Australia’s Debt Sentence

The following piece was featured on Quadrant Online, 17 April 2009

Noted horror fiction writer Stephen King was the author of a wonderful novel entitled The Green Mile. The title was reference to the colour of the linoleum that confronted death row prisoners on their final march to ‘Ol’ Sparky’. It has since become street parlance for capital punishment.

‘Green’ is also US slang for money, arising from the distinctive colour of the US currency.

Strangely, the link between these two colloquialisms has more in common with the current state of Australia’s economy than might first be apparent.

Excusing the obvious Australianisation of US terminology, the Rudd Government’s reckless indifference to debt and deficits is creating a ‘debt sentence’ for every Australian that could prove every bit as catastrophic for our future prospects as walking the ‘Green Mile’.

Before we can explore that further, it is important to briefly recall the economic environment before Prime Minister Rudd. Australia experienced an unprecedented level of continuous economic growth. Nearly $100 billion of Labor Government debt was repaid, budget surpluses became the norm and tens of billions of dollars were set aside for future obligations and opportunities.

Some of these billions were directed to the unfunded liability of the public service retirement accounts, others to establish the communications fund and an education stipend. There were successive years of tax cuts, record employment and productivity increases which were all-important in preparing our nation for the major demographic, economic and societal changes that lay ahead.

The Rudd Government inherited a $20 billion plus budget surplus. Despite this, the inexperienced and impetuous Mr Rudd immediately demonstrated his lust for battle, manifested in his ill-considered and manufactured war on inflation. The result was higher taxes and higher spending in the Rudd Government’s first Budget.

Such is the hubris of Mr Rudd that one can only presume that to celebrate vanquishing his imaginary inflation genie, he has been emptying the Government cellars and toasting his own non-achievement. Or perhaps he is just having another ‘Scores’ moment. How else can you explain Mr Rudd spending like the proverbial drunken sailor ever since?

First there was $10 billion to create 75,000 jobs. Not a single job was created but it was still deemed a magnificent success by Mr Rudd. In fact, such was the success that a further $42 billion of borrowed money was spent under the similar, but even less accountable, guise of ‘protecting jobs’.

But before the ink had dried on the Government’s stimulus cheques, Mr Rudd was confronted with another abject failure. His magical broadband tender had turned into the farce it had always promised to be, with no tender deemed suitable.

But undeterred, Mr Rudd grabbed the nearest envelope, did a few quick calculations and declared that the taxpayers would come to the rescue with a $43 billion proposal – nearly ten times the Government’s original commitment. Not satisfied with that, Mr Rudd then went into PT Barnum mode and confirmed it would be the investment opportunity of the millennium, despite no credible investment calculations having been done.

All this with a budget outlook suggesting over $200 billion in national debt will be accrued in little over three years.

This is Mr Rudd’s debt sentence to all Australians. It is our equivalent of walking the Green Mile. But the green we see is not linoleum, it is the colour of borrowed money that will shackle every Australian man, woman and child with more than $9500 worth of debt for decades to come.

And what practical benefits has this spending spree delivered? Well, so far not much. Leading economic commentators suggest we are already in recession. Unemployment is rising and business and consumer confidence is low.

Despite the immediate gloom, the Government’s actions presuppose a rapid recovery in the international and domestic economy. We are right to be concerned about the consequences if this expectation does not eventuate.

What then? Will Mr Rudd continue his seemingly uncontrollable urge to borrow and spend? What can be done when we are faced with ongoing very high levels of debt, high unemployment, low or negative growth and a spendthrift Government?

The answer is a deceptively simple but very dangerous range of choices. A nation can default on its debts, place an increasing burden on those still working via increased taxation or inflate their way out of debt – or even a combination of all three. Not so much Morton’s fork, as a trident of potentially dire consequences for Australian citizens.

But such is the current political environment; it is somehow unfashionable to rail against Rudd’s debt sentence.

We have a Government consumed with surviving today at the expense of tomorrow. History shows that this is a path rued by all who have previously taken it.

I suspect Australia will be no different.

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