 2009, Australia was first. Ranking has tumbled steadily since then and is currently 27th.

Employment furphies

Morrison claimed, “We’ve actually got unemployment down in the middle of an economic crisis. Under Labor it went up.”

That is a barefaced lie – which the media should expose but won’t. Unemployment did not decline during the Covid crisis. It soared from 5.1 per cent in February 2020 to 7.4 per cent in June 2020. That was one of the world’s worst blow-outs, pushing Australia down the OECD table to 22nd placing. It has come down since then to 4.0 per cent. That currently ranks a modest 14th.

In contrast, Labor’s jobless rate increased during the GFC from 4.6 per cent to peak at 5.9 per cent. That ranked ninth, close to Australia’s best OECD placing ever. By December 2010, Labor’s jobless had recovered to 4.9 percent, which ranked fourth in the developed world, a new all-time high.

Deterioration across the board

Outcomes on wages growth, productivity, retail sales, median income, interest rates, the tax burden, budget deficits, spending, infrastructure investment and housing have all been demonstrably worse under the Coalition. The main variables to have improved since 2013 are export volumes and values, corporate profits and personal wealth.

So, are Australia’s mainstream economics writers just incompetent hacks? Or are they also deliberate malicious liars?

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Alan Austin writes regularly for Crikey, Independent Australia and Michael West Media.