Does Australia have high levels of public debt compared to other countries?
A recent Essential Poll asked people questions about Australia’s public debt.
This topic is incredibly important because perceptions of Australia’s debt influence the reality of Government policies- how much is spent, how much is borrowed, what is built and what is sold off.
Unsurprisingly, considering the focus put on ‘debt and deficits’ by both Labor and the Liberal Party, many Australians think we have high debt and that we need to pay it off.
According to the poll, a whopping 81% of Australians do not know that Australia has very low debt and therefore lots of room to borrow more if we want or need to.
25% of the respondents to the Essential poll believe that Australia’s public debt is higher than most other developed nations. A further 18% believe that it is ‘about the same’. That means that a full 43% are completely misinformed about Australia’s levels of national debt.
Another 29% think that Australia’s debt is ‘a little lower’ than other developed nations.
Only 19% correctly identified that Australia’s national debt is a lot lower than most other developed countries. (10% said they didn’t know.)
The Australian Federal Budget papers make it very clear- Australia’s debt is in fact a lot lower than other developed countries.
Australia’s net debt is currently $184.1 billion, or 11.7% of annual Gross Domestic Product.
Comparable countries have debt that is much higher. The UK’s net debt is around 83% of GDP. The US comes in at around 88%. Singapore, that bastion of free market capitalism, has debt to GDP of about 108%. Japan has a big 134%. Even conservative-run New Zealand, at 26.5%, and Canada at 34.5% have more than double and triple the net debt of Australia.
So, what of it? Well firstly, we now know that debt is not a big bad bogeyman. For a while there was a theory, put forward by infamous (-ly bad) economists Reinhart and Rogoff,that high levels of public debt, that is debt over 90% of GDP impeded economic growth. We now know that this is not true, the theory having been repeatedly debunked.
But debt isn’t a free ride. There is a cost of borrowing, interest needs to be paid on debt. But that interest is worth paying if the thing you buy is worth having now, and paying off over a longer term. (It’s also worth noting that the Government owes most of this money to…Australian investors! Much of the interest paid on Government debt goes into individual Australians’ super accounts. So even while its a debt for the Government, it’s a form of savings for many average Australians. We don’t ‘owe billions to China’.)
As anyone with a mortgage or a business knows, debt is a useful way to invest in something that provides value to you now and over time. Australia, and other nations, have always used debt to pay for things that people will continue to use into the future. The Liberal Party rhetoric about ‘leaving a financial burden to our children’ makes no sense when you consider that you also leave ‘our children’ things like roads and schools and hospitals. If the taxpayers of the 1920s had to pay for the Sydney Harbour Bridge up front a) it would have been desperately unfair on them as later generations used it much more than they did and b) it would never have been built.
Australians respond to neo-liberal fear mongering about ‘debt and deficit’ for a number of reasons. Firstly, in the last 30-40 years there has been a huge shift of national wealth away from working people to the very rich, as documented in Andrew Leigh’s new book Billionaires and Battlers: The story of Inequality in Australia (relevant excerpt here). Tax and workplace law and Government policies on trade and procurement have seen huge benefits flow to those who earn money through ownership of property rather than through work. It’s a process happening worldwide, as shown in this rather nifty video from the Economic Policy Institute and Robert Reich. This growing inequality also feeds a general societal malaise, as explained in this TED talk by Richard Wilkinson.
Secondly, and consequently, Australians feel incredibly worried about their job security, and the economic security of their families. Rebecca Huntley’s recent research has shown that job security is the number one concern of working people. In this environment the idea of being ‘in the red’ as a nation is disturbing and worrying for a lot of people.
Finally, there is a strong cultural element to our reaction to debt. The dominant public culture around money in Australia, whether it’s born of the Protestant work ethic, Catholic guilt or Confucian conservatism, is a very traditional frugality. Most Australians are unlike the aristocrats of the 17th Century who happily and publicly ran up enormous gambling debts, or the tribal chiefs of the Pacific who gain power and prestige by giving away huge amounts of wealth in ostentatious and (to our eyes) wasteful festivals of consumption. Whatever we may do privately, publicly we husband our resources, we admire people who save and scrimp and invest and grow steadily their little nest eggs. Someone in their 30s with a mortgage is ‘doing well’ according to family and friends, even if they have less disposable income than they did in their 20s, because they are seen to be ‘laying up treasures upon the earth’, and providing for their future. And in the economic system in which we operate it is probably wise, at the personal level, to avoid becoming over-stretched and indebted.
But this does not necessarily follow for the nation. I have pointed out elsewhere that Australia’s debt situation can be compared to a family on $100,000 a year living in a $11,000 house, and then wondering why it lives in such a rundown home. But for ‘rundown home’ read ‘nation with huge deficits in infrastructure, employment, transport, health, education, the environment, housing, sustainable energy…’
But this analogy isn’t really quite right. Australia is not an individual because it, hopefully, does not have working life of about 50-60 years in which to square away its debts and assets. Each new generation of taxpayers can simultaneously receive the benefits of its predecessors’ borrowings and also pay them off, while presumably borrowing more in order to grow the place bigger and better. In fact, a refusal to borrow money is akin to a vote of no confidence in the future of your own country. It’s saying ‘I don’t believe that future generations can pay this off, nor do they need the new bridges and schools and hospitals, or teachers and engineers or doctors’. A failure to borrow is essentially national suicide.
