After what has happened why would any business or government allow credit ratings prepared by US agencies to influence corporate governance, budget and expenditure decisions.
A timely and well argued article.
Bruce Haigh

I always wondered whether those people arguing that government debt is bad were themselves busy taking out mortgages to invest in property and doing very nicely as a consequence.

It really didn't help that the Howard Government was busy selling government buildings in Canberra to pay off the federal government debt. That decision will seriously come to bite us in time - I have never understood why such an attitude was considered good economic management.

As the author clearly argues, we are already paying the price in NSW for such short sighted thinking.

As someone who holds the old-fashioned idea that people (and governments) should live within their means, the current international credit crisis is the natural result when misguided governments fail to do this. As institution after institution is cashed in, with shareholders receiving almost nothing, we are facing a new era of financial prudence and austerity. Australia may have no federal public debt, but our level of private debt is horrendous, and is likely to cause a major crisis as soon as the Chinese become unable to export any more goods to america.

In these circumstances, any extra borrowing would be crazy. In addition, NSW cannot borrow without the consent of the loan council, and the response of all the other states (who have all privatised their power system) can be expected: "If you want to spend $10 billion on infrastructure, privatise your power like we did". Do you really expect them to subsidise NSW?

There is, of course, another way. That is to increase state taxes. A doubling of council rates, for example, could well yield $10 billion a year, which would fund quite a program. It begs the question, of course, whether electors would prefer to go without.

The comment that today's taxpayer should not have to pay for infrastructure that tomorrow's taxpayer will use, is, of course, specious. Remember that tomorrow's taxpayer will in turn be paying taxes to support infrastructure used by the day after tomorrow's taxpayer.

It is wonderful to see state governments unable to borrow reckessly. It is a pity we can't similarly restrain the Commonwealth.

A simple program to solve our infrastructure and financing problems would be to:

(a) raise the tax on petrol to the level in Europe.

(b) raise public transport fares to the level that the syatem pays its way.

(c) raise the reserve bank interest rate to 12%

(d) use the additional revenue to fund infrastructure.

Of course, this would cut the standard of living, but that is going to decline anyway.

And, following on from plerdsus, cut all subsidies on roads, but do not sell productive, inherently monopolistic assets such as energy assets and airports. Privatization is not the way to go in many cases as it does not necessarily lead to efficiencies and not everything is about efficiency anyhow.

Comparing the state gov debt to the income of the state is inane. The majority of the taxes go to the federal gov.

If labor has presided over the 10 most profitable years whilst running a deficit and allowing the infrastructure to decay, then they should be downgraded. The problem is that the people of NSW are the ones to pay.

The sooner we get shot of them the better.

Plerdsus, Admittedly, the Loan Council determines the amount of borrowing each State can undertake. However, no doubt the Commonwealth Government exercises significant influence at the Council and if the Commonwealth holds the kinds of silly views which former Treasurer Costello did than it would be difficult for any State to increase its borrowing. But if the issue cannot be addressed and some basic facts recognised then the country will be in very deep trouble.

The remedies you suggest do not make sense! Except to an extent in respect of petrol pricing. Public transport has considerable external benefits to the community as a whole: a sensible strategy would be to encourage much greater use of public transport. In the crash of 1929 the US Federal Reserve did raise interest rates: look at what happened.