I’m sure a lot of Cat crowd also run with this rule: if it sounds [looks] wrong, it is wrong.
I was listening to the Treasurer the other night at the dinner of the Economic and Social Outlook Conference [held at the Melbourne Aquarium - there is a certain je ne sais quoi to watching a speaker with the backdrop of exotic fish, eels and sharks floating by.]
Anyway, when he said the following, I thought: que? (Yes, que? is one of my favs too.)
These structural saves put us in a better position to deal with any future volatility in commodity prices and the terms of trade, like we’ve seen in recent times. And there’ll be more to come as we make the necessary room for bold new investments in disability insurance and schools. The story to now is an impressive one. Without some of our long-term savings, the underlying cash balance would be around $14 billion lower in 2012-13. This would grow over time, reaching around $51.4 billion or 2.0 per cent of GDP in a decade – a truly massive difference. These savings also have a profound impact on Australia’s financial position in years to come. Without these savings, net debt would not return to zero in 2020‑21, instead it would be over $250 billion in that year. These are the facts and they tell an exceptional story. To put them in perspective, net government debt in the US is expected to reach more than $13 trillion, or over 80 per cent of GDP this year – and gross federal government debt is expected to reach its highest level since a brief period following World War Two.
I thought, wow, did I hear that net debt is returning to zero in 2020-21? Really?
The funny thing was that earlier in the day we had heard from Nigel Ray, acting Treasury secretary, and on his figures, there is absolutely no way that net debt is heading to zero in 2020-21.
It is worth looking at his speech (see Treasury Website) , in particular the chart which shows the underlying cash balances out to 2022-23. There is no way that the net debt will be paid off on the basis of these figures. (Fellow Cat contributors, I am having trouble loading up the chart. Any help?)
But Australia’s fiscal frameworks are facing another test: the emerging gap between the demands placed on government and the financial resources the community is willing to provide to government.
As you can see from the chart, while nominal GDP has largely recovered since the global financial crisis, government revenue at both the Commonwealth and state level has not yet recovered to expected pre-crisis levels. And, based on the changes in the relationship between the size of the economy and the amount of tax we collect, we do not expect revenue to return to the levels of the previous decade for some time.
On the payments side, recent policy debates point to growing pressure for new government services, such as the National Disability Insurance Scheme, and substantial reforms to existing services that might involve more spending, such as school funding.
The bottom line seems to be that we have racked up real debt and given the prospects of extremely slim surpluses going forward for years into the future, it is hard to see how net debt can be paid off within a decade. I guess there are few things to sell such as Medibank Private and the analogue spectrum, but let’s face it, most Commonwealth assets have already been flogged.
Judith. Surely you aren’t suggesting that Wayne Swan has got no idea on what he is talking about. I mean, that would be unthinkable. He was voted World’s Best Treasurer! He is in charge of a budget that accounts for one in every five dollars spent in Australia! He is being advised by the Commonwealth Treasury! He is the Deputy Prime Minister!
Surely he can’t be as completely clueless as he seems.
Surely . . . . ohh.
johno
3 Nov 12 at 10:38 am
Judith, the chart is an image, so you should be able to copy and paste it.
If anyone is interested though – here it is…
Rabz
3 Nov 12 at 10:47 am
One has to wonder whether the Goose reads this stuff before he delivers the speech but, then again, his low level reading fluency would restrict his comprehension, anyway.
In my day ‘saves’ was a verb, as Pat Cummins ‘saves’ the day several years ago in RSA; net debt was only achievable if one’s assets from which liabilities were deducted had any realizable value; structures were things like the Sydney Harbour Bridge; debts were measured in the thousands; the PS provided factual, non-political advice; and, my bank manger couldn’t care less whether my next-door neighbour owed another bank zillions of pounds, he was only interested in making sure he got his paltry thousands back from me.
amcoz
3 Nov 12 at 10:51 am
Honestly, is it even worth discussing how innumerate Wayne Swan is? He really has no clue. He was supposed to have designed the MRRT himself, but he doesn’t even understand how it works.
