A fundamental contradiction lies at the heart of the Abbott Government. Its assumptions about our national security and its assumptions about economic management are in stark contrast. Something has to give.
Our foreign and defence policies are explicitly based on the assumption that the US will retain superpower status in the coming decades. But Joe Hockey’s fiscal policy is explicitly based on the assumption that countries that run deficits year after year will dwindle under the weight of their ‘unsustainable debt’.
The US deficit is currently around US$790 billion or 4 per cent of GDP and its debt has risen from US$5.7 trillion to US$14.1 trillion in the past 10 years. If Hockey believes Australia is on track to look like Greece then he must believe the US economy will soon resemble North Korea.
The US has been in debt for all but two of the past 239 years, but not even the Tea Party are that worried about the current US budget deficit now that it is at a ‘sustainable’ 4 per cent of GDP (where George W Bush left it). Indeed, now that the US budget deficit is ‘under control’ the far right in the US have returned to their old obsessions with birth certificates and NASA’s role in the climate change conspiracy.
Managing a national economy, according to Joe Hockey, is pretty simple. You simply need to ‘live within your means’ and spend less than you receive. I wonder if he has shared this advice with the US treasury, or with Julie Bishop. If Hockey really believes what he is saying about Australia then he must be terrified that we would hitch our national security wagon to what he must see as a dying American horse.
There is, of course, another explanation, one which provides better news for our national security, but worse news for Joe Hockey’s tenure as treasurer. The other explanation is that Hockey is running another simplistic scare campaign about both the state of our public finances and the need to force some tough medicine down the throats of the sick and the disabled.
The Abbott Government’s budget, and its political survival, revolves around convincing the Australian public that we are experiencing a budget emergency. In the words of Malcolm Turnbull: “We, as a government, have to do a better job at explaining the problem that we face. We do have a budgetary problem. You know, we’re spending more than we are receiving in revenue.”
The ‘problem’, however, isn’t that the public doesn’t understand fiscal policy; it is that the Abbott Government doesn’t understand how to read a balance sheet or a profit and loss statement.
If poor management is defined as spending more than you receive then corporate Australia is in real trouble. While Joe Hockey makes much of the fact that the commonwealth government is borrowing $100 million per day, corporate Australia is spending $580 million more each day that it receives. Sound the alarm bells!
Take BHP for example. Like the US Government, BHP lives in a permanent state of debt and deficit. Even during the mining boom, when revenues were at record highs, BHP managed to increase its debt by 300 per cent.
The fact that the Australian government is borrowing less than $5 per person per day is not evidence of a crisis. Indeed, with our population growing by over 1 million people every three years (at present rates) and interest rates at record lows, it’s arguable that we aren’t borrowing nearly enough.
The debt and deficit figures that Joe Hockey tries to scare us with conflate recurrent spending with spending on assets that will last for decades. Explaining why the best way to fund the infrastructure spending associated with population growth needed to support our rapid population growth is to cut welfare and health services is the real problem that the Abbott Government faces, and so far they have done a poor job.
The simple facts about Australia’s fiscal position are available to anyone with an internet connection. We are a low tax, low debt country who has tied its national security policy to a country with much bigger debts and deficits than our own. If Hockey’s simplistic approach to fiscal policy is right then we will have much bigger problems than a rising interest bill in the coming century. Luckily for all of us, there isn’t much chance of the Treasurer being right.