Public Debt I

Richard Denniss has an op-ed in the AFR today repeating the usual lines:

Australia’s level of public debt is among the lowest in the world. In fact, at less than 10 per cent of GDP, the Commonwealth’s Net Debt is so low that the financial sector has urged the Gillard Government to issue more government bonds than is actually necessary to ensure the ‘liquidity’ of the government bond market. In other words, investors are keen to lend more money to the Commonwealth than the Commonwealth actually needs and, in order to keep the finance markets happy, the Gillard Government is obliging.

The first one-and-a-half sentences are misleading. Here are some great graphics from The Economist.

In 2007 public debt per person for Australia was $6,719.73. This year it is $12,469.67. It isn’t good enough to say that our debt is low by international standards (it isn’t) when the burden of that debt has doubled over the past five years and it has to be paid back by Australians.

(HT: Julie Novak)

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65 Responses to Public Debt I

  1. Rabz

    Magnificent. What a triumph. And achieved in a mere five years!

    This is criminal. ruff and dullard, as the principal architects of this outrage should be jailed and held financially liable for this disgraceful stupidity and incompetence.

    Well pointed out, Sinc. Low debt my arse.

  2. the only thing bond buyers want to ensure is bonds for leveraged carry trades, arbitraging our rates against loser states

  3. Mother Hubbard's Dog

    Just the interest on that debt would be $400 per person per year. That wouldn’t be much of an issue if they were making good use of the borrowed money. But…

  4. Myrrdin Seren

    “In other words, investors are keen to lend more money to the Commonwealth than the Commonwealth actually needs and, in order to keep the finance markets happy, the Gillard Government is obliging.”

    I am sorry – today is Grumpy Thursday.

    Is this guy seriously suggesting that the GillRudd Rolling Trainwreck has run up huge deficits because they just wanted to keep the bond markets happy ?!

    Because Gillard and Co are lackeys and lickspittles of the international finance cartels ??

    Where’s Graeme Bird – the opinion editor at the AFR is obviously open to new and imaginative pieces on finance markets and governmental relationships.

  5. Driftforge

    Wouldn’t the proper response to their being more demand for government bonds that supply be to lower bond rates?

    I’d like to see that graphic for ‘change in debt per person’..

  6. Driftforge

    They have change in debt, but unfortunately its a percentage change from previous year – utterly useless as a comparison year to year, especially starting from a low base.

  7. Capitalist Piggy

    What is often overlooked is that private debt in Australia is much higher. As a share of GDP, its higher than most countries, including most of the PIIGS.

  8. Steve D

    Is there any similar exposition available on where the money is coming from?

  9. Rabz

    private debt in Australia is much higher

    The vast majority of said debt would be mortgages, due to our overpriced property stock.

    The overpricing of which is caused entirely by braindead politicians.

  10. Chris M

    Thanks for posting this Sinc, very enlightening.

    Now is a great opportunity for countries with low debt and low regulation to really power ahead, they just need to get government corruption under control (the latter problem appears to have also grown massively in the last five years in Australia).

  11. .

    Note little PNG is a low debt nation and has stellar macroeconomic performance since 2000.

  12. JC

    Is Richard Denniss a sheltered workshop employee? No, I know he works for the Australia Institute therefore making the question redundant, but suggesting this:

    the Commonwealth’s Net Debt is so low that the financial sector has urged the Gillard Government to issue more government bonds than is actually necessary to ensure the ‘liquidity’ of the government bond market.

    … is new level of imbecility even for the Australia Institute.

    Two things Wichard. The bond market can anchor off a AAA rated private debt or even the swap rate for that matter. Charters can be changed to allow for AAA investment.

    Secondly, the government can if it chooses, can also issue debt for financial market liquidity and still run surpluses.

    I would have thought that since the departure of religious guru, Happy Hamilton from the Australia Institute, who at one stage seemed to spend some of his time leafing through national department store chain kiddie underwear catalogs and declaring them pornographic that things could have changed for the better. I wasn’t of course expecting big things from them as I’m realistic, but kiddie steps would have been good.

