Of all the lies used to justify the budget cuts, the myth that Australia has a debt “crisis” has been central. According to Treasurer Joe Hockey, national finances are broken, and the debt is unsustainable.
Hockey would even have us believe that he is attacking pensioners, the sick, the unemployed, and students because, he says, “We owe it to our children not to leave them with a mortgage that paid for our lifestyle.”
Frustratingly, Labor has no response to the tall tale of the budget crisis, insisting repeatedly that they too are for a surplus “in the medium term”—effectively promising a more drawn-out program of cuts.
Hockey has trotted out statistics such as, “Within a decade, total debt will be equivalent to almost $25,000 for every man, woman and child in Australia” and that “for the six years from 2012 to 2018, Australia is forecast to have the third largest increase in net debt” of advanced nations.
These figures sound impressive. But Hockey is playing with statistics. As John Watson put it in The Age “which would you prefer: a 100 per cent increase in a $1 debt, or a 10 per cent increase in a $100 debt? The first will cost you $1, the second $10. No contest”.
In fact, Australia has amongst the lowest debt in the developed world. Commonwealth debt stands just under 12 per cent of GDP. That is the third lowest in the OECD. The IMF has compared this to other country’s debt to GDP ratios—China’s stands at 22 per cent, Germany 83 per cent, Britain 89 per cent, the US 107 per cent and Japan 237 per cent.
Business representatives, on the whole, understand there is no debt crisis. Tony Shepherd, head of the Business Council of Australia (and head of the razor-gang that wrote Abbott’s budget recommendations!) admitted there is no immediate debt crisis like in Europe, stating the proposed cuts were merely to “make sure we don’t get into that sort of crisis”.
A real debt crisis begins when creditors start hiking their interest rates because they think debts will go unpaid. Australia is not in that situation.
It is entirely normal for advanced economies to live in debt. This is because governments are not “like households” (as neo-liberals seeking to justify cuts have claimed since Margaret Thatcher first used the metaphor).
For a start, states control fiscal and monetary policy, and can do things that households never can—such as devalue the currency, which has the effect of reducing the real value of debt to foreign creditors. More importantly, governments manage national economic growth. They often borrow money to put into large scale projects that bring either immediate or indirect returns—like a better educated workforce or improved infrastructure.
Governments can borrow money at low rates of 5 per cent, and with returns on social and infrastructure investments at 15 per cent and upward, more than make their money back. As economist Richard Holden explains, “It is just very different than thinking about maxing out your Visa card to go skiing.”
Business commentator for The Australian, David Uren, similarly argues that a debt “problem” is not based on the size of the debt, but the rate of economic growth: “Deficits are not a problem provided there is strong economic growth, and through the 1950s and 60s Australia registered tearaway growth rates averaging 5 per cent. It was enough to whittle away debts that, at the end of World War II, had surpassed 100 per cent of gross domestic product.”
In the last 100 years, Australia has run only 18 surpluses, and small ones at that. The problem for Australian capitalism is not deficits and debts, but sluggish growth and a small tax-base. During the global economic crisis, revenue from tax income took a big hit, at the same time as the Rudd government had to spend more money on economic stimulus. This is what traditionally happens during an economic downturn, when governments are expected to go into debt to cushion the impact of recession.
As a result net debt went from negative (meaning the Australian government was owed money) to around $192 billion at the time of Labor’s final budget. Tax income is still dropping as a result of weakness in the economy, revised down $35 billion over the next four years since the budget last year.
The Liberals are exacerbating this problem by cutting corporate tax rates by a further 1.5 per cent and killing off the mining tax.
If they were really worried about a debt crisis, they would be lifting corporate tax. Instead they are using it as an excuse for neo-liberal reforms and cutbacks. We need to call this lie out for what it is. There is plenty of money in the system for welfare, education and health. So let’s not hold back in our fight to bust this budget.
By Erima Dall