It is not the Liberal/National party blocking the proposed budget but the Labor, PUP and Green Coalition. Also what this article clearly demonstrates is what a mess the Gillard/Rudd governments made of their time in office and the steps they took to ensure that their woeful actions were made difficult to rectify.

Of course, debt is like heroin - those who embark on that road can never stop.

No wonder that the coalition could not stop it - only God can - otherwise we will end up like Greece.

Yes Alan, and hardly surprising given the coalition's seeming bent on further entrenching or retaining privilege!? [Or when Ideology trumps pragmatism!?]
They could just stop preferencing family trusts, (taxpayer funded welfare for the rich) and pocket/retrieve the (lost) 30 annual billions that that is currently costing the bottom line.
Then there's millionaire's super tax concessions.
Eliminate that and hey presto, another (lost) 40-60 annual billions added to the budget bottom line!
And which is more vital?
An increase in defense spending of around 5 annual billions, or negative gearing!? Or 8 annual billions, if we but wound up, private health fund rebates!
And then kept virtual millionaires out of the public system, by fully means testing inclusion.
I mean, welfare must remain for the needy, not the greedy, who have been somehow inculcated into believing, they're somehow "entitled", because they pay tax?
Instead, and given the incomes our system allows, they should rather see it as a privilege to pay tax, and just for the income earning privileges extended to them!
Other than that, we could actually try genuine, real tax reform and massive simplification; [see my earlier posts on very business friendly tax reform,] plus remove the profit demanding middle man.
Now very doable, but only if we continue to roll out the NBN and the factory direct sales/individualistic (family/co-op) entrepreneur endevour/Celtic tiger recipe, it makes very doable/possible!
Removing the (do bugger all)profit demanding middleman, (legislation) would virtually halve the cost of living/doing business here! (put huge downward pressure on the price/cost/wages spiral)
And with that, double domestic economy supporting discretionary spending.
Which would be further enhanced by genuine tax reform and simplification, and a return to publicly supplied (much much cheaper) power.
The coalition just need to lift their "buried" collective heads out of all that "warm and comfortable" stuff, and just take, a great big new, never before tried, dose of real realty; or, just never before tried, pragmatism!.
Or perhaps even just try thinking, even if that meant they'd have to tolerate the burning smell, emanating from previously unused cerebral circuits!?
Rhrosty.

Alan, not sure what rock it is you climb out from from time to time to make a passing swipe, but are you seriously suggesting we can trust any prediction made by the worlds smartest man. You know, the one who on no less than 200 occasions GUARANTEED a surplus, AT ANY COST, then finally admitted what many of us expected, a hug deficit.

Waffle on my freind!

Ever heard the saying, dig a hole!

Good morning all.
Interesting comments. Thank you.
@EQ, yes and no.
The Final Budget Outcome actually enables us to identify precisely how much of the nation's debt was inherited by the current Government and how much it has incurred.
Correct?
It also adds to the weight of evidence that the previous Government actually did not leave much of a mess at all.
Don't let the media suck you in, EQ.
@Yuyutsu, no, not at all.
There is no chance Australia will end up like Greece. The two economies are about as far apart as you will find anywhere.
No other economy in the developed world has Australia's extraordinary profile of low debt, low jobless, strong growth, high income, excellent economic freedom, low inflation, optimum interest rates and low taxation.
@Rhrosty, yes, agree with most of that analysis.
All the evidence suggests that most of the budget problems - and hence the burgeoning debt - are on the revenue side rather than the spending side.
There will be a tax White Paper produced some time late next year which it is hoped will come up with Coalition policies. (Why this was not done during the six years in Opposition is a neglected question.)
But let's hope when they finally begin to think about fixing the tax system, they get it right.
@Rechtub, no, not at all.
As we are now seeing, all treasurers who quote forecasts from Treasury, the Reserve Bank and the Finance Department will be wrong more often than not.
That is not a function of being the world's best treasurer. It is a function of being treasurer.
Happy to discuss.
Cheers, AA

Has it ever occurred to you Alan that when all new money is created as debt for growth + inflation, debt in the longer term will always out pace growth.

