Debt, Deficit, And The Abolition Of The Debt Ceiling

TODAY I HAVE SEEN one of the best arguments on Australia’s debt position in quite some time; argued in The Australian, respected economics writer Judith Sloan points out — compellingly — that without radical action, Australia will find itself in a position no better than the basket cases of Europe.

It’s just a discussion starter today to share a really good article with readers; those familiar with my views know that far from being persuaded that Australia’s debt load is somehow justifiable because it is “low” by international standards, I’m a big advocate in curbing government spending until such time as the debt pile has been paid and retired.

You can access Sloan’s article here. A few observations.

I think the Communist Party Greens are going to be sorely disappointed if they believe their deal with Treasurer Joe Hockey to abolish the debt ceiling will somehow garner them bargaining chips to cash later for doctrinaire social spending or similar socialist measures: I would argue the two are mutually exclusive.

In any case, the Greens have simply done a deal to restore the operating environment that existed pre-2008 — with no debt ceiling in effect — with the happy consequence that one avenue for Labor to ply its insidious and vapid brand of hypocritical grimy politics is closed off.

Paul Kelly published an excellent piece, also in today’s Australian, on precisely this subject.

Sloan sets out the case for returning the Commonwealth budget under a range of scenarios; all fraught with risks, of course, given the flow-on effects from moving money around the economy, or removing it from the system altogether.

But it’s clear that something needs to be done to rein in the explosion in the country’s debt; as I have said before, debt as a percentage of GDP doesn’t get to 100% if it isn’t permitted to pass through 10% first, then 20%, and 30%…

It brings into focus the priorities of the Abbott government, boxed in to some extent as it is by the ALP in its contemptibility and a hysterical ABC/Fairfax/Guardian media axis that makes shrill demands of total implementation of Liberal Party election pledges — irrespective of how bad the actual state of the government’s books is revealed to be — and acting on threats to raise merry hell if that doesn’t occur.

I think readers know my preference for reform of industrial relations mechanisms in Australia to at least move the “centre point” of the IR landscape back to its pre-WorkChoices position; as things stand, the reregulated labour market, with its rigidity and inflexibility and its hefty pro-union bias, are a huge drag on the economy as it stifles productivity and escalates wages growth well beyond sustainable levels.

(If anyone doubts this, cast a quick look at two heavily unionised companies I will soon be writing about — Qantas and Holden — and then come back and make a credible case they’re in rude, robust financial health. You can’t).

All of this also ties in to the discussion we have had about Gonski, which should be abolished: in its present form, it is an unaccountable waste of billions of borrowed dollars with no parameters around it to guarantee any meaningful results in terms of educational outcomes.

The NDIS is trickier; it costs an awful lot more than Gonski, but on balance has a lot more to recommend it. Even so, I have suggested in the past the NDIS might be a good idea that is simply unaffordable (at least in its current form) and I don’t resile from that view.

Of course, to make meaningful inroads into Australia’s public sector debt will require either higher taxes, reduced spending, or privatisations.

I argue that there’s no scope to ramp up taxation in any meaningful sense; consumers as a whole are stretched and burdened as it is by record levels of government taxation (especially when fees, charges and other imposts levied by the states are included) and in any case, taxing the hell out of people does not equate to delivering acceptable outcomes in return.

How many people view Centrelink as a lean, efficient contributor to the economic welfare of this country, for example? Enough said.

The other two measures, though, are the key: privatising those remaining enterprises no government ought be conducting (Medicare Private, Australia Post, and a host of others) and using the proceeds to pay down debt, whilst abolishing socialist monuments such as Gonski and (reluctantly) the NDIS, along with the renewable energy target, subsidies for things like wind power and solar energy, and the rest of the wasted money pissed up against a post on Rudd/Gillard-era Green schemes designed to mollify the Greens and secure their preferences.

Generally, and as a basic “mud map,” the greater the outrage Abbott and Hockey generate in Greens’ ranks, the better off the country will be: and in any case, if the hard decisions and actions aren’t taken now, it will be decades before they are.

After all, the next Labor government won’t behave with any economic responsibility or conduct itself with anything other than ineptitude: that much is certain.

So by the time the next Coalition government enters office from opposition in, say, 20 years’ time, the damage will have been done; and ALP hacks who apologise for their government’s wasteful, inefficient largesse will indeed be forced to confront Australia’s name near the fat end of the graphs they so enthusiastically circulate to justify themselves, rather than near the bottom of the debt pile where we rightfully belong.

Just some thoughts on two excellent articles. What do people think?