  13. John Comnenus

    The Australia Institute and logic ….. Does not compute, incompatible terms.

    Is this just Federal debt? Or does it include the States? If it includes state debtmQLD would be as red as France thanks to the wise economic management of Beattie and Bligh.

  14. JC

    John C

    And of course in this climate an Australian government would not let a state default so it ought to be considered as part and parcel of total debt obligations.

    there’s 90 billion of state in Qld, Bligh and Beattie accumulated for a start. Anyone have the rest?

  15. JC

    and add in the real cost of the NBN which will be around $150 billion, which is off balance sheet.

  16. John Comnenus

    Rabz, JC,

    Stop the relentless negativity. Our real debt is double what is produced plus climate bank and NBN. We are the envy of the world because all our liabilities aren’t included and we aren’t considering the impact of one and a half decades of State Labor.

    We are leaders in creative accounting.

  17. Myrrdin Seren

    JC

    Self-evidently I agree with you about the Australia Institute Mad Hatter worldview.

    What is truly astonishing is the AFR publishing something that would at best sit on The Drum or Crikey ?

    It’s like they want to go out of business.

  18. Robert Crew

    I’m sure it has been mentioned, but the Future Fund should not be subtracted from gross debt, because the funds may not be applied to the payment of debt, they are to pay for that other great unfunded, off-balance-sheet liability – public servants super. The states also have massive unfunded super and workcover obligations.

  19. John Comnenus

    Good to see our total public debt is in the same category as Argentina. It fills me with confidence to be in such august company. Swan has overseen the Argentinianation of the Australian economy. Well done Labor and your Labor values.

  20. We are the envy of the world because

    The rest have fucked up so spectacularly that even our horrid state of affairs is preferable.

  21. Oil Shrill

    Just saw Paul Krugman interviewed on the BBC advising governments to increase debt and spending

  22. H B Bear

    The real finance risk for Australia was – and still is – wholesale bank financing. If that seizes up Australia’s banks aka Oz Building Societies might have a few problems. Add a bit of a rise in unemployment, some forced selling into the housing market and continued downward pressure on house prices and things could unravel fairly quickly.

  23. Pingback: PM doesn’t like IPA’s lunchtime libertarian seminars : Hey… what did I miss? | Institute of Public Affairs

  24. .

    Good point. It nearly ruined at least two banks and a non bank lender back in the GFC.

  25. manalive

    “……the debt we create is basically money we owe to ourselves, and the burden it imposes does not involve a real transfer of resources….” Paul Krugman.
    The transfer is between generations, the debt will be paid one way or another by future generations.

  26. oil shrill

    The debt or at least the interest on this represents an opportunity cost

  27. el-tee

    The level of government debt is actually not that important in an economy like Australia’s. It’s a mistake to think of government debt as being like an individual who has a balance on their credit card, just like it’s a mistake to think as government surpluses as being a form of national savings.

    Now I am not saying that constantly running large deficits would be good, but there is a lot of misunderstanding about what government debt is, and the role it plays in the monetary system. The federal government doesn’t actually have to “pay back” debt – it can and should carry some level of debt indefinitely. Just like the Australian people (in aggregate) will carry some amount of mortgage debt indefinitely.

    Government debt is not something to be concerned about given Australia’s situation.

  28. I’d like to hear Krugman’s views of Anders Borg..

  29. manalive

    Government debt is not something to be concerned about given Australia’s situation.

    Is that Greek philosophy?

  30. Oil Shrill

    El-Tee, and if the debt is spent on pink bats, so called clean energy, BER, NBN, various green schemes like flummerkes $90m, rather than on productivity improvements and infrastructure, thats ok with you?

  31. Biota

    el-tee, I’m no economist but I’ve heard you arguments before and don’t they ignore the impact of government debt on the value of the currency? I don’t see how debt can be run up in the way of the last few years and not reduce buying power, particularly when there is such a large under-the-table component.

  32. JC

    Warning. Warning.. El-Tee is an MMT’er. We’ve had that infestation before and they’re aren’t pleasant.