In the USA in the 1950's and 60's $1.00 of debt produced $2.40 of growth. Today that $1.00 of debt produces 3 cents of growth. Soon it will be negative.

See Jim Rickards ' The Death of Money' http://www.youtube.com/watch?v=KYW5OGWfqJc

Thanks, Arjay,
No, I don't have a spare 45 minutes to listen to Jim Rickards. But will be happy to read your summary here of how his analysis relates to this topic.
We may differ on the definition of debt, I suspect.
It may be a bit off topic, however. This piece accepts that government borrowings are necessary in all developed mixed economies.
The focus here really is on the hypocrisy of one political party declaring in opposition that debt was bad, and that it was "out of control" in Australia last year - and then in government intentionally increasing the debt substantially this year.
What does Mr Rickards think about that?
What do you think about that, Arjay?

Rather strange; my post was taken down and I was on topic with no abuse or foul language.

When new money is created as debt, eventually the debt can never be repaid. Jim Rickards has noted that in the 50's and 60's $1.00 of debt created growth of $2.40 in the USA and now that same $1.00 creates 3 cents of growth. So clearly when private banks create both inflationary money + money for growth as debt, the debt exponentially outstrips growth and can never be repaid.

We need Govt banks that create new money debt free for infrastructure and essential services like health and pensions.

As always, Alan, your analysis is as detailed as it is awesome.

Sadly, it doesn't amount to much, because it all ultimately depends on how the media plays it. And we all know how the media will keep on playing it:

ALP = wasteful financial management/Coalition = responsible financial management

Even if Australia's debt ever reached Greek levels, the media would still be banging the same old drum.

(And BTW, much of the Greek debt-collapse was caused by the fact that it had Europe's highest military budget. Contrary to prevailing neo-liberal propaganda, its social expenditure budget - pre-collapse - was Europe's second lowest.)

Yuyutsu,

"No wonder that the coalition could not stop it - only God can - otherwise we will end up like Greece."

Lol!...here's a graph (bit dated but still viable for comparison)

http://www.abc.net.au/news/linkableblob/3727694/data/possum-graph-8-government-debt-as-gdp-data.jpg

Govt debt as percentage of GDP.

Check out where Australia is and then check out where Greece is.

You'll note that at the end of Labor's fiscal reign, Australia has one of the lowest debt to GDP ratios in the OECD - and an AAA economy.

My first post has re-appeared. Alan it is really worthwhile listening to Jim Rickards author of 'The death of Money' The next big collapse will make 2007 and 2008 seem like a walk in the park.

If you want to know the detail and how to prepare see http://www.youtube.com/watch?v=KYW5OGWfqJc and read his book. He is among many like Gerald Celente ,Max Keiser and Dr Paul Craig Roberts saying this will be far bigger than the Great Depression if we don't act.

http://www.paulcraigroberts.org/2014/09/25/will-russia-china-hold-fire-war-alternative-paul-craig-roberts/

AA,

Good to see that your complete absence of economic credentials has not stopped you from posting fiscal fantasy, and that your hypocrisy settings are still on Max.

The single flaws in your polemic are:

1 The AAA rating was achieved under Howard after paying back most of Labor's previous debt.

2 The budget cycle runs from July to June, So the budget results up to July 2014 are entirely the result of Labor's policies,

3 Given the coalition's MYEFO done a few months after by treasury showed how badly Labor's predictions were prior to the election.

4 Labor is steadfastly blocking all of Hockey's saving measures, even those that it had included in its own election promises.

5 The only reason Labor were able to spend like drunken sailors without bringing the economy to its knees was because of the debt free status which labor inherited, which is very different from the mess that labor left behind.

Dear Poirot,

The graph shows only 34 countries - but the overall number is much bigger, so where are the others? A few years ago, Australia was among those "others", having no debt.

The problem is that debt is an addiction. If you find it acceptable, if you do it even once, then the next time you are likely to go easy on yourself and say, "Oh, just once more..." - it only gets harder and harder to quit, and with this mentality, even if somehow you become "clean" for a little while, soon you find yourself in the deep end again.

