Our debt is not deadly, say the people who know
A group of 63 Australian economists have released a joint statement rejecting the Federal Government’s repeated insistence that the country is facing a “budget emergency”.
The statement was signed by leading economists including former treasury secretary Bernie Fraser, experts from the University of Sydney, University of Adelaide and University of Melbourne and former trade minister Craig Emerson.
It says “Australia’s ability to manage public debt is very strong”, and the country is not facing “any present or imminent debt crisis”.
The document contradicts frequent allegations by the current Federal Government that Australia’s debt level is an “intergenerational theft” perpetrated by a squandering Labor administration, and now requires heavy tightening of the belt to get back into surplus.
Recent budget papers showed Australia’s net debt sitting at $226.4 billion. This figure is undoubtedly high compared with recent years, but represents just 12.5 per cent of GDP – below the 18.1 per cent of GDP hit in 1995-96.
Australia’s current debt level is less than the UK, US, France, Italy, New Zealand and Germany.
The economists’ decree was orchestrated by The Australian Institute, a think tank known to carry a particular bias.
“The most effective route to restored fiscal balance is to help more Australians find work, earn incomes, and pay taxes,” the statement reads.
“But major and unnecessary reductions in government program spending and public sector employment would have the opposite effect.
“The timing and method of deficit reduction must be balanced with other economic and social goals, including job-creation, infrastructure needs, and social conditions.
“Governments’ economic responsibility is to establish policies which support Australian firms, workers, and communities to utilise their full potential to work, produce, generate income, and sustainably consume.”
The economists say that bodies such as the International Monetary Fund and the G20 have warned that severe spending cuts actually slow job creation and economic growth.
“The true goal of fiscal policy is the need to ultimately stabilise the level of economic activity at full employment,” the statement reads.
“We should not be satisfied until unemployment is back to rates Australia enjoyed in the early postwar decades. Debt and deficits should not be targets in their own right but simply treated as byproducts of the required fiscal strategy.
“Major spending reductions by the commonwealth government are economically unnecessary and socially damaging. The first priority of Australian fiscal policy should be to strengthen investment, employment and growth. Government can and should pursue this priority without jeopardising its long-run fiscal strength and stability.”
The Australia Institute says revenue would be significantly boosted by reform on tax concessions for superannuation.