The dirt on debt

In the six years of the Rudd / Gillard Labor government from 2007 to 2013, gross government debt increased by $225 billion, from just under $50 billion to just over $273 billion. These figures are from the government agency that borrows money on behalf of the government, the Australian Office of Financial Management.

The escalation in government debt during the Labor years was due to the budget deficits which were driven by lower revenue as the global financial crisis hit tax payments to the government and were also the result of deliberate stimulus measures as the government implemented a range of one-off, big spending, policies to avoid a recession.

It was a policy response that in 2011 meant Australia attained the coveted triple-A credit rating from all three major credit ratings for the first time in its history.

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In simple terms, government debt rose by an average of $38 billion a year under Labor and its policies.

Under the current Coalition government, which has delivered three budgets and four Mid-Year Economic and Fiscal Outlook updates in almost three and a half years, gross government debt has increased by a further $203 billion to a record $476 billion. This has happened despite a strong world economy, interest rates locally being cut to record lows and the export sector being helped by a competitive level for the Australian dollar.

The annual increase in government debt under the Liberal Government has been an average of $60 billion per year, some $22 billion a year more than under the previous Labor administration.

But not only has the Coalition accrued debt at a vastly more rapid rate that the previous Labor government, there is no evidence of debt stabilising, let along being “paid off” as the Liberal Party pledged to prior to the 2013 election. Indeed, in Treasurer Scott Morrison’s budget update last month, the current policy framework has government debt reaching $600 billion by 2020.

It is also worth noting that under Labor, Australia not only avoided recession when the rest of the world went into an economic tailspin, but the policy settings kept the unemployment rate at an average of 5.1 per cent through its whole term. Never once did the unemployment rate rise above 5.9 per cent during Labor’s six years.

During the period of Coalition government since 2013, the unemployment rate has averaged 5.9 per cent, it has been 6 per cent or more for about half the time and the most recent data shows the current unemployment rate at an uncomfortably high 5.8 per cent.

These very basic facts on economic policy management highlight a number of vital issues. Importantly, the Coalition government has gone backwards in its attempts to manage the budget with debt accumulating at a 35% faster pace than when Labor were in power. Even more importantly, the Turnbull government is failing in job creation and lowering the unemployment rate which remains high.

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The current government forecasts provide no comfort for those wanting government debt levels to be contained and / or a lower unemployment rate. The budget will be in deficit for at least the next three years and the unemployment rate is forecast to remain around 5.5 per cent for the next couple of years.

With Parliament set to resume next week, there is nothing on the government agenda to make a material difference to the budget balance or unemployment. It is hardly the stuff of good economic management from a government that claims to be a superior economic manager.