PREPARE FOR THE NEXT GFC AND PAY DOWN DEBT NOW Interesting article in the Herald Sun by my friend and Assistant Treasurer Josh Frydenberg: AS we begin 2015, the battle lines have been drawn. Jobs and families will dominate, and the economy will remain front and centre to political debate. But, while this year’s economic calendar will be punctuated by the release of an updated Intergenerational Report, Tax White Paper and the 2015 Budget, two vitally important documents from 2014 should not be forgotten. The independent Commission of Audit, from last May, and the Midyear Economic and Fiscal Outlook, released in December, not only bookended the year, but provided a comprehensive insight into the state of the Government’s finances, the challenges ahead and the urgent need for economic reform. The message was clear; business as usual is not an option. In the words of the Commission of Audit, the “long-term outlook is ominous”, expenditure commitments are “unsustainable” and we as a nation “have a responsibility to complete the task of Budget repair”. If we are not able to respond, we will saddle our young people with a heavy debt burden they will be forced to repay. But more than that, we will limit our capacity to grow our economy and create new jobs, and undermine our ability as a nation to effectively deal with the next global financial crisis whenever it occurs. Consider this. In 2013-14, the Government had expenditures of more than $400 billion with receipts of around $360 billion. The deficit of $48.5 billion was the country’s sixth in a row. The Budget is not expected to be back in surplus until 2019-20, two elections from now. On current projections, by 2023-24 the nation’s gross debt will be $499 billion or 19.4 per cent of GDP. This will see taxpayers fork out $14 billion per year in interest alone, up from the $10.8 billion we are already paying to service Labor’s debt. To put this in perspective, the Commonwealth will be contributing around $13 billion to the NDIS in 2020-21 when the scheme is fully rolled out. These payments on the debt is money that is now going overseas that could otherwise be going to roads, hospitals and schools. Critics of the Government, who say, “why do you talk so much about debt? It ain’t so bad in Australia!”, point to the higher debt levels in Europe, Japan and the US. However, what these critics fail to understand is that not only do those countries bemoan their high debt levels, but their economies are fundamentally different from ours. In Australia, we rely heavily on resources, which comprise almost 60 per cent of total exports, and this leaves us very vulnerable to major swings in the terms of trade. Big falls in the prices of iron ore, coal, oil and wheat have sliced more than $31 billion from the Government’s revenue forecasts over the next three years. It also represents the single greatest drop in Australia’s terms of trade since 1959 when the Australian Bureau of Statistics National Accounts first started. With Treasury forecasting economic growth for 2015 of only 1 per cent in both Japan and Europe, and 6.75 per cent in China — the first time it has been below 7 per cent since 1990 — Australia clearly cannot rely on a global economic surge to bail us out of debt. This is why the Abbott Government is so determined to act now. As a result of Budget announcements last year our debt will be $170 billion lower than it would have been under Labor, which is equivalent to a saving of $6000 for every man, woman and child. So too growth in annual expenditure has come down to 2.7 per cent over the medium term rather than 3.7 per cent under Labor. This is despite the obstacles we have faced in the Senate where negotiations over the passage of government legislation led to delays and costs that hurt the Budget to the tune of $10.6 billion. Most people think that the Government can simply wave a wand and cut spending overnight. The truth, however, is somewhat different, with 86 per cent of government spending taking the form of administered payments such as social security and health where there are tight eligibility rules governed by legislation that are not easily changed. This is why the task of Budget repair is such a long and hard slog. But it must be done. For governments, like individuals, should live within their means. Australia simply has two options if it wants to pay back its debt: lower government expenditure or increase taxes — and no one wants higher taxes. This is why 2015 will be another year where the Government will continue to pursue savings in a fair and sensible way. These measures will hopefully attract the support of Labor and minor parties in the Senate and leave all Australians better off. Josh Frydenberg is the federal Assistant Treasurer. heraldsun.au/news/opinion/prepare-for-the-next-gfc-and-pay-down-our-debt-now/story-fni0ffsx-1227177620166
Posted on: Wed, 07 Jan 2015 22:57:05 +0000
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