    Next up, El_tee gives us the GDP equation and tells us what happens by moving the variables around.

  33. JamesK

    Haaretz:

    “Rather than describe how deeply I care about Israel, I want to be blunt about how we got here,” Obama said, reminding his guests that he had so many Jewish friends in Chicago at the beginning of his political career that he was accused of being a puppet of the Israel lobby.

    In the Senate, he said, his support for Israel’s qualitative military edge has been unwavering.

    Obama added that people judged his support for Israel because of the differences between a center right government in Israel and center-left in the U.S. – because he pressed Netanyahu too hard in his belief that it was time to seize the moment and pursue peace initiative.

    Obama also stressed he probably knows about Judaism more than any other president, because he read about it

    What a c-cks-cker Obummer is.

  34. Driftforge

    They’re all pretty crazy ideas.

    Income tax is a pretty crazy idea. The fact we suffer it does not make it less crazy.

  35. steve

    I’m not an economist, as I’m sure JC and dot will point out. But surely what matters is ratio of debt to income. A bank will lend me money based on my ability to repay, based on my income, not on how many people are earning to repay the debt. Household income matters, not my personal income.

    In what way is debt per person a useful measure of anything? On that basis a country with a large population, with 90% unemployment, would be much better off than a country with low population and full employment, assuming the same total debt.

    That doesn’t sound like a reasonable argument to me.

  36. el-tee

    El-Tee, and if the debt is spent on pink bats, so called clean energy, BER, NBN, various green schemes like flummerkes $90m, rather than on productivity improvements and infrastructure, thats ok with you?

    That’s a good point Oil Shrill but no, I don’t think that (and nor did I say or imply it).

    The important thing is that govt spending is directed towards productive assets or areas, not whether the budget is in surplus or deficit.

    So what is a productive asset? Home insulation? No. Broadband network – yes probably (whether this NBN is the right way to do it is another question).

    To answer your question with some other questions: do you think wasteful spending is ok, just as long the budget is not in deficit?

    More importantly, is spending on productive assets bad if the budget is in deficit?

  37. JC

    The important thing is that govt spending is directed towards productive assets or areas, not whether the budget is in surplus or deficit.

    Oh yea, great. Show a government in the west that has followed this rule for the past 50 years.

    So what is a productive asset? Home insulation? No. Broadband network – yes probably (whether this NBN is the right way to do it is another question).

    No it isn’t because it dovetails into the first past of your comment. The NBN was never really costed correctly, wrecks competition and should have been built and owned privately.

    To answer your question with some other questions: do you think wasteful spending is ok, just as long the budget is not in deficit?

    No and yep.

    More importantly, is spending on productive assets bad if the budget is in deficit?

    Yep, because the government cannot by and large spend productively.

    You’re talking garbage.

  38. el-tee

    el-tee, I’m no economist but I’ve heard you arguments before and don’t they ignore the impact of government debt on the value of the currency? I don’t see how debt can be run up in the way of the last few years and not reduce buying power, particularly when there is such a large under-the-table component.

    Biota, government debt has been rising and yet so has the value of the currency – buying power has increased. There is only a very weak relationship (if there is any at all) between the level of govt debt and the currency.

    I am not suggesting there should be no restraint on government spending. But the focus on whether the budget is in deficit or surplus is misguided. The main danger from government spending is that it can cause inflation, either because money is spent on unproductive things (handouts etc) or because the economy is operating close to capacity.

  39. JC

    Biota, government debt has been rising and yet so has the value of the currency – buying power has increased. There is only a very weak relationship (if there is any at all) between the level of govt debt and the currency.

    Why would a rise in debt and an apprecaition in the currency by exclusionary, you dill. In fact they can go hand in hand as demand for capital spills over in the external balances. There is nothing at all surprising about that in of itself although the link is certainly not always apparent.

    I am not suggesting there should be no restraint on government spending. But the focus on whether the budget is in deficit or surplus is misguided.

    Tell that to Greece.

