A rod for Wayne but not Joe

Unfortunately in my travels and other obsessions the debt ceiling managed to get repealed without any commentary.

In short – my views are more or less the same as Chris Berg’s views.

The debt ceiling was a rare example of a fiscal rule in Australia, an explicit constraint imposed on the government’s financial power.

The purpose of a debt ceiling is to fight the natural proclivities of government to run persistent deficits. There’s every incentive in politics to spend money but very little to save it. I explained this dynamic in the Drum during the election campaign. Because spending is popular and taxing is not, deficits are the inevitable result.

Yes, the debt ceiling wasn’t much of a ceiling. It didn’t stop government spending more than it earned. Labor raised it twice, and – if the Greens had not pushed for its abolition – the Coalition would have raised it again.

But that’s not the point. A debt ceiling is an assurance that going further into debt has at least some political cost. It helps at the margin.

And in that sense, Australia’s debt ceiling was very effective. From the opposition benches, Joe Hockey and Tony Abbott tore strips off the hapless Wayne Swan when he raised the limit in 2012. It confirmed everything the Coalition had been saying about the irresponsible Labor government. Swan would not have enjoyed asking Parliament for his increase. The debt ceiling helped keep his budget troubles in the news.

A lot of people point out that the debt ceiling only came into existence in 2008 and so we really didn’t need it. Well no. We were very critical of Peter Costello and his tardiness in cutting taxes. But there was never any doubt, no doubt at all, that he didn’t like debt and deficit and that given the opportunity he would have preferred negative net debt and zero gross debt. Wayne Swan needed an external discipline imposed upon him and, I suspect, Joe Hockey does too.

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20 Responses to A rod for Wayne but not Joe

  1. Infidel Tiger

    The debt ceiling is wank.

    Next we’ll have a state of the union address and kids will be wearing the trousers around their knees.

  2. Ant

    Governments should be allowed to borrow money.

    They borrow it on our behalf, and we have to repay it. They do so often to further their party’s prospects for re-election, thereby benefitting the members of that party financially.

    Therefore, for that privilege, the party in government should be compelled to contribute a small % fee to the government based on the amount being borrowed.

  3. conrad

    “Wayne Swan needed an external discipline imposed upon him and, I suspect, Joe Hockey does too. ”

    I don’t think suspect is the correct word here — they’re worse — they’re willing to cut taxes but not get rid of the expenses/rorts created by previous governments, so they’re making a sizeable deficit in quite reasonable economic times and appear to have no real method for bring this back. This should worry even quite politically moderate people.

  4. Empire Strikes Back

    Therefore, for that privilege, the party in government should be compelled to contribute a small % fee to the government based on the amount being borrowed.

    I like your idea Ant, but a small fee? How about the going cash rate?

    Naturally your proposal must be backed by enforcement.

    On default: capital punishment by crucifixion for all sitting MPs of the borrowing party with no transmission of entitlements to surviving beneficiaries post mortem.

  5. Matt

    During the election campaign I modestly proposed sending out a mock invoice to every residence outlining their household’s share of the national debt.

    Now I’m thinking that the ATO should be required by law to send annual notices to every taxpayer detailing their personal liability (what is it now, $10,000 per person?), along with the contact details of their local member.

    Pretty disappointed by the wishy-washy Libs thus far.

  6. boy on a bike

    Therefore, for that privilege, the party in government should be compelled to contribute a small % fee to the government based on the amount being borrowed.

    Plus force all MPs who approve it to invest all their super in govt bonds. Plus sign over all their assets as collateral. If the govt defaults down the track due to over spending, their assets will be the first to be liquidated.

  7. Struth

    So with the labor slobs not allowing a dept ceiling raise, is it not the perfect time to point to labor’s decision and making them responsible for the government to slash NBNs and Gonskis and shit loads of dead wood from the public service. What I am missing here?

  8. I think there should certainly be a debt ceiling:

    Amend the constitution mandating a cap of 20% of nominal GDP for all public debt; local, state and federal.

  9. stackja

    Rudd/Gillard/Rudd took the Howard/Costello surplus and created a mess. I expect TA/JH to start cleaning up the mess. First the clean-up with a cut in spending then talk about tax cuts.

  10. adrian

    the debt ceiling means nothing, really. unless it requires a 2/3 majority of parliament and is enshrined in the constitution.

  11. David Brewer

    Agree with Forester and adrian. A debt ceiling that can be set anywhere and moved anywhere else any time else is just a meaningless stunt.

  12. Andrew

    What is the evidence that the debt ceiling encourages fiscal restraint? None.

    Glad it is gone.

  13. H B Bear

    Think of it as a lapband for fiscal fatties.

  14. wreckage

    The debt ceiling did absolutely zero to slow the ALP, the US debt ceiling does nothing, in fact it works in reverse! We don’t need debt ceiling. Nobody notices, nobody cares, and has been demonstrated by the US, it actually gives the government a gun to point at the opposition’s head.

  15. Andrew

    The debt TARGET should be zero. That’s what should be constitutional.

    Deficits are ok provided the govt state at budget time a path to repay it. And what has to go to do so. If the PBO sez at current levels the debt falls to 5% of GDP by 2040 and then turns up again, the govt MUST announce pension cuts or other unpopular measures until all debt gone. The headlines will be better discipline than raising the ceiling.

  16. sdfc

    PBO sez at current levels the debt falls to 5% of GDP by 2040

    I think you need to go back and have a reread.

  17. Andrew

    PBO sez at current levels the debt falls to 5% of GDP by 2040

    I think you need to go back and have a reread.

    No I mean hypothetically. If at any point the structural low is nonzero the govt must preannounce further cutscutscuts

  18. sdfc

    Won’t ever happen and shouldn’t.

  19. ralph

    Chris Berg, as usual, is wrong. “It didn’t stop government spending more than it earned”. There are times when the government should be spending more than it earns. A 12% increase in government spending in 2008/09 saw GDP growth flat line at 2%. Just think how much unemployment we would have had if that didn’t occur! Thousands out of work and demand falling even further. Business and households were not spending and tax revenues were falling. Berg may dislike debt and deficient, but to make it an article of faith ignores the fact there are times when it is needed.

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