But Alan, why has Australia needed to borrow through the years of the mining boom?

Why have we got any debt at all?

We shouldn’t have, given the most enormous wealth we have had in the ground, the rate of its extraction and the prices we have been getting for it overseas.

Given that we have been in debt during this period, how on earth are we going to get out of it as the boom winds down? How can it not increase from this point forward?

Oh hold on – could it be that we have had enormous immigration all through this period, and have needed the most enormous amount of money, including borrowed money on top of our massive primary resource income in order to simply keep up the same level of infrastructure and services for this staggering rate of population growth??

One of the biggest factors in balancing the books and achieving a healthy fiscal future is to curtail the ongoing huge demand for infrastructure and many other things that borrowed money is helping us build.

Within a net zero immigration regime, it would surely be a great deal easier to balance the books…. or to keep the imbalance small and manageable.

< At the macro level, the strongest economy in the world – and virtually guaranteed to stay that way. That's measured by income, growth, jobs, inflation, interest rates, taxes, productivity, savings, terms of trade, credit ratings and other variables. >

Well perhaps we need a few more realistic indicators, such as; improvements in the quality of infrastructure and services for the existing population, rather than the amount of new stuff.

An excellent article.
Radio National just reported that 50% of conservative voters do not think government intervention can rectify problems in the economy. Those people obviously understand nothing about the role of a government that has control of a currency area.

A budget outcome should not be an aim. The aim of a currency issuing government should be to increase employment to a maximum so that the economy can build the structural and essential services the community needs. Planning and making the funds available to do that reduces the social security outlays and increases the profitability (and therefore the tax payments) of those supplying the extra materials and services utilised. Those features will tend to reduce the deficit to GDP ratio.

The main causes of business cycles are variations in the enthusiasms of business flowing from herd movements in one direction so that overexpansion in one or more industries leads to prices dropping. The coal and iron ore businesses are the latest illustration of this stampede in one direction followed by a collapse.

Competent governments make fewer mistakes that most major businesses. Consider the string of errors by BHP and RIO. BHP was slow into the iron ore and coal businesses, probably because the company didn't understand the efficiency of rail transport over dedicated tracks. BHP overpaid for Magna Copper, and started Ok Tedi with inadequate regard for the high rainfall. Then a $2 billion failed direct reduction pellet plant. RIO made an overpriced takeover to expend into the aluminium industry and almost went broke. Such mistakes are more costly to a community than government errors although the Collins class subs come to mind.

Given the short time available for planning, the Australian (Labor) Government's stimulus packages were a roaring success only undermined to a limited extent by some state governments' poor management of some school projects and pink bats, the latter mainly in one state.

It is a pity that more Australians do not understand the money theories promoted by the Economics Department of Kansas City University and Australian professor Bill Mitchell.

@Ludwig,

Thanks for these observations.

Brief responses:

Re: “why has Australia needed to borrow through the years of the mining boom? Why have we got any debt at all?”

One reason is that when income was flowing at unprecedented rates between 2000 and 2007, pre-GFC, most was given away to high and middle-income earners in tax concessions or middle class welfare or squandered in poor fiscal management. Like the $5 billion losses on the foreign exchange markets.

When the Coalition left office only 7.3% of GDP was in the bank. Should have been above 50% - like Norway (138%) or Finland (72%).

Then Australia would have no net debt now.

See here: http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/weorept.aspx?pr.x=58&pr.y=7&sy=2007&ey=2018&scsm=1&ssd=1&sort=country&ds=.&br=1&c=193%2C542%2C122%2C137%2C124%2C181%2C156%2C138%2C423%2C196%2C935%2C142%2C128%2C182%2C939%2C135%2C172%2C576%2C132%2C936%2C134%2C961%2C174%2C184%2C532%2C144%2C176%2C146%2C178%2C528%2C436%2C112%2C136%2C111%2C158&s=GGXWDN_NGDP&grp=0&a=

Re: “We shouldn’t have, given the most enormous wealth we have had in the ground, the rate of its extraction and the prices we have been getting ...”

