Debt is not a dirty word

The economy usually becomes a big issue in any election.  People tend to focus on the “hip-pocket nerve” when they vote - although they may philosophically agree with policies like social welfare and new infrastructure, when it comes down to tax dollars and sense they might vote for the party that will leave them with the most money in government - which often tends to be the economically conservative Liberals. However, the Liberal-National Coalition, among others on the economic right-wing, are responsible for the spread of many completely false myths about the state of the economy.  In the lead up to August 21, I’ll go through some of the atrocious lies of the Coalition on economics.

1. Government debt is always bad
This is one of Action Man Tony’s REAL ACTION CONTRACT points.  He says that the government spent irresponsibly during their term, way beyond what was needed to save us from the effects of the GFC.  People fear debt - the biggest debt that the average Australian may have would be their home loan, usually well under a million dollars, and they understand the impact of weekly mortgage payments on their hip pocket.  Nationals leader Barnaby Joyce, a man with as much knowledge of economics as Lindsay Lohan has of string theory, claims the government is “up to its eyeballs” in debt and that it could default at any moment.  This statement was so ludicrous that the non-political Reserve Bank intervened, with its Governor, Glenn Stevens, issuing a statement that Australia’s debt was far from that of some Eurozone countries.  

The fact is that having a government debt is not so bad.  In a situation where the economy needs propping up - say, the credit crisis of 2008 - running a budget deficit is a very smart idea.  By borrowing, you can spend money on improving industries, creating infrastructure, or even cash hand-outs.  Though the cash handout seemed stupid to many at the time, it’s a very intelligent way to create economic activity especially in Australia, a country of spenders (not savers).  People get money.  They spend it.  The companies who receive this sudden new injection into the economy and their business activity can take on more workers and give their current workers more hours, meaning that they can spend more money, and the cycle continues until the initial injection by the government into the economy is equalled by savings, taxes and other “leakages” out of the economy.  

The fiscal conservative (read: Coalition) policy in a recession would be to cut jobs and “tighten the belt” of the public sector, while letting businesses in the private sector fight for themselves - the efficient businesses, in theory, should survive, while those that can’t sustain themselves will die the death they deserve.  The problem with this is that with less people working, there are less people spending, meaning businesses won’t have money to pay workers with, meaning they’ll lay off or cut hours for even more workers, meaning even less people will spend money… you get the picture.  This also stops firms from borrowing funds for investment, as people will have less money to save in banks for those banks to lend out, reduces the government’s income from tax revenue, and reduces the output of vital export industries that can help “keep us afloat” in a crisis.  Overall, not spending in a recession only makes things worse.

Government spending helps to save jobs, which means firms can still borrow from banks to invest and innovate, giving even more people jobs.  It means that the government continues to earn income tax revenue from those people who hold onto jobs, and allows industries satisfying countries like China to continue meeting demand - keeping jobs alive.

It was thought like this that helped America and the world get out of the Great Depression (though the reality only hit home at the start of World War 2, when every government HAD to spend to fund the war effort - boosting productivity significantly even if not for the most right of reasons.)

The fact is that a responsibly managed debt that makes up only a tiny portion of a country’s total output - like Australia, where debt is only at 6% of GDP, compared with an average of 94% for developed countries - and that taxpayers only sacrifice a little to pay back, is a way of ensuring the economy continues to grow even in the face of crises.