Ban Supermarkets: Greens’ Moment Of Reason A Mirage

JUST WHEN A FOOL might surmise it safe to accord the Communist Party Greens the deference a responsible political outfit might command, their true lunatic nature is again revealed in its ugly glory; their call for Tony Abbott to muster “the courage” to ban Coles and Woolworths from opening supermarkets is so ridiculous as to belong on another planet.

I must say I’m not in the least surprised.

This week, the Greens have given their most trenchant critics something to contemplate, sealing as they have a deal with Treasurer Joe Hockey to abolish the Commonwealth debt cap in return for comprehensive statements to Parliament on the country’s debt position each time government debt increases by $50 billion.

The debt ceiling, introduced on the watch of the initial Rudd government, served little purpose other than to draw attention to the shocking rate of increase in Commonwealth debt each time Parliament was asked to increase it.

And specious arguments from the ALP that Hockey and Prime Minister Abbott “are putting debt up from $300bn to $500bn” are typical of the fundamental dishonesty with which that party conducted its last period in office, and which Labor seems determined to cling to in opposition in preference to a less cynical interpretation of the collective intelligence of the Australian public.

At the risk of labouring the point, Labor knows full well the scale of legislated spending it bequeathed to the Liberals will necessitate well over $100bn of additional borrowing on the Liberal Party’s watch; absolving Hockey of the need to go cap-in-hand to Parliament each time the ceiling needed to be lifted to accommodate it at least removes one ill-gotten opportunity for the ALP to engage in despicable politicking off the back of its own incompetent handiwork.

I thought the deal on abolishing the debt ceiling was reasonable, and the Greens’ asking price of a statement to Parliament each time debt increased past set markers fair.

But I did wonder what it was that they wanted; today, that question has been answered.

Their call for the government to ban all new Coles and Woolworths supermarkets is breathtaking in its stupidity, and neatly illustrates just how divorced from any meaningful grip on reality they are.

Even based on the points raised in that report, it isn’t difficult to see where this latest aspiration to economic vandalism by the Greens might lead.

First, the positive.

I, too, have great reservations about the efficacy of so-called “shopper docket” schemes used by Coles and Woolworths as a tool to drive retail sales of fuel; not just because of their potential to drive independent petrol retailers out of the market — although they certainly have that — but because such discounts have to be paid for, and that price is paid at the supermarket checkout by consumers purchasing the foodstuffs that qualify them for “petrol discounts” in the first place.

Such a smoke-and-mirror show is a farce, and a waste of time — and that’s before arguments about predatory behaviour and abuses of market power even begin.

But beyond that, there is nothing of merit in the Greens’ latest decree.

Whether the Greens like it or not, often the local supermarket forms a focal point in local communities, be they suburban, regional or well away in the bush.

At best, their call to ban the two majors from expanding could be construed as an attempt to skew the market toward the likes of IGA in an act of commercial preferment no better than the alleged outrages they rail against; at worst, the Greens advocate the wilful disadvantage of towns and neighbourhoods that would benefit from having the presence of a supermarket at all.

Their call to ban Woolworths and Coles from investing in agricultural land defies belief, given the Greens also sought to obstruct a well-publicised Chinese investment in prime agricultural real estate during the last term of Parliament.

It’s a truism, I know, but someone has to own these assets: and if private landholders seek to divest them for whatever reason, surely ownership by a major Australian company (when the prospect of such ownership is in hand and on offer as a commercial consideration) is preferable, all other things being equal, to a foreign buyer?

And calls to “rein in the power of the big supermarkets” may make for a clever soundbite, but simply kneecapping them isn’t going to achieve anything constructive.

If the Greens want to engage in a debate about competition, or propose changes to laws that govern the commercial conduct of major supermarket chains, that might or might not be a reasonable thing; yet these calls amount to nothing of the kind, representing as they do a classic presentation of the ideologically driven crusade against business the Greens have always pursued in their utter hatred of the forces of markets and capital.

One deserved brownie point earned this week for actually doing something economically responsible has been incinerated by the renewed pursuit of a characteristically socialist, command-and-control agenda with the crippling of private sector enterprises in its crosshairs.

It seems to be a theme that will feature prominently in this column over the next little while, but market distortions of the kind the Greens advocate in the supermarket retailing space will achieve nothing of benefit, and — like most intrusions of Big Brother into business — would cause a great degree of harm to the very interests the Greens claim to be acting on behalf of.

The more things change, the more they stay the same.


The Damage Bill: Even In Opposition, ALP Gambles With Economy

LABOR — thoroughly belted by voters — has begun a mission of destruction with the aim to render Australia ungovernable, and to destroy the Abbott government in the process. The result, if successful, will be to compound the damage from its own stint in office, and to grind Australia to a halt.

