This month, indeed this very day, marks the anniversary of a famed speech made to the Oz Parliament in which the Treasurer of the day declared the Federal Gummunt, (at least), free of debt. This was after an heroic effort to pay off almost $100 Billion of debt racked up by the previous socialist mob.
Of course, the States gummunts still had their wicked ways with the purse and wallet and the average man and woman in the street were carrying far more debt than they could pay off. But at least the Federal Mob had conquored the Debt Dragon.
Of course, having done the hard yards and strightened out an unholy mess, the Conservatives were replaced by.... yes, you guessed, the bloody socialists again. And now where are we?
Just look at the
Tick, tock, tick, tock, the hands spin faster that the spin doctors can catch. But the public is all too easily fooled. There is little traction gained by comparing Oz to other countries as it was back then. I know that 'everyone is doing it' : getting into massive National Debt, that is, but every sane person knows that to conduct one's own affairs in such a manner is a recipe for disaster.
And it will come.
But for a brief moment let us look back at just ten years ago. Eddie Sim introduced David Alexander's short chat and tabling of his words in the bar. Eddie said,......
A sobering document that only disciplined conservatives would ever understand. Labor wasted the fiscal surplus that had been solidly repaid and built over the Howard years only to splurge Australia back into debt yet again . Its history repeating itself time and time again and who pays for it ? YOU DO by higher taxes or reduced government services -- when will Australians wake up ?David gave the news. David Alexander has a sound pedigree and is and was well positioned to observe: he is federal managing director at Barton Deakin and a former senior adviser to Peter Costello.
The lessons of Peter Costello's 'debt-free day' are worth remembering
The fiscal repair job that helped us ride out the GFC stands as a benchmark for the new generation.
Ten years ago today Australia celebrated an unusual milestone – the federal government announced that its debt had finally been paid off.
"Debt-free day," treasurer Peter Costello called it in a speech celebrating the event. "The day we pay off the mortgage."
As last week's warnings of a credit downgrade ring in our ears, it is worth considering a few lessons from that special moment in history.
Peter Costello at the announcement of debt-free day in 2006. Photo: Rob Homer
In mechanical terms, the $96 billion debt was essentially paid off by a combination of the government living within its means – creating and then sustaining budget surpluses over many years – and using asset sales to retire debt.If an aging Knight who has managed to get to this point in life completely free of any debt can offer a view, I think Costello was streets ahead of any Treasurer this country has had in its history. The Best we have had. I do not know what sort of Prime Minister he might have made had he and Mr Howard made a 'transition' of power effectively, nor do I know if him being PM would have secured an election which was in fact lost.
But I would have bet on it.
The biggest spending cuts occurred in the first budget, while political capital was high and the attachment to programs was low. Over time the focus moved from cuts to refusing to take on new expenditure. Saying "no" was tougher than it sounds – and its significance more important than appreciated. Government spending as a proportion of the economy was always lower under John Howard than the level inherited from the Keating government.
Increased revenues in the early Howard years, through bracket creep and measures such as the superannuation surcharge, helped repair the budget, but tax cuts from 2000 meant the ongoing contribution to debt reduction on the revenue side was limited.
|Now imagine several sticks of dynamite attached.|
Revenues from the sale of public assets, worth $46 billion up to that point, went to debt reduction rather than other purposes. Asset sales came at very high political cost – the sale of Telstra, for example, stretched the political pain over multiple elections for the three sale tranches.
The vast majority of the debt, it is worth noting, was paid off while Australia's terms of trade were below the historical average. The arrival of the mining boom in 2004, eight years after Howard was elected, was well received but by then task of debt extinguishment was largely done.
Australia took a different path to the US and Britain. Costello rejected the Tony Blair approach of building up spending levels and running high deficits, and also castigated the Bush administration for its unfunded tax cuts.
"Supply-side economics is an example of what not to do," Costello said in 2005, presciently predicting major budget deficits.
Australia had one of the most sought-after fiscal positions in the world – debt-free and assets in the bank. In 2008 Reserve Bank governor Glenn Stevens lauded the financial position built up by Costello, saying "the capacity to respond, if need be, to developments in the future is virtually without peer".
When the global financial crisis hit months later, the super-strong fiscal position – radiating solidity, allowing tax or spending stimulus – coupled with record terms of trade meant Australia was prepared to outperform the world.But of course the fickle Oz populous had spoken and the adult, Conservative Gummunt of Howard, PM, and Costello, Treasurer, was replaced by the dismal KRudd and Gillard years which handed them the inheritance and a clean credit card. The massive 'Cash-in-the-Bank' that Costello left them was frittered away by Wayne Swan and co in a trice and the credit card took a hammering. Very quickly we were not only back where Costello came in but going backward at an horrendous rate.
Whoever was sitting in the treasurer's seat during the GFC – Costello, Wayne Swan, Pistol or Boo – would have overseen a world-beating performance.
There are lessons for today's generation.
First, don't allow debt to build up. Labor blithely surrendered our world-beating position with undisciplined spending, but once it's gone it is extremely hard to get back.
Second, governments need to be genuinely hungry for fiscal repair over a sustained period. Otherwise the desire to do better fiscally will be constantly overridden by other priorities.
Third, give up on wishful thinking. People are always coming through the treasurer's door with a proposal that "will pay for itself". Socialists err on the spending side, supply-siders on the tax cuts side. As seductive as these will be to some in politics – and they are always tempting – there is no substitute for hard graft, deferred gratification and honest accounting.
Fourth, make sure policy levers are working with the grain of societal values. Australians have a strong egalitarian sensibility that Howard instinctively understood and was reflected in his policies. The 2014 budget was always going to fail because it ignored this enduring sentiment.
Don't underestimate the deep dividends that come from getting the budget in order. There is a tectonic surge in confidence from consumers, businesses and investors that comes with healthy government finances. There's usually a handy political dividend, too.
The more hand-outs from the dwindling number of taxpayes to the fiscally irresponsible, the more votes go to socialists. Will we ever learn?
Here we are, sinking again. Up to our wastes.