If you do not manage debt, debt manages you.
As Harvard professor Niall Ferguson wrote in The Weekend Australian last weekend, “explosion of public debt hurts economies in the following way, as numerous empirical studies have shown. By raising fears of default and/or currency depreciation ahead of actual inflation, they push up real interest rates.” This is not what Treasury secretary Ken Henry told me at Senate estimates when he said, “No disrespect, senator, but that is a gross oversimplification of economic understanding.”
I was very interested to read further what Ferguson had to say: “Higher real rates, in turn, act as a drag on growth, especially when the private sector is also heavily indebted.” From the information tabled in estimates, that is us.
It is a statement of the bleeding obvious that we cannot have government debt growing the way it is growing. The Labor Party does not want to grasp the nettle to manage the debt. The latest tactic of avoidance is that Finance Minister Lindsay Tanner talks about net debt but generally leaves out the word sovereign.
Let’s talk about the difference between gross sovereign debt and net sovereign debt. Net sovereign debt is gross sovereign debt less money that is identifiable in such places as, but not the entirety of, the Future Fund. So Tanner must presume we can get money out of the Future Fund to pay our gross sovereign debt. But the Future Fund covers public servants’ superannuation liability, so we have slight problem when they retire.
Net sovereign debt also relies on the payment of HECS debt. All I can say about immediately collecting this liability, if required, is good luck.
The second strand of Tanner’s argument is that there are other countries in a worse position than we are. Once more, this is a case of “I only had five beers at breakfast so I’m in a much better place than the person who had a bottle of scotch with his wheaties.”
Debt is less of a problem when it is backed by an asset that is readily exchangeable to restore the wealth of the public coffers. However, I do not know how exchangeable the ceiling insulation will be when we need to repay the debt.
I’m not quite certain what the international market is like for second-hand school halls if we need to send them back. I suppose we could have a crack at getting the $900 cheques off the public, but I don’t like our chances.
We have, approximately, a $90bn package of eclectic economic trinkets, noted as stimulus, that would look good hanging from any rear-vision mirror in a car doing hot laps on a Friday night in downtown Dubbo.
Did we get something substantial, clearly identifiable in the form of the Snowy Mountains Scheme, or inland rail or massive water infrastructure to alleviate the problems of future droughts? Did we invest in a method to encourage people in a growing population to settle away from the crowded capitals of Sydney, Melbourne and Brisbane? No, we didn’t.
What we did get were big contracts to big firms with big price tags, to make big statements that didn’t deliver big outcomes.
What we got was appalling management of programs and costs as seen in the ceiling insulation fiasco, the biggest flop since the Leyland P76. Let’s take Tanner at his word that he “didn’t dot the i’s and cross the t’s”, as he told David Speers on Sky News. Let’s just file the ceiling insulation under R for res ipsa loquitur.
Let’s see what other little weeds have been delivered in this fiscal bouquet. We had the $850 million blow-out in the solar panel program; very interesting, when it was only going to be a $150m program. We had the $17m that went west with the national broadband network tender program.
There was the $450,000 a year, plus super, job for ALP mate Mike Kaiser. Not a bad job if you can get it, and you won’t because applications from the subset of the Australian populace, everybody but Kaiser, were not accepted.
Let’s talk about the $5bn blowout in the interest expense in the forward projections. Let’s talk about the $1bn blow-out in the computer thing for the schools and also let’s talk about the fact only about half of the children will get these computers, and even some of them won’t be able to use them because they can’t get online. Let’s talk about the abundance of faith exhibited by Labor when it tells us of the eight consecutive $19bn surpluses that are required to bring the budget back into orbit when the continued stresses on the international economy are clear and evident, especially in Europe. Let’s talk about all these things, then stick them to wall with a piece a Blu-Tack and compare them with the more salient and expected outcomes back here on planet Earth.
The Labor Party has marked out its territory. There is nothing to be concerned about. You can trust it. Its members are economic conservatives. Well, the three great lies that we always talked about when dealing in business are these: I’m from the government, I’m here to help; the cheque is in the mail; trust them, they are not like that.
Barnaby Joyce is the Coalition’s finance spokesman.