Correct.

Re: “Given that we have been in debt during this period, how on earth are we going to get out of it as the boom winds down? How can it not increase from this point forward?”

That chart shows the repayment rate the IMF anticipates. Relative to other nations, Ludwig, it’s quite readily repayable. The current net debt will have halved by 2018 - provided there is no change of government. Then halved again every two or three years.

Re: “One of the biggest factors in balancing the books and achieving a healthy fiscal future is to curtail the ongoing huge demand for infrastructure and many other things that borrowed money is helping us build.”

No, not really. Balancing the books is only one objective. Jobs, income, quality of life and being a good global citizen are also important. Building infrastructure is necessary for these.

Re: “Well perhaps we need a few more realistic indicators, such as improvements in the quality of infrastructure and services for the existing population, rather than the amount of new stuff.”

Yes. This is actually quantifiable. But to do so doesn’t suit the dominant narrative in Australia at the moment.

Such is Australia’s doom.

@Foyle,

Agree completely. Very well articulated. Thanks.

Cheers,

AA

Hi Alan,

Things must be getting pretty desperate over in France. Do you publish your economic analysis of the EU in the EU? Mmmm, I bet that would make you popular?

You mention that our so called debt problem is “laughable abroad”. What you didn’t say was quite what it is they have to laugh about? The answer is that they have nothing to laugh about because they are economically up the proverbial creek thanks to social democratic incompetence.

You forget that their laughter (?) is driven by economic anguish and not humor.

So let’s get this straight, many of the nations against which you “compare” Australia are up the creek and somehow that makes your comparison valid?

Put another way, the others are doing so badly that this makes us look good? Not to mention that if we keep doing what we are doing we will indeed be up the same creek as them. Paddles anyone?

When are you going to point out the goods things the “other” nations are actually doing to get themselves out of the poo? Then we can determine what, if anything we could adopt, rather than your endless off shore bleating.

Why are the Europeans in such an economic mess?
What did they do wrong?
What are they doing to get out of it?
What progress are they making?

Show us something positive that has worked for the EU, then you might get some of the attention you crave

The authors graph neatly shows the dramatic increase of debt to GDP from the time of the election of the Labor Govt from very low levels.

Energy and water infrastructure under the Labor Party? This was the party which was going to launch into "clean energy" and,advised by its Climate Change fanatics proceeded to fund desalination plants which are now billion dollar white elephants which continue to cost taxpayers money. Some were to be powered by wind farms,another ridiculously expensive left wing fantasy.

School halls for schools which didn't even need them and even asked not to have them built. Fantastic waste.

Insulation? Are you sure you wanted to mention this?

Labor spent much of the future fund generated from the mining boom and now Rudd has instituted a tax on savings accounts which he will undoubtedly use, given the chance.

I'm afraid the old line of "we're doing better than some other countries" goes nowhere. We could do a whole lot better.

Thank you Alan Austin for such a well researched article. And the tone is most commendable too, given the prevailing political climate that has grown up over three years of trying to knock down an "illegitimate" government by hook or by crook.

Sadly, for a clever nation, we don't care much for facts nor analytical rigour. And we seem to have lost that courage of the world-pioneering social vision we had a hundred years ago. Perhaps we have taken Malcolm Fraser's counsel to heart all too seriously - put sports in front of politics.

Hence our journalists provide us daily with headlines as if we are ready to barrack at a footy spectacular. Or titillating ones over nothing: Sexappealgate is bad for Rudd,for instance.

At a more fundamental level, we seem to have developed a mentality of entitlement that is underpinned by a barely submerged right to kick anyone or anything deemed to have stopped us from our entitlement: Why couldn't the government have done better so that we are forever, by a country mile,the bestest in a world in which we can reach our fantastical dreams: MacMansions; Super safe 4X4s to take their precious kids to and from their private schools; ever bigger compensations (read incomes) ever more better packaged to avoid the ambit of taxation laws; et cetera?

Alan,may you live to be 100, with your intellect undiminished and your courage unbridled.