So what’s the alternative? Australia could borrow three times its current debt level and still be at the bottom of the debt table compared to other developed nations. In real dollars that would make $370 billion available. $370 billion to spend with little risk of inflation or cutting growth. It’s not ‘mortgaging our kids future’ or a ‘budget emergency’ as Murdoch and Hockey would have you believe. It’s borrowing to build a better future.
With that sort of money you could make a real dent in some of the nation’s problems and challenges. We could make an all out assault on poverty and inequality. We could all but eliminate long-term unemployment. We could easily pay for justice reinvestment programs that would help end the cycle of indigenous disadvantage. We could fix some major environmental problems such as soil salinity and deforestation. In terms of big ticket nation-building policies, we could pay for a switch to completely renewable energy by 2030 at a cost of around $250 billion according to this report by the Australian Energy Market Operator. The recent report on high speed rail says that we can link the entire east coast for $114 billion. The NBN is costing a mere $43billion- perhaps we could build it quicker? As we all know, investing in people offers big returns- we could spend an extra $10b a year on education from kindergarten to university for the next thirty years and have the best educated population in the world. Or spend on preventative health, after all we’re constantly told how the health budget will eat up every other budget in the next 20 years. Or what about science and research? With an extra few billion a year, I’m sure our biggest killers and thorniest problems would be moved a little closer to cures and solutions.
Of course each of these investments would also pay dividends. If these investments produced a modest 5% increase in GDP, the debt to GDP level would drop again to 31%, freeing up even more resources, and allowing more investment.
So is this a radical and unreasonable idea?
The CEO of National Australia Bank doesn’t think so, saying ‘if we continue to have the debate that suggests that all debt is bad, and not a debate on the productive use of debt, we will simply not be able to fund the degree of infrastructure this economy needs to thrive into the future’. His capitalist colleague, the ANZ senior economist also says that debt phobia (is) ‘hobbling chance to borrow and build’. No reputable economist suggests that Australia’s debt is too high, despite the frothings of Joe Hockey and Tony Abbott.
So why don’t we do it? Who opposes such an obviously good idea?
Well, the answer, as usual, is in greed and ideology, or more correctly greed dressed as ideology. There is a very good reason to keep unemployment artificially high by refusing to invest in infrastructure. It enables companies to chip away at wages and working conditions and to discipline the labour market. As Rebecca Huntley pointed out in her article about job insecurity, Holden just got its workers to agree to a three year pay freeze. You don’t get that compliance when there are jobs on offer down the road. Furthermore, investing $370 billion into Australia’s economy doesn’t have the high risk, high reward attraction that putting a similar amount into Asia or Africa will hold over the next few decades. Big Finance Capital would like to take that money and make super profits in gold mines in PNG and uranium in Angola, instead of steady returns in Australian bonds. These are the reasons why the Liberal Party want people to think that ‘debt is out of control’, so that we don’t borrow more and use it for public good.
But why do so many in the Labor Party fear debt? Many in the ALP are genuinely worried about the electoral impact of the perception that Labor is no good with money. This is legitimate, but this fear and subsequently miserly economic management has not reaped any political benefit for Labor. According to the IMF, the most profligate and spendthrift Government in modern Australian history was John Howard’s. The last five Labor Prime Ministers have all been orthodox economic managers, with Whitlam leaving Australia with zero net debt, as explained in this excellent article by Stephen Koukoulas. That has not prevented Australians holding the unshakeable view that the Liberals are good with money and Labor bad. It doesn’t take Freud to figure out that this has a lot to do with what the Americans call the ‘mommy daddy political divide’ whereby the Democrats are seen as warm and caring, while the Republicans are seen as ‘the firm father’. Labor politicians trying to outbid the Liberals as ‘firm fathers’ who cut and privatise are seen as betraying their cause, and are regarded with far more distaste and hatred than Liberal s doing the same. After all, they’re Liberals, it’s what they do: correct and straighten, cut and balance. No Labor politician can overcome this paradigm easily, and they shouldn’t try. Far better to expose the Liberals for the profligate wasters they are and criticise them for being politicians in the pockets of the rich, creators of unfairness. Labor should embrace its role as builder of the nation, but also emphasise the importance of equality. To do this it needs to make it commonly known that inequality has run rampant- a message that will fall on fertile ground for people experiencing job insecurity and difficulty paying the bills. Labor can say that it will address inequality by using the nation’s resources to invest sensibly and by spreading the cost over the generations that will benefit, assuring inter-generational equality as well. To do that, the labour movement needs to engage in a society-wide campaign for more debt. A good way to do that would be to ask:
What would you do to improve Australia with $370 billion?
So, what would you do with that kind of money? As well as answering in the comments below, please take this survey on NSW Labor’s Jobs and the Economy policy and share your ideas there as well. NSW could do a lot with one third of that money, which would be fair as home to a third of the Australian people. So, if you’re in NSW, what would you do with $120 billion or so?