An aversion to debt is an excellent thing in a government

These are the siren calls that will never, it seems, go away. From the front page of today’s Australian:

The Coalition is being urged to abandon its aversion to public debt and give a body such as Infrastructure Australia more independence to realise the government’s goals.

Two of Australia’s most eminent economists say public borrowing is a sensible way to upgrade ageing infrastructure, provided projects pass “explicit, transparent, and robust benefit-cost assessments”.

A paper to be released today by professors Max Corden and John Freebairn argues that debt is the best way to shift the cost of paying for infrastructure to the the future generations of taxpayers who will benefit most from it.

My hope is that the Government really does have an aversion to public debt. There are, of course, certain things that governments can do that no one else can do, roadways being one of them. However the value added is in having the project completed not in the actual using up of resources along the way. The article continues:

Assistant Infrastructure Minister Jamie Briggs said he wanted to bring forward spending, if possible, to ensure the outlays not only lifted the economy but also fixed congestion on major roads.

You build a road and it takes let us say three years to get it done. And then, but only then, when it is actually operational will that road be in a position to lift the economy because it is then, but only then, contributing to our transport network. The belief that the outlays themselves, the actual construction, will lift the economy is drenched in the Keynesian notion that it is demand that drives an economy, that the actual spending is what makes an economy grow.

The only thing that can turn this economy around is that we continue to elect governments with a genuine aversion to debt and who also want to keep our taxes low. Public spending, and even worse, higher public debt as the road to recovery is exactly what is wrong with so much of the advice governments continually receive both from outside and from within their own public sector.

Cut spending, balance the budget, lower debt, reduce regulation, improve IR and things will take care of themselves. The last Costello budget was not all that long ago. Can’t we also learn from our successes as well as our mistakes.

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10 Responses to An aversion to debt is an excellent thing in a government

  1. Toiling Mass

    give a body such as Infrastructure Australia more independence to realise the government’s goals.

    Umm, wouldn’t the result of making it more independent be to allow it to pursue its own goals.

  2. Andrew of Randwick

    What he said:
    Assistant Infrastructure Minister Jamie Briggs said he wanted to bring forward spending, if possible, to ensure the outlays not only lifted the economy but also fixed congestion on major roads.
    What he should have said:
    Assistant Infrastructure Minister Jamie Briggs said he wanted to bring forward spending, if possible, to fix congestion on major roads and thus lift the economy more quickly.
    And what I would have liked him to have said.
    Assistant Infrastructure Minister Jamie Briggs said he wanted to slash red tape, green tape and other regulatory hurdles so that more spending could be brought forward and thus lift the economy more quickly.

  3. entropy

    Infrastructure Australia. There is another little quasi government organisation filled with glad handing tax eaters that needs to be dismantled ASAP.

    It’s not as though government listens to them, and doesn’t the public service put proposals together anyway?

  4. brc

    Spending on roads is one of the only use cases for government borrowing. You get to buy the road at today’s prices, and pay it back in future currency, which the government always debases.

    The problem is that the govnerment borrowed to spend on welfare and other non-value-adding trash like pink batts. And now the finances are tight so things like road spending are reduced.

    Same goes for solar panel subsidies, water grids, desalination plants – the list goes on and on. When you borrow and spend on trash, then you curtail the ability to build real things now and in the future.

  5. Elizabeth (Lizzie) B.

    Another NBN anyone? Just what we need, more interference from lobby groups holding their own special ‘independent’ decision-makers captive.

    Let the government make the decisions, in Cabinet. What is so hard about that?

  6. Greg Byrne

    Debt is necessary but we have too much of it already. Some high priority projects should go ahead but until the overall debt is under control I think that we should make do with what we have got. Some old roads and bridges can be repaired, expanded or enlarged. The situation is very bad but we can only make the best of it. Labour always skimps on infrastructure. Recall the old Scoresby Freeway that became Eastlink Toll way. Actually Eastlink is a success story in that it was built in record time and the tolls are not too bad. I think that toll ways will be the way to go until the public realises that tough decisions have to be made on spending to allow major projects.

  7. Pyrmonter

    Why not some serious congestion pricing before we over-buy on “nation building” for peak use only?

  8. Combine Dave

    Nope. They need to build more now, not just for peak, but for future growth.

  9. Token

    Another NBN anyone? Just what we need, more interference from lobby groups holding their own special ‘independent’ decision-makers captive.

    As the article notes, Liars Party set up the independent Infrastructure Australia & promptly ignored its recommendations & squandered everything it had on the NBN which Sir Rod said at tge time was not in IA top 20 projects.

    Enough Qangos. Have government pull back the red tape and let private enterprise choose the projects.

  10. The belief that the outlays themselves, the actual construction, will lift the economy is drenched in the Keynesian notion that it is demand that drives an economy

    To a certain extent it does, in that without a demand for item X, supply is pointless; but OTOH it’s also true that demand can be created by the provision of a sufficiently interesting or useful new X that nobody has ever seen before and which is sufficiently useful to sufficient numbers of people. Dr Seuss, of all people, understood this well:

    I said to the Lorax, “You poor stupid guy. You never can tell what some people will buy.”

    It is unfortunate that his Once-ler understood the principle of economic sustainability only too late (his relatives, it seems, didn’t understand it at all).

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