Yes, Kevin, Let’s Talk About “The Facts On Debt”

KEVIN RUDD and his ceaseless sideshow of senseless spin continues to roll merrily along; fresh from his dubious success on asylum seekers, Kevin and the ALP are turning their focus to debts and deficit. The Labor story may be correct in a literal sense, but in reality its dishonesty is breathtaking.

Labor last night launched a new 30 second TVC, entitled “The Facts On Debt,” which — as ever — I am more than happy to share. Readers can access this masterpiece here.

First, the facts — as Rudd presents them.

Is Australia’s debt, per capita, one of the lowest in the developed world? Yes.

Is Australia one of only eight countries in the world with a AAA credit rating? Yes.

Does Australia rate a stable outlook from the three major credit agencies? Yes.

Kevin’s facts are 100% accurate — if taken strictly at face value.

So why, in Rudd’s words, are we hearing a lot from the opposition about Australia’s debt?

And moreover, why is this an issue that resonates strongly with people?

Firstly, ordinary Australians (unlike ALP politicians trying to gloss over their own incompetence) are concerned with what happens in Australia, not in “the rest of the developed world.”

Such comparisons are meaningless to people living in this country; they don’t simultaneously live somewhere else.

Secondly,with Australia’s government debt running at about 25% of GDP (or about $260 billion), the figure is low by world standards, but it’s also 30% of GDP higher than it was when Labor took office in 2007.

In other words, the ALP has reversed Australia’s debt position by about $300 billion in six years: and remember, “Labor’s Black Hole” that was inherited by John Howard and Peter Costello from the Keating government in 1996 was just one-third of that amount.

And third, debt levels might be “low” enough to keep ratings agencies docile — for now — but the trend of the country’s debt is clear, continuous, and headed in one direction: up.

People are legitimately concerned about this government pissing borrowed money up against a post; the collapse of Greece, Cyprus, and the ongoing wobbles in places like Spain and Italy serve prescient notice on Australians of what will happen if it doesn’t stop.

Labor has — as I said — racked up a $260 billion debt in just six years; to achieve this, it first had to also spend $40 billion in banked surpluses accrued by Howard and Costello just to reach the point of zero.

Were the ALP to be re-elected — and were the rate of borrowings to continue at the same rate they have thus far in its term of office — far from being situated near the bottom of the pretty graph Rudd presents, Australia would sit near the top.

(That graph, incidentally, has been circulated in social media for most of the past year — especially by former Treasurer Wayne Swan — whenever it has felt the need to defend its sorry record on economic management and/or its addiction to borrowing money overseas).

A lot of people are frightened of what might happen if another $150 billion is added to the debt pile at the end of a further three years of Labor government.

Rudd (and Swan, for that matter) have traded on the Global Financial Crisis for five years now as a justification for the debt problem they have created.

Yet economic stimulus measures introduced by the duo in 2008 were slated to amount to $43 billion at the time. What is the excuse for the other quarter of a trillion dollars?

We have of course heard the cracked record about “deteriorating government receipts” countless times; Swan in particular was fond of stating how little money was rolling in.

Even the various taxes the ALP introduced — designed to reap tens of billions of dollars, but in reality unable to raise a sweat let alone money in any reasonable quantity — were no fix.

(Many of us never thought the day would arrive when the “tax and spend” party couldn’t even tax something competently, but that day is now…)

But none of this has stopped Labor from throwing $10 billion at its own policy inferno that is asylum seekers, or attempting to blackmail Liberal state governments into signing on to receive billions of dollars in new recurrent education funding, or wasting tens of billions of dollars on useless school buildings, pink batts, and all the other misdirected programs that chew up borrowed Chinese cash with nary a skerrick of value for money in sight.

And that’s before we even get to routine waste, inefficiency and general mismanagement and/or incompetence: all attributes that are bywords for every Labor government that has held office since World War II.

We are “hearing a lot from the opposition about Australia’s debt” as Rudd puts it, because a) the Liberal Party was left to carry the can in 1996 and fix the mess Labor left behind; and b) the mess is even larger and smellier and more rancid this time around, and will take longer — and require tougher measures — to fix it.

The end consequence of a Labor government these days seems to be to leave behind a state of virtual sovereign bankruptcy for the Liberal Party to fix.