    The main danger from government spending is that it can cause inflation, either because money is spent on unproductive things (handouts etc) or because the economy is operating close to capacity.

    Absolute garbage. Inflation is not a consequence of badly spent money. Never has been

    You are talking pornographic economic.

  40. perturbed

    I’d like to hear Krugman’s views of Anders Borg.

    A terrified stare, followed by the bubbly, squirting explosion of diarrhoeal terror.

  41. Oil Shrill

    El-Tee. of course i dont think wasteful (whate er that is, accordinv to ur value judgement) expenditure is ok provided governments do not run deficits, however if governments are compelled to keep expenditure within revenue there is a discipline over spendi.g that ensures a high level of rigour on how taxpayers money is spent. In theory at least.

  42. Oil Shrill

    El-Tee spending on productive assets is always beneficial, even if it results in government deficit spending, as if it is productive it will increase productivigy, redjce business costs, expand GDP and should increase future taxation receipts. At least that is what the textbook said. In actuallity governments never spend productively. Even the snowy scheme licked the least productive option to appeasd state governme.t sensitivitkes. Politics always stjffs it up.

  43. WadeJ

    The concern and metric in most papers is debt to GDP, not debt per person, or total debt. On that metric Australia is likely one of the lower debt countries. A debt of 10% of GDP is serviceable over the long term and I don’t think something to worry about.

    Now the fact the money has been wasted by one of the most incompetent and corrupt governments Australia has ever had is a different issue, and one that hopefully will be remedied as soon as the current Gilliard government crumbles.

  44. TerjeP

    Public debt per capita isn’t that meaningful in this debate. It’s public debt to GDP that should be cited.

    Who is the high debt individual, a guy on a million dollar salary who owes $10,000 on his credit card, or a guy on a $20,000 income who owes $9000 on his credit card?

  45. .

    The level of government debt is actually not that important in an economy like Australia’s.

    Lies.

    Biota, government debt has been rising and yet so has the value of the currency – buying power has increased.

    Purchasing power also increased when we paid off debt.

    Please don’t have kids – they will be retards.

  46. TerjeP

    A low debt mentality is a good political discipline but I don’t believe government debt is automatically an economic problem. What is a problem is unproductive public sector consumption. Obviously public debt is primarily a problem in so far as it enables unproductive public sector consumption. As such I support debt capping measures for the purposes of good governance. However I can readily envisage situations where a deficit funded reduction in tax rates would be in the longer term national interest. And the same may be true of deficit funded infrastructure in so far as there are institutional barriers to the private sector doing the job.

  47. .

    However I can readily envisage situations where a deficit funded reduction in tax rates would be in the longer term national interest.

    How about the tax cut AND a balanced budget? Why wouldn’t that be better?

    Australia does not spend so much on the military that deficits with a tax cut are unavoidable.

  48. JamesK

    A low debt mentality is a good political discipline but I don’t believe government debt is automatically an economic problem

    It usually isn’t until extreme. It’s opportunity costs and the immorality of stealing from future generations when the debt does not fund structural productivity

    However I can readily envisage situations where a deficit funded reduction in tax rates would be in the longer term national interest.

    Perhaps and on Planet Bullshit that policy thought bubble might actually play out as envisaged.

    And the same may be true of deficit funded infrastructure in so far as there are institutional barriers to the private sector doing the job.

    What are your original thoughts on debt funded infrastructure?

  49. TerjeP

    dot – We don’t get perfect policies. I tend to make relative comparisons. But so long as you put it on the table I think Australia should be cutting both tax rates and public spending. If it were up to me we would cut tax rates every budget, funded from economic growth and based on a real per capita cap on public spending.

    Greece on the other hand ought to be looking primarily at substantial tax rate cuts and microeconomic reform. If there was a credible political agenda to do so then perhaps it could negotiate something with it’s creditors. It should be cutting public spending, however growing the private sector should be a higher priority. Although obviously a lot of public sector jobs ought to disappear. Of course I acknowledge that all of this is probably beyond the capacity of the political system and something drastic and painful is probably the only way out.

