Decay in a time of penury

Sydney Morning Herald finance editor Ross Gittins, talking not too long ago, of the changes Treasurer Michael Egan was making to the structure of the budget said of the focus on debt:

… this is a hugely parsimonious way to conduct the state's finances, insisting that the current generation of taxpayers cover the full cost of new general government capital works - hospitals, schools, roads etc - that will still be delivering services to taxpayers 20 or 30 years hence and catch up on the repayment of debt incurred to fund the capital works of previous generations.

He continued:

But why is such parsimony necessary? It never was. Unlike some other states, NSW (like the Commonwealth) never went overboard and so never had an excessive level of debt. If it ever had excessive debt it wouldn't have retained its triple A credit rating. And I doubt that rating was ever under threat. In any case, if you've sworn off borrowing why does your credit rating matter?

More recently, Ian McAuley (in the Centre for Policy Development online in November 2007) observed, “Evidence of infrastructure neglect surrounds us whenever we drive on a highway or catch a suburban train … People feel insecure in their employment, and are wondering why, if we are so prosperous, we have to work such long hours.”

That we should be contemplating “pushing out” infrastructure plans, especially in the areas of public transport and energy in the face of impending global climate change, in education with ever greater demands on a knowledge economy, and on hospitals, is irresponsible.

Credit ratings

Professor of Accounting at the University of Sydney Bob Walker, author with Betty Con Walker of Privatisation: Sell Off or Sell Out (Sydney University Press, 2008) pointed out the misleading nature of asserting that rating agencies would downgrade the State because of greater infrastructure expenditure. Standard & Poor’s September 2007 report noted, the Walkers say, that the forecast debt increase resulting from the capital program was unproblematic; the intention to retain the balance sheet in surplus and the intention to sell electricity generating businesses was noted.

Leaving aside whether rating agencies are any more than agents of globalisation and that they have been sometimes unreliably recommending investments in companies like Enron up to the day before they crashed, the notion that the State’s future should be hostage to such agencies is grossly distasteful.

The public debt for Western European countries ranges from 26 per cent up to 64 per cent of GDP (excluding Norway and Italy which are special cases), yet their credit ratings are over 90 out of 100. As already noted Australia’s public debt is 15 per cent of GDP; NSW’s debt is around 1 per cent of GSP.

To assert that the level of debt necessary to fund vitally important infrastructure is unsustainable is nonsense! More than that, it is dangerous.

A few months ago, distinguished New York Times columnist Thomas L. Friedman (“Who will tell the people?” International Herald Tribune, May 4, 2008) noted “If all Americans could compare Berlin's luxurious central train station today with the grimy, decrepit Penn Station in New York City, they would swear we were the ones who lost World War II”.

Change a few words and he could be writing about Sydney, indeed the whole of New South Wales. It is time we stopped simply accepting that what ideologically driven politicians tell us is correct. It doesn’t even add up. When it doesn’t make sense and feel right then it is time to demand a different truth.