Drawing on his experience, former long-serving treasurer Peter Costello tells Inquirer he anticipates that federal government debt will reach one trillion dollars when the final COVID balance sheet is drawn. Costello says:
Now to reduce that debt, if you pay the debt off a budget surplus at about 1 or 2 per cent of GDP, that would take you about 25 years. But that’s 25 years of continuous surpluses. The only precedent in commonwealth history is the period between 1997 and 2007 when we had 10 continuous surpluses and paid off our debt.
“But given we haven’t balanced the budget since 2007 — that’s 13 deficits in a row — it is beyond belief we are going to snap out of this and do 20 surpluses in a row. It just won’t happen. We’re not going to pay off this debt. We’re not going to have 10 years of continuous surpluses, let alone 20 years. We will carry this debt for a long time — I would say for 20 years. That’s a generation.
“What flows from that is we will be a higher-spending country. We increased spending in 2009 in response to the GFC and we’ve never got it back to where it was. We have increased it again in 2020. That means we are going to be a higher-taxing country with higher deficits and higher debt. All of that adds to the fact we will be a lower productivity country and that’s the key point. We will be moving from what I regard as the Australian model to much more of a European model. The Australian paradigm is changing. It used to be that when we compared ourselves to Britain, France and Germany, sometimes even America, we were a low-tax, low-spend, low-deficit, low-debt, high-productivity, quite entrepreneurial nation. But now we’re moving much more into the middle league of debt countries.
“Now the public might like that. I’m not getting into the argument whether this is good or bad. A lot of people say this is good, that this is what people want. But this wasn’t my model. I don’t think it was the Keating model. My criticism is this is a low-productivity model and a low-productivity society.
“My point is the Australian model, by world standards, ever since we began opening up our economy, was a low-spend, lower-tax, lower-deficit and, in my time, lower-debt model, with a more open economy than Europe. We saw this as the key to higher productivity. But from 2009 onwards we moved another way — into a high-spend, higher-tax, higher-debt model, and the COVID crisis has amplified that move. If we want to go back that could take a generation. So the Australian model is changing.
“If the Liberal Party goes down this track, it will never run into opposition from Labor — because Labor will say we want more spending. That’s why it’s so easy to go down this path. If the Liberal Party isn’t pulling back on this path, nobody else is going to pull back. Labor will always position to the left.”