I don't care about this silly Labour/coalition petty-politics divide. One needs a microscope anyway to see their differences. This is a matter of principle, it's just something one shouldn't do, I am not even comfortable of owing the utility-companies money for electricity/water/phone that I used but haven't been billed yet. What kind of example is this to households and to the younger generations? Did everyone lose their shame?

Max Keiser says today that world debt is 5 times the GDP of the planet. So when interest rates rise, debt will outstrip any increases in productivity.

So to argue about reduction in debt without banking reform is denial of the mathematical reality we now face. This debt as created from nothing depreciating all our currencies. We can't possibly be that stupid.

Good morning all,
Interesting comments. Thank you.
@Shadow Minister,
1. No, not all. Australia did not have the AAA rating with the important Fitch agency under Mr Howard. This was achieved in November 2011 when Ms Gillard was PM and after Mr Swan had been Treasurer for four years.
That was the first time ever that Australia had achieved AAA ratings with all three major agencies.
2. Regarding "The budget cycle runs from July to June, So the budget results up to July 2014 are entirely the result of Labor's policies."
That would only be true if the new Government did not change any of Labor's policies. But clearly they did - as indeed they had a mandate to do.
The whole point of the article is to show from the Final Budget Outcome how much of the debt at June 30 2014 was the result of the Labor Budget, and how much was due to changes made by the Coalition in the ten months since the election.
Answer: debt up 13.7% over Labor’s levels. Interest payments up 28.6%.
Unfortunately they made many foolish decisions.
3. No, they were Treasury and Finance predictions, not Labor's.
4. Perhaps. But can you see how much worse the debt blow-out would have been had the Senate not limited at least some of their folly?
5. No, not at all. Debt free status had absolutely nothing to do with it. The other debt free economies all tanked disastrously through the GFC. It was clearly not a factor.
Happy to discuss.
Cheers,
AA

Dear Poirot and Yuyutsu,
International debt comparisons are quite intriguing. But it is vital we distinguish between net and gross debt.
Norway, for example has gross debt of 29.52% of its GDP. Which sounds like it owes a lot of money. But its net debt is negative 180.83% - in other words, a vast surplus.
Best source of net debt data is here:
http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/weoselgr.aspx
That data does show that Australia's net debt peaked in 2013 and was set to decline each year henceforward.
This graph of the gross debt shows the decline over the last year:
http://www.tradingeconomics.com/australia/government-debt-to-gdp
With the bizarre decisions the Abbott Government is now making, it appears that trend is reversing and both net and gross debt are now expanding again.
The differences in policies, Yuyutsu, do seem fairly significant, especially in economic management.
Happy to discuss.
AA

AA,

Fitch is the minor player, the Baftas compared to the Emys and Oscars. Fitch is the organisation that ranked Greece the highest of all prior to the GFC, and only changed its rating of AUS because it was invited to.

The financial policies of Labor were in effect until July 2014 until the coalition could start changing them, so prior to that it was all Labor's mess.

All were treasuries predictions, first using assumptions by Labor, and then accurate ones by the coalition. Isn't it funny how "treasury" is always so wrong under Labor and so much more accurate under the liberals.

Considering the Senate has primarily blocked savings measures, even the ones Labor promised, the budget is worse because of Labor obstructionism.

The other indebted countries also tanked. Labor's waste has been shown to be largely ineffectual. Mining had a bigger influence.

Not at all, SM, not at all.
Regarding Fitch, if you simply google ‘major rating agencies’ and then scan down the page you will see several unrelated sites which refer to ‘the Big Three’. Fitch is one of them.
Australia first gained AAA ratings with the Big Three in November 2011.
Regarding financial policies during the 10 month period September 2013 to June 2014, the critical decisions which have blown out the debt were all Coalition policies opposed by Labor.
The largest, of course, was Mr Hockey’s bizarre decision to give $8.8 billion to the Reserve Bank, which it did not ask for and did not want.
That is the largest single cause of the $24.36 billion hike in the debt attributable to Mr Hockey’s unwise decisions.
It is not difficult to list all the other stupidities which have blown-out the debt.
And what’s this “Labor obstructionism”, SM?
Really?!
You always condemned Mr Gillard as “Juliar” after her promised emissions trading scheme was blocked by the Coalition and the other parties. Correct?
Why was the forced solution of the carbon tax – which was never Ms Gillard’s preferred option – a Labor lie and not Coalition obstructionism?
The words pot, kettle and black somehow come to mind, SM.
Happy to discuss.
Cheers, AA

Dear Alan,

<<The differences in policies, Yuyutsu, do seem fairly significant, especially in economic management.>>

Really?