If the Labor Party was clever, and genuinely sought to learn why it was unceremoniously dumped at the September election — indeed, if it had a leader worth his or her salt — it would be sending its MPs and operatives forth into the community, unheralded, to talk; and armed with whatever information and feedback it gathered, it would later move on to a total rewrite of its policies in a concerted endeavour to improve its public appeal.

Instead, it has a “leader” who isn’t a leader’s bootlace, and the party appears determined to press ahead with cheap political stunts designed to fit whatever attack ammunition is invented by its spivs and hacks and deemed to be worthy of retail political use.

In other words, the ALP continues to exude no sign it has learned a thing from its defeat.

Never mind the legislation to repeal the carbon tax or the mining tax; this time the issue is Australia’s debt ceiling: the legislated limit to which the federal government can draw down on borrowings, legally, to fund its spending obligations in times of budget deficit.

The debt cap currently stands at $300 billion, which Treasury advice to the government says will be reached within a month from now; the Treasurer, Joe Hockey, is seeking authorisation from Parliament to lift it to $500 billion.

The problem — and this is an old story, for anyone familiar with the cavalier attitude of the ALP to public expenditure — is that new and recurrent spending measures that were legislated between 2007 and 2013 will  push gross Commonwealth debt well above $400 billion, with the overall level of gross debt to peak in 2016 before beginning to fall.

And 2016 just happens to be when the next federal election is due.

Enter Bill Shorten. “Damage Bill,” we’ll call him.

Shorten — ever the practitioner of grimy, opportunistic political point scoring — is giving every indication that the ALP will vote to block the increase; the Greens and the ALP still retain a majority in the Senate until 1 July next year, and the increase to the debt limit is a matter of urgency given the existing ceiling will soon be reached.

Shorten is blithely holding out the prospect of what he calls the “sensible compromise” of an increase in the cap to $400 billion and of course, Damage Bill is playing it by the book: carefully chosen words and sombre expressions to give the picture of a thoughtful leader deeply concerned with matters of state and committed to their practical resolution.

Of course, what Shorten — and the ALP — are after is to impose a “solution” that is no solution at all; knowing the government has had insufficient time to audit the books they have inherited (but knowing what the true state of those books really is), Shorten knows the “sensible” solution of a $400 billion debt ceiling will see the Treasurer asking Parliament for additional borrowing capacity within a year from now.

It is true there is an element of politicking occurring on both sides; Hockey, Abbott and the Liberals scarcely need the poor coverage that would inevitably accompany a second attempt to raise the ceiling within 12 months — especially in light of their successful election campaign based around the “debt and deficits” theme in September.

And whilst Shorten is correct to note that every time the ALP requested an increase in the debt cap the Coalition attacked it “with every inch of their being,” it is Abbott who correctly notes the Coalition invariably allowed the requests to pass Parliament.

Shorten misses the point that the Coalition did not allow the government to default on its obligations — bringing government to a halt — by being obstructionist; rather, the need for large and spiralling debts in the first place was the focus of those Coalition attacks.

Yet in a breathtaking piece of hypocrisy given Labor in office went to extraordinary lengths to evade scrutiny of its actions, shadow Treasurer Chris Bowen said yesterday that

“We’re prepared to authorise an increase in the debt limit of $100bn…we obviously want to work co-operatively with the government to avoid any problems, but if they think they can just increase the nation’s mortgage to $500bn without being upfront with…this culture of secrecy over the state of the books, then we won’t be co-operative with that.”

So there you have it.

Raising the debt limit by $100 billion is responsible; raising it by $200 billion — when everyone knows a bigger increase is certain to be required — is not. The only logical reason for this “irresponsibility” is its interference with Labor’s next election campaign.

Readers who followed the political wrangling over increases to the debt ceiling in the USA recently will know that not only is this a destructive debate to have, but that once the genie of government shutdowns is out of the bottle, it’s very difficult to put back in.

Indeed, the USA now has this debate with monotonous regularity.

If the ALP fails to do the deal with the government now, the debt levels in 12 months’ time will be an irrelevant consideration when, just prior to Christmas, the government is unable to pay the wages or annual leave payments of the public servants so beloved of the ALP, or indeed any other spending measure not covered by existing Commonwealth funds.

The Damage Bill could well end up being paid by hundreds of thousands of Australians caught in the crossfire of Labor’s vapid politics, with the spillover effect into other sectors of the economy potentially exponential in nature.

Labor should pass the Treasurer’s request to increase the debt ceiling. If the Liberals have their sums wrong, they’ll be back for more soon enough — and that would be the appropriate and legitimate time to go on the attack, not now.