Once the Liberals have done so, ALP campaign techniques essentially boil down to calling the conservatives a bunch of nasty, heartless arseholes for fixing what Labor should never have broken in the first place, and eventually the ALP reclaims office.

And the whole cycle starts anew.

Australians are fortunate that the country isn’t at the point of near-bankruptcy, or anywhere close to it. At least, not yet.

But if Rudd, Swan and Gillard can chew through $300 billion they didn’t have in just six years, people shudder to think what they might be capable of if permitted a further three years to continue their debt spree unabated.

This is why we are hearing a lot from the opposition about Australia’s debt.

And it’s why Rudd — with his too-clever-by-half truisms, which omit the half of the story that tells of an appalling record of profligate mismanagement by his government — can talk about “the facts on debt” until the cows come home, but will have no credibility at all.

Wrong again, Mr Rudd.


Is The Australian Economy About To Hit The Skids?

FORTUNE may be smiling on Tony Abbott in more ways than one; a softening world economy could suggest the coming election as a good one to lose. But with a reviled and politically discredited government set to be ejected from office in a landslide, Labor would make an easy scapegoat for any recession.

Most readers will by now have heard me say several times that I believe the Australian economy — the resources sector excluded — is already in recession, and probably quite heavily so.

Nobody, and least of all the self-important know-it-all Treasurer Wayne Swan, has made any pretence to contradict the contention that the minerals and energy sector has been holding Australia’s economic performance aloft for many years now.

I read an article by Terry McCrann in Brisbane’s Courier Mail during the week (and quite probably carried by other News Ltd titles as well) which makes the case, and compellingly so, that the proverbial backside is about to fall out of that sector of the economy too.

The orthodox wisdom would be that a recession (an officially announced one, that is, of two quarters of negative economic growth) inside the first year of an Abbott government would see the Liberals blamed for it.

The political times, however, are anything but orthodox.

I tend to think a recession — after Labor has left office — is probably the final, devastating blow post mortem that could be inflicted on the ALP and its reputation (such as it is) for economic management.

Ironically, one of the strongest factors to substantiate this lies in the so-called Global Financial Crisis, which struck during the first year in office of the Rudd government, and Labor’s handling of it — or at least its trumpeting of same ever since.

By consensus, it is recognised that the GFC was an externally driven event; that is, it would have occurred irrespective of who occupied the Treasury benches in Canberra at that time.

By shovelling some $47 billion at the economy (and voters directly) under the auspices of “stimulus,” Rudd and Swan were able to point to an Australian economy unique among developed nations in averting a recession as a result of the GFC.

Nonetheless, it was a damned-close run thing: one-quarter of negative growth, followed by another in which the economy recorded growth of just 0.1%.

Whether the Rudd government’s actions had anything to do with avoiding recession, or whether it was simply the case the mining industry would have taken care of that on its own at that time, remains a moot point.

But the $47 billion in (often rorted and abused) stimulus spending set in train a behaviour pattern that has since seen the Rudd-Gillard government rack up another $200 billion or so in additional debt since the GFC in 2008.

Swan, in particular, has dishonestly and consistently tried ever since to convince anyone who would listen that the Australian economy has faced a revenue problem, and that government receipts collapsed in 2008 and have never really recovered.

His own budget documents, however, show that revenue has increased by an average 7% each year since the ALP took office — despite the GFC — and that they increased by that amount in the past year despite Swan tabling a budget that included an $18 billion deficit.

So the problem isn’t revenue at all; it’s spending. This is a critical point we’ll come back to.

Bristling with class envy and resentment, the ALP under both Rudd and Gillard set about finding a way reap billions of additional tax dollars from the mining sector to help offset the profligate and uncontrollable spending spree to which it had become addicted.

It is a matter of record that the mining tax, in its first full year of operation, has raised next to no money.

Yet the damage was done, as fears of sovereign risk and considerations of increasing costs and regulation punctured confidence within the industry.

Investment in mining projects began to fall, and some projects worth tens of billions of dollars in foreign investment and orders were simply abandoned.

Today, we face a major trading partner in the US, whose economy is finally showing signs of sustained growth after six years of torpor.