I presume something will enter the Australian slang in the future – something like ‘making the economy take a Swan dive’
Government revenue as a share of GDP has not recovered because the government attacks the profitability of companies. And they borrow money to pad out the GDP. Borrowed and spent government money is not the way to taxable income. But I wouldn’t expect Wayne to understand that, even though it would be pretty easy to explain to a 10 year old.
brc
3 Nov 12 at 10:51 am
Honestly, why does this idiot bother?
He has absolutely no comprehension of the subject he’s blathering about.
Rabz
3 Nov 12 at 10:53 am
amcoz and brc have beaten me to it!
Rabz
3 Nov 12 at 10:54 am
So, “we thought about spending some money, but decided not to” equals saving? I must get on to my bank about that. Why, in just a few seconds, I’ve already saved millions!
Scary that this fool is in charge of anyone’s money but his own.
johanna
3 Nov 12 at 11:37 am
Swan’s statement is consistent with the chart on page 60 of MYEFO.
Milton von Smith
3 Nov 12 at 11:43 am
I know zilch about the subject but wonder where the $16 billion disablity scheme plus billions per year after that and free dental care to half of Australia fits in with that.
candy
3 Nov 12 at 11:50 am
The trouble is that the chart of page 60 does not reconcile with the chart on the previous chart.
Judith Sloan
3 Nov 12 at 11:57 am
Judith – you listening to Wayne Swan must be excruciatingly painful. Like being told what to do by a retarded cop or something.
.
3 Nov 12 at 1:47 pm
even more painful than watching Q&A
where is Kroger when you need him?
Will
3 Nov 12 at 2:32 pm
linky
Will
3 Nov 12 at 2:35 pm
The ABC springs to mind as an organisation that is just begging to be privatised. I’m predicting that NBN Co’s assets will eventually be flogged off for around $10 billion.
From memory around $60 billion of Hawke and Keating’s $96 billion was paid off using the proceeds of privatisation. When viewed in that light, the current level of gross debt is absolutely terrifying.
Skuter
3 Nov 12 at 4:37 pm
Skuter, you could add SBS and Australia Post to this list.
Also, removing the current restrictions in the Broadcasting Act that make it illegal for anyone to compete against the existing free to air TV and radio broadcasters would bring in more players when broadcasting spectrum is being sold off. That could bring in more $$ without hurting taxpayers.
Unfortunately, most of these reforms would be for Turnbull to pursue, but I’m not holding my breath waitng for him to embrace liberalism.
johno
3 Nov 12 at 5:12 pm
Australia Post’s parcel delivery service, anyone? Online retail has made it a very attractive proposition.
But ABC and SBS are just begging to be corporatised and split up for sale. ABC retail is not covered by the charter, and could be easily sold off. The production arm is already a public-private operation.
News and current affairs I suppose would have to be retained under the public interest provisions, as would basic mail deliver under any break-up of Australia Post.
But seeing as how Radio Australia’s transmission facilities to Asia were sold off under Hawke-Keating, there’s no reason why ABC/SBS transmission infrastructure could not be integrated with NBN infrastructure and sold off, much the same as Telstra’s was. Not necessarily to large investors, but mums&dads through superannuation funds?
There’s a lot of hiding behind The Charter going on at ABC, and a lot of angst among the empire builders there in case such a thing might come to pass.
mareeS
3 Nov 12 at 5:32 pm
Perhaps adding a few banking licenses will bring in a quid or two? (Plus reminding them than an oligopoly that depends on government regulation can also be an enemy, not a friend.)
Meanwhile:
Total Commonwealth Government Securities
on Issue – $257,636m consisting of:
Treasury Bonds – $224,648m
Treasury Indexed Bonds – $16,969m
Treasury Notes – $16,000m
Other Securities – $19m
As at 2 November 2012
Updated weekly. Face value amounts rounded to the nearest million.
Securities on issue subject to the limit under the Commonwealth Inscribed Stock Act 1911 total $253,049 million.
Winston Smith
4 Nov 12 at 3:05 pm