Both parties believe that government should manage the economy of the land.
This is wrong in principle because government is an involuntary body.
That this party wants to manage the economy this way and the other party wants to manage the economy another way, are therefore insignificant differences.

Both parties believe that it is OK to have debt and further, to place a debt on us, tax-payers. Whether it is this much debt or that much debt, whether it is gross or net, whether it is acceptable in these circumstances or in some other circumstances, are insignificant differences. All debt is gross.

If "my" party were to take power finding a debt, then they would sell as many government buildings as needed, in fact they would sell their cars and their shoes if necessary so that the same day they enter all debt is eliminated.

I don't do drugs. I don't take debt - I'd rather go cold and hungry if I didn't have the money - and so should they. These things are wrong - so one should not do them, period.

Dear Yuyutsu,
Yes, there are certainly plenty of areas where all parties have the same ideas.
The differences between Labor and the Coalition in economic management include:
• Wage levels
• How wealth generated from selling Australia’s minerals and energy resources is shared
• Proportion of wealth the top 10% and the top 1% are entitled to control
• Amount of tax the large corporations are allowed to avoid
• Extent of economic stimulus during downturns
• Subsidies for manufacturing industries
• Resources allocated to curbing tax evasion
• Resources allocated to social welfare
Most people would consider these significant, don’t you think, Yuyutsu?
Cheers,
AA

Dear Alan,

I am not saying that there are no differences between the two major parties, but rather that in comparison with the big picture, those differences are dwarfed and pale in significance, so are not worth considering.

Both parties agree that the state (and its government) is a legitimate body, despite being involuntary. I don't. They both agree that despite never having received the consent of the inhabitants of this continent, they somehow have a right to control and interfere with our lives, economy being just one facet of it. I don't.

All the items you mentioned may legitimately and morally only be handled by voluntary body(s) on behalf of people who agreed to be part of it - certainly it should not be that same body which has a monopoly on arms and violence, which is also to control of the economy (should the people choose to have economy(s) in the first place).

Under the circumstances, it's better to stop pretending that the rulers want our good. It would be cheaper and more honest not to have parties at all, but just one dictator, where we don't have to vote (how significantly) whether we prefer that he hits us first on our left and then on our right, or first on our right and then on our left.

AA,

The reason that Gillard earned the moniker Juliar was because she and Whine Swan gave the Australian an iron clad guarantee that there would be no carbon tax under a government she led, and three weeks later sold Australia down the river with the biggest most comprehensive carbon tax in the world, fixed for three years and then a variable carbon tax after that.

Secondly if you read the economic news the ratings most commonly quoted are firstly S&P, and then Moody's and very seldom Fitch. The AAA rating achieved under Howard underpinned the financial transactions in the world, the Fitch rating, while nice to have was largely irrelevant.

Not at all, SM.
The opposite is true, as is often the case with your claims.
Labor policy before the 2010 election was for an emissions trading scheme.
According to the Greens and the independents Ms Gillard fought hard to get through, but did not have the numbers in either the House of Representatives or the Senate.
Correct?
Labor policy has not changed. If Labor is returned after the next election with a workable majority - which now seems likely - then an ETS is what the nation will get.
So here is your dilemma, SM:
The current government won office on a promise to cut the debt and deficit. Correct?
Yet since the election, the forward estimates show the deficits have been doubled. And the Final Budget Outcome shows that in the first 10 months, debt has blown out nearly 14% over the level projected had Labor stayed on.
Are Hockey and Abbott liars also? Or has the hostile Senate prevented them from implementing their economic program?
You can't have it both ways, SM.
On the rating agencies, again, no-one agrees with you. Virtually all authorities which analyse credit ratings talk about the Big Three - S&Ps, Moody's and Fitch.
Cheers, AA

