How we stopped worrying about the financial apocalypse and started to enjoy life (beyond our means)


Malcolm Farr asks the question this afternoon, “How does the Coalition sell its budget cuts when our economy continues to grow?”

The short answer is: not very well.

As Farr writes, noting today’s milestone of a quarter of a century of continuous economic growth, the record unparalleled across the developed world:

For three years, two prime ministers, two treasurers, three Budgets and slogans about “leaners and lifters”, the Coalition continues to struggle with the embedded belief the Australian economy will continue to muddle through.

It has not been able to bring voters along in its quest — laden with urgency — to cut spending and cover any extra costs with economic growth.

The political task has, in fact, damaged the economic one. Refer: 2014 Budget.

Voters know the deficit is dangerous if not repaired, and that global uncertainty threatens, but the conditioning of the past 25 years is that something will rescue us from calamity. A generation holds this belief with varying tenacity.

The truth of the matter is that increasingly neither the people nor the government are serious about reining in spending, budget deficits and public debt.

Farr’s question itself points to a terrifying truth: even at a time the economy continues to grow, the government finds itself continually spending more money than it receives in taxes. Love it or loathe it, classical Keynesianism argued for deficit spending to stimulate the economy during recessions. The other half of the Keynesian equation was that during the economically good times governments would be building up budget surpluses to finance any future deficit spending. We now increasingly live in a post-Keynesian, or half-Keynesian era, where our governments continue deficit spending in good times and bad, and budget surpluses acquire the air of semi-mythical creatures, which one struggles to believe might have one time in a distant past walked the earth.

As I have written before the election,

The 2016-17 Federal Budget promised the government will stop running budget deficits – but only sometime beyond the forward estimates, inspired perhaps by St Augustine’s famous prayer, “Lord, grant me chastity and continence, but not yet”. Any promise or a plan made beyond the forward estimates – and therefore beyond two federal elections – is completely meaningless. But even if a miracle did indeed occur and Scott Morrison was right, the Australian government will not even stop accumulating debt – much less start paying it off – until sometime after 2020 at the very earliest.

When John Howard lost the 2007 Australia was virtually the only significant developed economy in the world with zero public debt, having spent a decade paying off what we then thought was Labor’s astronomic $96 billion liability. After six years of the Rudd/Gillard/Rudd government the debt stood at $257 billion. Today it’s $453 billion and counting. Does anyone seriously think it will ever be repaid?

Sometime over the past nine years first the Labor Party under the new-born Keynesian Rudd, and then the Liberal and the National Parties, tacitly accepted that government debt no longer matters and that there won’t be any problem if Australia becomes more like the rest of the developed world – laden with structural debt equal to anywhere from 40 to 100+ per cent of the GDP. Forget the Australian exceptionalism, now we can be more like all those vibrant European social democracies. Didn’t seem to do them any harm, did it?

It is not just our governments’ faults. Sometime over the past decade or so, roughly during Kevin Rudd’s first prime ministership, Australians by and large stopped worrying about public finances and decided to start living large, and by that I mean at the expense of the future generations of taxpayers and debt-slaves. This has been the greatest tragedy and the greatest collective moral failing in the area of our economic life.

At a time of growing public complacency about the government spending the government debt, we need a government which will double its efforts at responsible economic management and public advocacy for the idea that both individually and collectively we need to live within our means. Alas, I’m not optimistic.