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The coalition government’s bankrupt economic policies

By Harold Levien - posted Tuesday, 7 April 2015

The Coalition Government seems to have been fighting the next elections since the day it won Office and using the same misleading tactics. Throughout the last election campaign, and for months before, the Coalition bitterly attacked both Labor's budget deficit and government debt. Yet when the Labor Government left Office Parliamentary Library statistics show government gross debt was 19% of GDP. The advanced economies' international organisation, the OECD, apparently calculates the figures differently showing Australia's debt as 33% of GDP in 2013. This is still much lower than all OECD economies except for tiny Estonia and Luxemburg. Government debt to GDP in 2013 shown for some leading economies was: Germany 86%, Canada 93%, UK 99%, USA 104%, France 112%, and Japan 224%. NZ was 40%. These figures place into context the Coalition's bellowing attack on the previous government for the size of our public debt.

Australia's annual budget deficit at 2.4% of GDP compared favourably with the Euro area at 2.5%, the UK at 5.3%, the US at 5.8% and Japan at 8.4%. Our deficit resulted from both the stimulus package to save Australia from the global recession and the decline in many export companies' income tax payments following the impact of the GFC on their taxable income.

The US Nobel Laureate economist, Joseph Stiglitz, who visited Australia in September 2013 complimented the Government on its uniquely successful economic policy in saving Australia from the GFC which spread recession throughout Europe, North America and Asia including China. Regarding the latter, Treasury published a statement in 2009 that refuted the Coalition's argument that the Chinese economy saved Australia from the recession. The GFC hit China hard after a great reduction in exports to Europe and the US.


Increasing the Deficit

Following the elections the Coalition Government quickly and substantially increased the deficit with the apparent aim of attributing to the previous Government "an immense deficit" in order to reinforce its accusation of economic irresponsibility. Here is the evidence.

First, the Government made an $8.8 billion grant to the Reserve Bank which the Bank had not requested. Second, it reinstated the Howard Government's fringe benefits tax concession for privately owned motor vehicles, which the Labor Government had cancelled on the grounds it had become a tax rort. This reinstatement reduced revenue by around $500 million a year. Third, it cancelled the previous Government's very modest 15% tax on superannuation income over $100,000 which reduced revenue by about $600 million a year. (This Labor Government tax was designed both to reduce the inequality of the Howard Government's abolition of tax on superannuation income and to modestly reduce the deficit.) These measures increased last year's estimated deficit of $49 billion by nearly $10 billion.

Additionally the Government's abolition of the carbon tax will cost annual tax revenue $7.6 billion. And overturning the mining tax will further reduce government revenue. (Although estimated at $750 million a year the decline in mineral prices is likely to reduce this amount.) These measures will increase this year's deficit by around $8 billion.

Manipulating opinion

To develop support for its last budget it appears all Coalition Ministers were schooled to imprint on the public mind the Coalition's new mantra at each television and press interview: "the debt and deficit mess we inherited from the previous government". There's no mention of the Coalition's increase in the current deficit. And it recently intensified this message by repetitive recitation of the dollar amount of annual interest on this (increased) debt.


The Government's deception is greatly accentuated when no reference is made to the economic consequences (let alone the human impacts) if the Labor Government had failed to run these deficits.

For example, at the height of the GFC in 2008 if the Rudd Government had followed the European example of cutting government spending and leading to zero growth (instead of maintaining its growth trajectory of over 3% so the work force could absorb education leavers, new migrants seeking work and the impacts of increasing productivity) this would have caused well over an additional 300,000 unemployed and reduced GDP by more than $36 billion. A continuation of zero growth in 2009 would have similarly increased unemployment (totalling over 600,000) and reduced GDP further (totalling an estimated $72 billion). Budget tax figures indicate this would have led to a decline in tax revenue of least $24 billion and increased social service spending on the unemployed of over $11 billion by 2009. This $35 billion budget burden is many times the increased interest on public debt (part of the Government's refrain) generated by these deficits.

Labor's continued budget deficits after 2009 were designed to sustain the economic recovery following declining tax revenue-- confirmed in Treasury's last Budget Paper No.1 (Section 10-page 15). Yet on the ABC's Insiders program on May 18 last year, following the Coalition's first budget, the Prime Minister "explained" their budget cuts were necessary because "Labor spent like a drunken sailor".

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About the Author

Harold Levien, in the 1950s immediately after graduating in economics, founded and edited VOICE, The Australian Independent Monthly. It lasted for five years. As a journal of comment its contributors included many of the most respected authorities on economic and political issues of the time. He wrote Vietnam, Myth and Reality in 1967. It went into several printings. Harold has written many articles which have appeared in the Herald, Bulletin, Quadrant, National Times, Australian Options, the Journal of Australian Political Economy and others. Before retiring he taught economics for 27 years.

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