AA,

To help with your selective amnesia, I am going to list a few occurrences and please point out if anything I state is incorrect:

1 After having the ETS voted down at least twice in the Senate, Rudd indicated that Labor would no longer pursue an ETS.

2 Just before the 2010 election Juliar gave an unambiguous, iron clad promise that "There will be no carbon tax in a government I lead" followed by Whine Swan rubbishing the "hysterical" claims by the coalition that Labor intended to implement a carbon tax.

3 Roughly 3 weeks after the 2010 election Juliar announced plans for a carbon tax.

Thus Gillard came to be known as Juliar by the majority of Australians.

Secondly, every single labor budget forecast from 2007 to 2013 has significantly over estimated revenue and underestimated costs, leading to repeated record budget blow outs. The chances that if Labor had won in 2013 of keeping to the election forecast is zero.

The coalition has reduced expenditure significantly and would have done more if labor had not been so obstructionist.

Thirdly Since 2003 Aus had a AAA rating for all its bonds and transactions. The addition of Fitch to the mix made no practical difference whatsoever.

Finally, the return of the $8bn or so of working capital to the reserve bank is essentially a paper transaction that makes no real difference to the bottom line nor interest payments. It was looted by Labor to patch up its figures.

Just some quick responses, SM:

1. Your analysis ignores almost all of the pertinent facts.
Including that Labor after the 2010 election did not have a majority in the House, let alone the Senate.
So there are clearly far more excuses for Ms Gillard failing to deliver the promised ETS than there are for Mr Abbott failing to reduce the deficit and debt.
Correct?

2. Again, SM, there were no "Labor forecasts" of revenue or spending or deficit or debt. There were Treasury and Finance Department projections. These are always inaccurate precisely because they are forecasts of likely future outcomes - as Mr Hockey is now discovering to his dismay.

3. So we are agreed that Fitch is one of the Big Three? At last.

4. The $8.8 billion transferred to the Reserve Bank was real money. It is part of the reason the deficits have doubled over the levels Treasury and the Reserve Bank projected had Labor stayed on.
And it is part of the reason the debt has increased by $24.36 billion in the Abbott Government's first ten months.

Cheers, AA

AA,

1 While you would like to airbrush Gillard's lie, the single most pertinent fact is that Juliar failed to deliver the iron clad guarantee of no carbon tax.

Juliar no more promised an ETS than grocery watch, but did promise an East Timor solution.

2 The underlying revenue assumptions in every Labor budget were criticised at the point of issue as wildly optimistic as were the pre election predictions. The MYEFO done under Hockey a few months laters also by the same treasury used different more accurate assumptions and predicted a different fiscal outcome. That Labor exceeded every expenditure target didn't help either.

3 As the RBA is another branch of government, giving the RBA $8.8bn is like moving money from your savings to your cheque account. Hockey could reverse it tomorrow, but he is not an idiot like Swan.

3 Yes it is agreed Fitch is the third biggest rating agency and that from 2003 to 2011 no ratings reassessment was done. Noting that even in 2003 Australia's long term debt had a AAA rating from Fitch.

Okay, SM,

1. So we agree that Mr Abbott and Mr Hockey are liars for doubling the deficits and increasing the debt by $24.36 billion? And they are liars for every other promise blocked in the Senate?

2. Projections are still merely forecasts, aren't they, SM?

3. No, the $8.8 billion was borrowed from overseas, as part of the $24.36 billion debt blow-out in the first 10 months.

4. Yes. Correct.

Cheers, AA

AA,

1 Hockey and Abbott cannot be called liars for Labor's budget legislation of 2013/14 blowing out the budget, only the economic ignoramuses trying to pin it on the coalition.

2 If projections are deliberately over optimistic to justify unnecessary expenditure, then it is not only reckless but deceitful.

