Gillard vs Rudd

[Russ]

Also, what do you mean that you "might take me seriously if you responded to what other people said"

That I'm not taking what you say seriously, because you're ignoring all the people pointing out the flaws in what you said. Post something intelligent in response and I will, rather than just making some inane point about alleged hypocrisy.

[AbominableMowman]

ALL HAIL KING TONYYYYYYYYYYYYYYYYYYYY

[Stick]

I think people forget that the reason why Australia was able to avoid a real financial crisis was because of the massive surplus the Liberals had accumulated over their long reign.

As someone who otherwise has little interest/knowledge in politics, however, I don't much much more to add. Feel free to prove me wrong if necessary, given that my comment is essentially off a whim.

[Russ]

Are you saying that the only reason Australia didn't suffer so badly was because of good Liberal stewardship prior to 2008?

[Professor Polonsky]

I think people forget that the reason why Australia was able to avoid a real financial crisis was because of the massive surplus the Liberals had accumulated over their long reign.

Not true. Sovereign debt was not the cause of the GFC anywhere in the world. Rather, an inability to pay it off was one of the symptoms thereof.

Labor's deficit spending was beneficial to the economy, and ensured we do not enter a recession.

[Stick]

Not true. Sovereign debt was not the cause of the GFC anywhere in the world. Rather, an inability to pay it off was one of the symptoms thereof.

Labor's deficit spending was beneficial to the economy, and ensured we do not enter a recession.

Again, emphasising that I do not have much knowledge in politics, surely what I've bolded has to be contributed to, or resultant of, that massive surplus though? I'd really like to develop what I know in this area though, so please tell me what I'm misunderstanding. :S

[Professor Polonsky]

Firstly, I don't think the Liberals ever delivered a "massive surplus". I think that our best financial position ever under the Howard government was something like $20 billion, which is pocket change.

States with a very high debt-to-GDP ratio, mostly European countries, are those who had debt problems. Even the US, with its $16 trillion debt and GDP-to-debt ratio of about 100%, doesn't really have any real problems with it.

The Howard government mostly reaches surplus by selling government assets, such as Telstra... Hardly solid economic management if you ask me.

Deficit spending helps the economy during difficult economic times. That's what Labor did, and so did the US government. This approach has been doing far better than the European austerity.

[Stick]

I'm not sure if I'm really understanding here. :S I don't think deficit spending would have been possible if that surplus accumulated by the Liberals wasn't there.

[Professor Polonsky]

The Liberals never accumulated a surplus. Australia, like all sovereign nations, has been in debt pretty much since its existence. (I can't confirm the accuracy of the second chart, but it seems about right.)





This is perfectly normal. If we hadn't accumulated a debt, I'd be pretty worried. Without taking on debt, a government is unable to deliver services in the short-run. This measure, by the way, is called gross debt. It's simply a measure of how much money the government owes.

What did go into the positive (or rather negative, as it's a double negative) is our net debt. This is a measure that the governments report (in slightly different ways), which subtracts current governmental assets from the gross debt. Here is how the Australian Treasury calculates it:



And here is the trend of net debt.



This chart includes data up until FY 2008-09. As a result of increasing spending and decreasing revenues, net debt peaked at about 11% in the previous financial year. (Actually, spending has largely stayed the same as proportion of GDP. What decreased has been... revenues.) As you can see, even 11% is miniscule.

The net debt is predicted be wiped out again in about 10 years time. However, we actually have a long term problem with a very large revenue to expenditure gap predicted in the 2040s... But I think I'm digressing.

To give some perspective, the Canadian government published this chart to show how its net debt is one of the lowest in the world. I'll let you work out where Australia is on the chart. (And yes, this is net debt.)





So, all this fascination with the Liberals surplus and Labor's gigantic debt is nothing other than bullshit. The reason Australia's debt increased during Labor's term has mostly been due to decreasing revenues, which always happens at a financial downturn. Labor's refusal to stick to a surplus allowed it to spend despite decreasing revenues, which certainly helped the economy during its downturn. And this should have happened even if we were at 50% net debt.

By the way, the way that the Liberal government wiped off our net debt is via selling governmental assets, such as Tesltra, Combank and Qantas. Privatisation might provide for more money in the short run, but its wisdom in the long run is questionable.

If you're interested in historical Australian figures to see where we are at now, check this out - particularly tables 1 and 3. (HTML link). If you're trying to find any sort of budgetary information, the budget FAQ provides links to most important stuff.

I'm also going to leave this video here. It's mostly concerned with the US, but it makes a lot of good points. (Despite being a bit too much mainstream economics for me, and I'm not John Green's #1 fan. *shelters* )

EDIT: A couple of things I thought are worth clarifying.

i) Negative net debt simply means that your assets are greater than your liabilities (gross debt). It's therefore probably wrong to talk about 'wiping out' net debt, but I used that language for simplicity.

ii) After posting this, I came across this article. It talks about many issues regarding governmental and private debt. It's probably worth reading.

[Stick]

WOAH THIS ACTUALLY MAKES SENSE NOW

Thanks, Polonium, for taking all this time to do that for me. :3

[abcdqdxD]

It's also important to realise that the majority of Australia's Net Foreign Debt (NFD) is owed by the private sector, namely financial instiutions (due to Australia's lack of a pool of national savings to fund investment projects).