This would ordinarily be a good thing, except for the fact — as highlighted by McCrann — that the US is also flooding world commodity markets with the same resources, and in huge quantities, that Australia’s minerals boom has been predicated upon.

Between the mining tax and the carbon tax, Australia has become far less competitive as a supplier of minerals and ores on world markets. The falling value of our dollar — if sustained — will ameliorate the effect of these to a point, but until they are abolished these measures will remain a killer of primary sector activity.

This is exacerbated by the fact that China — long the reason a mining boom took off in the first place — has been deliberately slowing its economy, with the direct consequence that the appetite of is industrial sector for raw Australian materials has eased.

And whilst the re-emergence of the US will do little to assist the sector, it’s a problem compounded by the fact Japan — traditionally another key destination for Australian materials — remains moribund economically, with continuing weak demand for the kind of things Australia has to sell.

Further afield, Europe is almost a basket case, despite signs that the UK economy is coming back to life; the EU remains a key destination for Australian exports, but the Eurozone as a whole is depressed, and hardly a growth market for Australian product.

It needs to be remembered, too, that just as we sell resources and mineral ores, so do South Africa, a number of countries in South America, and the US — which means there are just as many players (if not more, counting the US coal and shale gas industries) competing for larger slices of a rapidly shrinking pie.

This is where the discussion of government debt comes into play, and why Labor will be damned for the coming recession in Australia long after it has been removed from government.

As the Australian dollar falls, it is true our exports will become more competitive in price; the flipside is that with most government debt priced in US dollars, falls in the value of our currency increase the amount that must be paid to service or retire that debt.

Interest rates in Australia are already low — historically low — and despite the bleating of Swan, they are low because the economy, mining sector excluded, is virtually moribund.

We are already seeing sharp falls in company profits from the first firms reporting this financial season, and unemployment is beginning to rise despite this government fiddling the method by which unemployment numbers are calculated to push them downward.

If the economy plunges into official recession, at some point the Reserve Bank will need to lift interest rates to support the currency to contain the amount of money required to make interest payments on government debts. Even now, with the dollar still near parity with its US counterpart, the annual interest bill is $7 billion, and rising.

And this is the point.

Australia might have low debt “by international standards” — a cavalier justification for mismanagement indeed — but those debts are already high enough to cost $7 billion per year to service with a currency near parity, and stand to become more expensive in proportion to whatever degree the dollar falls against the greenback.

Add into this mix steep rises in unemployment and the consequent explosion in the nation’s welfare bill, along with falling corporate profits that lead to a real decline in Commonwealth revenue rather than an imagined one, and the economic picture that begins to emerge is bleak indeed.

In such a situation, the capacity of a government — any government — to respond with stimulatory measures would be hamstrung; with a budget already in heavy structural deficit and an interest bill on existing borrowings making additional loans punitively expensive, the effects of such a recession would be brutal, savage, and enduring.

You’d think this might be a good election, viewed this way, to lose; but the irony is that by having created the environment in which such a scenario may well emerge, Labor will attract only the blame for any recession rather than obtaining a political weapon with which to try to beat its way back into office.

Indeed, such a recession could entrench the Liberal Party in government for decades, as the memory of Labor mismanagement is endlessly recycled for public consumption in a campaign strategy the ALP would have no answer for.

It’s a salutary warning to Labor types every time they run around, publicly thumping their chests, and holding up their economic management “credentials” during the GFC as proof of their fitness to govern.

It’s perverse, but those stimulus measures have likely exacerbated the severity of any recession Australia might suffer.

And whilst it’s an old story, the ALP’s eternal penchant for taxing and spending like drunken sailors, racking up enormous public debt for someone else to clean up, won’t help.

This time, the recession will be impossible to avoid, and it will make anything Rudd, Gillard and Swan think they have to boast about pale in comparison.

If the Liberal Party is able to show a causal link between a collapse in the mining sector and the recession that results from it and Labor’s taxation and borrowing practices, the next Labor government will be a long time coming.

And in a final, exquisite irony, had that $200 billion in extra debt gone to finance roads, rail, and other desperately needed infrastructure — rather than paying for more public servants, pay rises for public servants, spending programs delivering little benefit, and to finance economy-dampening measures to suit the unions’ wishes — then employment in Australia would be booming, irrespective of what might transpire in the mining sector.