Although it’s their job, there should be a line in the sand in how much facts are construed to sell their party, both sides are guilty of this every election. This year, the Coalition made our current budget deficit sound like apocalyptically bad financial management.
I’ll start by disclosing that I’m an economic lefty and follow Keynes (I know, how mainstream). So naturally, I’ll be selective in only using evidence that conveniently supports my argument and placing less emphasis on works that oppose me. Surprise! Great economic minds often conclude that Economics merely offers a ‘perspective’ through which we examine the world and rarely, if ever, does it provide indisputable advice. However, sometimes anecdotal evidence strongly supports one ‘perspective’ over others and we should pay attention.
Everything is relative. While it would be nice for Australia’s government to have some money in our savings account, there’s a time to save and a time to spend. You shouldn’t be eying your savings when you need to pay for lifesaving medical treatment. For a bit of context, according to IMF estimates, the government’s debt is at 11.64% of Australia’s Gross Domestic Product (GDP), China is at 21.3% New Zealand is at 26.42%, United States is at 87.86% and Greece at 155.38%.
GDP is essentially the total worth of all activities in an economy. For simplicity, think of it as the total amount of money made by everyone in the economy during the year. That is to say, if we took 11.64% of the total amount of made by everyone in a year, we could pay back all the government’s debt. By comparison we would have to take all the wages of everyone in Greece for 1 and a half years to pay back the government’s debt. Australia has half the debt to GDP ratio of our neighbour New Zealand and we’ve just over half the ratio of China! Everything is relative and the context matters; finishing 100m in 11 seconds at the London Olympics is humiliating, complain about 11 seconds being slow after cardiovascular surgery just looks arrogant and/or obsessive. The world isn’t what it used to be in 2007.
Some people argue that we should still aspire to reach a budget surplus and that the Coalition’s attempt to reach a surplus is admirable. Aspiration is good; we should always aim to do better. However, I argue the way that the Coalition has complained about how horrific it is we can only do the 100m in 11 seconds post-surgery, is moving away from aspirational and towards destructively obsessive. Just look at Europe, the government cuts haven’t helped them the slightest. Up to a point government cuts can be very good. Eliminating political pork-barrels and certain government inefficiencies can be great. But was it really the focus of either side this election? Both sides had a low number of policies independently costed before the election (not counting last minute announcements). To be perfectly honest, I want the NBN. I think it’s worth spending more money now for a better system and it saves spending some money now and more money later upgrading it. Many other policies fall into the basket and considering that our current debt really isn’t really as alarming as some make it out to be, why couldn’t we do it properly?
Now by this stage people who disagree will want to explain how wasteful the government was in spending our surplus and creating the deficit. That just because our deficit is comparatively small doesn’t mean it was justified. To them I would recommend searching Joseph Stiglitz, a two time Economics Nobel Prize laureate, a nonpartisan foreigner who praised the actions of the Australian government during the GFC. I don’t pretend to know everything about the effects of government spending, but I think a Nobel Prize winner probably knows a little bit. But of course the article doesn’t justify some of the failures of the government over the past 6 years. The Home Insulation Scheme and million dollar school cafeterias come to mind. The article does however suggest that the money spent, however poorly, may have been what saved us from a collapse like that experienced in many other developed nations. And, unless there are claims that the Australian government caused the Global Financial Crisis then maybe the reality is just that it was just the hand it was dealt and claims that Labor is inherently bad at looking after the economy is probably inaccurate. In fact, Wayne Swan even won an award for being a half decent Treasurer.
I hate blatant lies aimed to mislead. I know, I know, it’s just politics. I was annoyed as anyone this election. But in relation to one of the largest points of contention surrounding the debate on economics, we were never heading towards a fiery unrecoverable budget deficit apocalypse.