To be sure, the Coalition government displays a stubborn unwillingness to address debt. It continues to shirk serious, structural repair such as fixing capital gains tax and negative gearing distortions on the revenue side, to say nothing of taking a tough approach to tax avoidance by giant multinationals and local big business.
In 5½ years, the Coalition has doubled the nation’s debt. Whereas most of the developed world increased their gross debt above 80 per cent of GDP during the GFC, Australia’s ratio was just 16.8 per cent in 2013 when Labor left office. Today’s figure is 42 per cent. Australia’s gross debt numbers $543 billion, up from $175 billion. The government’s policy of banking extra revenue generated by the economy and offsetting all new spending with reductions elsewhere in the budget has been observed more in the breach. International comparisons underline its poor debt management: from 2013 onwards, governments have been steadily repaying debt. Germany’s fell from 81 per cent to 63.9 per cent at year’s end 2017. Ireland’s debt is down from 120 per cent to 68 per cent. New Zealand’s debt is down from 34 per cent to 31 per cent.
Yet there has never been a more exciting nor important time to tackle debt. Numerous examples exist of largesse which could be easily cut from the budget. Take the half a billion dollars of taxpayer monies gifted to the Great Barrier Reef Foundation. Think how much better off the budget and our debt position might be had this wasteful use of taxes been avoided. Or what could have been funded: a good chunk of the fast rail proposed to link Melbourne and Geelong, massive capital investment in rural and regional hospital upgrades, or the bill to fund the prep to year 12 educations of more than 7000 young Australians. Dare we say real investment in renewable energy.
Numerous examples exist of largesse which could be easily cut from the budget.
Last budget I proposed that the then treasurer, Scott Morrison, introduce a bipartisan National Debt Commission (NDC) that would take submissions from businesses of all shapes and sizes, unions, academics, entrepreneurs, civil society organisations, state and local governments and be tasked with making recommendations on budget repair and debt reduction that are fair, credible and do not place a disproportionate amount of the burden on working Australians, young or old, or our most vulnerable.
Not unexpectedly, he didn’t take up my offer, but it is precisely the kind of idea which could avoid such wasteful and debt-expanding spending. The now Prime Minister and his Treasurer should seriously consider the NDC along with another tangible move towards tackling debt: reinstating the debt ceiling as a percentage of GDP.
In 2013, Australia’s debt ceiling was scrapped by the Abbott government with the support of the Greens in parliament, a statutory cap on government borrowings passed into law by then-assistant treasurer Chris Bowen in 2008. If we are serious about keeping one eye on long-term fiscal responsibility, then we need the discipline of a debt ceiling.
This should be done so by fixing the ceiling as a percentage of GDP, and if need be reset by the NDC, rather than the government of the day. A reasonable starting point is 20 per cent, which is where health spending as a proportion of GDP will sit over the next decade. It will mean we can afford to pay for what is projected to be the fastest growing budgetary item and avoid the scenario of governments breaking the piggy bank to pork-barrel in times of electoral peril. If it right to cap tax revenue as a percentage of GDP to not exceed 23.9 per cent of GDP why not borrowing? A debt ceiling will incentivise savings over spending. The NDC’s role would take the politics out of raising or lowering the ceiling. Many Liberals support the reintroduction of the debt ceiling. It would receive bipartisan backing and go a long way to achieving surplus on average “over the economic cycle” or in the medium term.
Josh Frydenberg will almost certainly announce a surplus on Tuesday. He cannot kick the debt can down the road for another government. This budget represents an opportunity for an ambitious politician such as Frydenberg to display long-term vision. It’s not the time for vote-buying tax cuts based on temporary revenue that may harm the job of debt reduction and do nothing to stimulate wages. In a climate of weak global growth and even weaker wages growth, the last thing we need is a repeat of the final budget handed down by the Howard-Costello government in 2007 that sent the budget into a structural deficit at the worst possible time.
Is the man touted as a future Liberal PM up to the task? Rebooting a debt ceiling is a good first step.
Nick Dyrenfurth is executive director of Labor think-tank, John Curtin Research Centre.