  50. TerjeP

    I’m certainly not a Keynesian but I think the following quote from Keynes is pretty spot on:-

    Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget. For to take the opposite view today is to resemble a manufacturer who, running at a loss, decides to raise his price, and when his declining sales increase the loss, wrapping himself in the rectitude of plain arithmetic, decides that prudence requires him to raise the price still more—and who, when at last his account is balanced with nought on both sides, is still found righteously declaring that it would have been the act of a gambler to reduce the price when you were already making a loss.

  51. .

    dot – We don’t get perfect policies

    …and you are entrusting the Government to take on debt. Good luck with that.

  52. TerjeP

    dot – this is what I said earlier:-

    “Obviously public debt is primarily a problem in so far as it enables unproductive public sector consumption. As such I support debt capping measures for the purposes of good governance.”

  53. JamesK

    TerjeP – this is what you said earlier:-

    “However I can readily envisage situations where a deficit funded reduction in tax rates would be in the longer term national interest”

  54. John Doe

    So Australia is in the same position as Spain?

    The Benchmark is Government like Zaire which cannot pay public servants and nor has the capacity to issue bonds.

    wow

    By the way the NBN is on the balance sheet as can be seen
    here.
    It is the fourth item mentioned.

    Public accounting conventions, which to me are somewhat silly, has always had items such as NBNs, Telstra, Australia Post off the budget but always on the balance sheet.

  55. JC

    Doe

    We’re not talking about the balance sheet you dummy. We’re talking about the income statement or it’s public accounting equivalent.

  56. JamesK

    So Australia is in the same position as Spain?

    That apparently is John Doe’s questioning answer to an unasked imaginary question.

    Go figure.

  57. JC

    It’s like self selection at a sheltered workshop with these leftwing retards that have been ‘visiting’ here recently. They make Forrest Gump appear a genius.

  58. steve

    On the first chart, Australia is the same colour as Spain. Sinclair suggested that was the important measure. So on that basis he is saying we are in the same positionas Spain, yes. How do you interpret the chart, JamesK

  59. JC

    To some degree Australia is in the same position as Spain.

    Prior to the GFC Spain’s finances weren’t horrendous. They were vulnerable but not horrendous.

    Like Spain we’ve been building up on the spending side anchored with frothy receipts. If China takes a serious hard landing our deficit will blow out to 10% of GDP in a heartbeat like it did in Ireland and Spain etc., whose finances weren’t all that bad prior to 2007.

    Then add in a couple of things. Add in State debt and also add in the possibility of banks getting into troubl, as a result of their exposure to the real estate markets. Australian banks have around 60% of their assets tied up in real estate and we have 5 cities in the top 10 most expensive in the world. No other country has allowed their banks to go under, would we? Would we allow the states to default? Could, would and should don’t mean the same thing.

    Australia has one of the highest levels of consumer debt in the world. Our economy is leveraged to China which in turn is highly leveraged too and quite unstable.

    The idea that we can’t end up in a sovereign debt hole is laughable. And we have Shane Wand as the treasurer. Think about that for a second and tell me the hairs on your necks don’t aren’t bristling.

  60. JamesK

    On the first chart, Australia is the same colour as Spain. Sinclair suggested that was the important measure. So on that basis he is saying we are in the same positionas Spain, yes. How do you interpret the chart, JamesK

    You really are remarkably stupid steve.

    First of all nothing about the graph in any way inviolates my comment on Doe’s supposed question.

    Secondly the graph is about national debt per citizen not per GDP

    The average salary in Oz is twice that in Spain whilst the population of Spain is twice that of OZ.

    Morally bankrupt and a dumbfuck into the bargain.

    Life’s not fair is it steve?

  61. SteveC

    So JamesK, are we in the same position as Spain or not, as that is what the chart says. It shows we have the same debt per citizen as Spain, is that a problem?

  62. Scott

    Australia was one of the very few countries in the world whose government guaranteed 100% of the debts of the whole banking sector.

    This suggests that the Australian Banking sector is much more fragile than it is admitted.

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