3 Do you think the RBA has the $8.8bn sitting around in big bags with $$$ on them? No, they buy liquid assets like government bonds. So the money given to the RBA is funded by borrowings from the RBA.

This is where your complete ignorance of economics is blatantly evident.

4 I am glad that we agree that the 2011 rating by Fitch was meaningless.

SM,
1. No, the opposite is true.
2. Treasury's and the Finance Department's projections were not overly optimistic and hence neither reckless nor deceitful. They were simply proven inaccurate by subsequent outcomes.
Precisely as is happening now with Mr Hockey's budget projections.
3. The $8.8 billion could have been given to the Reserve Bank, or it could have been applied to debt reduction.
4. I'm glad we agree that AAA ratings with the Big Three was achieved for the first time in November 2011.
So, a question for you, SM:
Was it irresponsible for Labor to achieve the deficits over the forward estimates at the level it did ($54.6 billion), and the debt at the level it chose ($178.1 billion for 2013-14)?
Yes or no?
If yes, then how much more incompetent, reprehensible and evil is the present Government whose spending and revenue decisions in its first 10 months have doubled the projected deficits (to $122.7 billion) and blown out the debt by 13.7% (to $202.5 billion)?
Thanks. AA

AA,

1. So you are claiming that the budget legislation to June 30 2014 was not Labor's legislation? Whose was it then? The spending and revenue decisions of the first 10 months were entirely Labor's.

2. So Labor's budget projections in 2012 and 2013 showing a > 8% revenue growth when all indicators from practically every economic organisation were showing a slow down. This is not just a case of 20/20 hindsight, as these budgets came under a lot of criticism for just this reason at the time. The PEFO figures were similarly optimistic as demonstrated by the more accurate MYEFO done a few months later under Hockey. Now either the treasury department suddenly got a brain or a competent treasurer.

3 The RBA needs a cash reserve to perform its function properly. As I showed before, it attracts no additional interest and the cash gets written up as an asset with a result of zero net debt increase.

4 As the election projections were entirely based on Labor's incompetent forecasts, blaming the coalition for the results of labor's crappy forecasts is hypocritical.

Thank Alan.

I was looking at the data from finance just last night, and while I did get to sleep, I had this recurring nightmare where Mathias Cormann keeps knocking on my front door asking for money.

I suspect Joe never really considered that he'd need a Plan B and that Palmer and Co would, after some games, pass all but a few hundred million of the budget. It also looks as if he has no real idea where he is going to get greater revenue from, or where he can make further cuts from. There is a limit to the aid budget and sacking another 10,000 public servants will cost more in lost revenue and governance than it could possibly save in salaries.

I think we are in for some interesting, if painful months ahead.

Thanks, Val.
Since this article was written, the Finance Department has released the monthly debt figures for July and August this year.
They show:
1. The government’s net debt projection for 2014-15 is $226.39 billion. That is an increase over last year’s target of $48.3 billion, or 27.1%.
2. In July this year, the debt increased from $202.46 to $208.15 billion;
3. In August, the debt expanded further to $217.55 billion. That’s an additional $15 billion in only two months, a rate of increase above 3.6% per month or 54% annually;
4. Already, in two months, Hockey and Cormann have borrowed 63% of the new borrowings they want for the entire year;
5. The total interest bill for 2014-15 is forecast to be $14.7 billion. Last year, during which Labor managed the economy for only five weeks, it was $10.8 billion. The year before, which was all Labor’s management, the bill was $8.3 billion. So a 77% increase in interest payments in the Coalition's first two years — if this year’s target is met.
6. So the total increase now — well, at the end of August anyway — above the level Labor left last year is $39.45 billion. Up an extraordinary 22.1% already.
7. At the current rate of expansion of borrowings, the total net debt left by Labor will be doubled by next July.
See here:
http://www.finance.gov.au/sites/default/files/mfs-july-august.pdf
Or google: That's not a debt disaster.
Cheers, AA

AA,

You have provided wonderful information on how the interest on Labor's debt is devastating to the budget, and how Labor's budget of 2013/14 has left debt far higher than Labor promised (again).