By Andrew Robb
For the first time in more than two decades, Australian households are saving about 10 per cent of their disposable incomes – and it’s time the Gillard government followed suit.
Just five years ago, Australians were in negative territory, spending more than they earned, but households and businesses have tightened their belts since the global financial crisis and are making real efforts to repay debt.
At the peak of the crisis in November 2008, Australian business owed $774 billion. Less than two years later, debt stands at $678 billion. The Reserve Bank notes a “rethinking of attitudes of debt and spending” at family and business levels which the bank’s assistant governor, Philip Lowe, says would lead not only to “a lowering of risk in household balance sheets, but it would reduce inflationary pressures during the period of high investment”.
Advertisement: Story continues below
While Australian households and businesses have quickly identified the importance of living within their means since the crisis, the Rudd-Gillard government has been inexplicably flat-footed.
There is no sense of urgency in restoring the budget resilience that the government inherited.
Many Australians find it difficult to fathom, for example, why the government would spend a further $20 billion in stimulus spending through to 2012, for a total of $88 billion.
The government borrows $100 million every day. This means it is competing directly with businesses and households for finance, which has led to higher interest rates and severe cost pressures on families.
This is all part of Labor’s panicked response to a single quarter of negative growth in 2008. Imagine if there had been two.
Net debt is set to peak at $94.4 billion. In the first three months of this financial year, Labor racked up a budget deficit of $25.2 billion, the biggest ever.
There is a culture of tax, spend and borrow ingrained in this government and bad habits are hard to break.
Despite these realities, the likes of the Finance Minister, Penny Wong, boast about “the fastest fiscal consolidation since the 1960s”.
Let’s put this claim in some perspective.
It is based on comparisons with Australia’s two previous biggest budget deficits, in 1983-84 (3.3 per cent of gross domestic product) and 1992-93 (4 per cent of GDP). These were eclipsed only by Labor’s 2009-10 budget deficit of 4.3 per cent of GDP.
When you have embarked on a rapid fiscal expansion, it is easy to implement an apparently sizeable consolidation when income picks up because of, say, Chinese demand. This can be achieved while doing little to cut government spending.
Labor doesn’t get that they shouldn’t have got the books in such a mess to start with, and that they should be repairing the damage more quickly to take pressure off interest rates.
The debate about banking competition should be viewed in this context.
The government in its response lost sight of the key issue that sparked the row – the banks were raising interest rates over and above the level prescribed by the Reserve Bank.
Australians are being squeezed by the highest interest rates in the West. There are disturbing reports that six families are vacating their houses each day because they can no longer afford their mortgages, and thousands of others are under threat.
Wayne Swan’s banking proposals are big on politics but will do nothing to address this fundamental issue. Changes proposed by the Treasurer could have the perverse effect of further enhancing the position of the big four banks and driving interest rates higher.
If the government was serious about addressing the pressure families are under – cutting back its spending and borrowing would be the most obvious step – the government would no longer be out there competing with the credit unions and building societies for funds. And it would get a lot of praise for doing something constructive and positive.
Had Labor’s spending and borrowing been reined in this year, interest rates, debt and the budget deficit would be lower and Australians would be heading into 2011 with a lower risk of interest rate rises.
Confronted as they are by cost-of-living pressures, households and businesses deserve much credit for giving the Gillard government a valuable lesson on the importance of living within our means.
Andrew Robb is the opposition spokesman on finance, deregulation and debt reduction.
Source: www.smh.com.au
