Opinion

Richard Denniss
After the virus: Debt warranted

This week’s budget marks a remarkable turning point in Australia’s economic and political debate. Fears of budget deficits and public debt have been replaced by fears of pandemic and mass unemployment. And I’m not talking about a skittish public – these are the fears of Scott Morrison and Josh Frydenberg.

Theirs has been a productive fear – one that’s shaken policy free from conservative tunnel vision and stripped the sheen off dogged neoliberalism, particularly for voters. This is a direct result of the pandemic. Because nothing undermines neoliberalism faster than co-operation. And even after decades of being told that individuals acting in their own self-interest was the path to wealth and health, Australia began its response to Covid-19 with a simple, collective view: “We are all in this together.”

It worked. Australians have seen what a “libertarian” approach to a pandemic delivers – the carnage wrought in America – and we have, in turn, embraced collective action and collective sacrifice for the common good, like no other time in modern history.

The public knows it wasn’t “the market” driving the lockdowns that kept Australia’s death toll so low. They know our self-appointed “business leaders” were, in fact, the ones arguing that we should let it rip. It wasn’t a “small government” philosophy that underpinned a hundred billion dollars’ worth of wage subsidies to business. And the public saw that none of Australia’s highest-paid chief executives objected when public money was being shovelled into their pockets.

No matter how hard the conservative press pushes, the Australian public simply doesn’t want to “let it rip” for the vague promise of economic growth. And neither do its leaders. The Morrison government’s regulatory and financial intervention has saved lives, jobs and its own credibility, something that has been lost by so many other conservative governments around the world during the pandemic.

But it is not only public spending and government regulation that has made Australia strong and safe; public ownership of key industries has been vital as well. The national broadband network (NBN) and Australia Post – both 100 per cent publicly owned – have proved themselves central to the survival of thousands of Australian businesses.

In the lead-up to the budget, the Morrison government finally announced it would upgrade the NBN to provide “fibre to the premises”, as Labor had promised a decade ago. In all the political analysis of the government’s about-face, what was lost was the Coalition’s new-found faith in the power of public investment. The government wasn’t announcing the privatisation of the NBN, it was announcing an additional $3.5 billion investment into our publicly owned broadband company. Likewise, the publicly owned Australia Post has invested heavily to cope with a near doubling in demand for its parcel delivery services.

Just imagine what would happen to our lives, and our economy, if the NBN and Australia Post followed the private sector’s lead and delayed all new investment until the economic recovery was well under way. This pandemic has shown the most efficient way to solve the “supply side” problems we face is for the government to spend big fixing the bottlenecks in our labour-intensive social infrastructure, not merely our concrete-intensive transport infrastructure.

Of course, not all of the government’s big ideas for nationalised assets are good ones. Angus Taylor wants to spend billions of dollars on a new gas-fired power station in the Hunter Valley, and the budget papers provided for another $8.7 million of public investment in the privately owned Vales Point coal-fired power station. But you get the gist. The post-Covid-19 conservatives love public investment and aren’t afraid to borrow to fund it.

In the wake of this pandemic, Australian democracy is not about deciding between two vastly different philosophies on the size of public spending, it is about choosing the parliamentarians who will decide what projects deserve investment. And if anyone ever tells you it doesn’t matter who is in power, just take a look back at Tony Abbott’s investment “record”.

Back in 2013, when Australia’s public debt was a mere $160 billion, Abbott was adamant there was no climate emergency. There was, however, a budget emergency, he said. During the next seven years, as the climate has warmed and the country has burned, the Coalition delivered a combined $313 billion in budget deficits, even before Covid-19 hit.

This week, the government announced this year’s budget deficit would be $213.7 billion and that, by June 2024, net debt would rise to about $1 trillion. Despite the sea of red ink, though, the Coalition backbench chanted “Hear, hear!” and the conservative press droned endlessly about the need for unprecedented measures in unprecedented times.

So, where to from here? What is the goal of a Coalition government if not to deliver budget surpluses? Since John Howard was elected in 1996, the pursuit of a budget surplus has been the defining feature of Australian economic and political strategy, but those days are, as Tony Abbott might say, dead, buried and cremated. Now they have conceded there is nothing wrong with borrowing billions of dollars – to spend on top-end tax cuts or gas-fired power stations – how will the government persuade voters it’s irresponsible to spend borrowed money on free childcare or renewable energy instead?

Josh Frydenberg will never deliver a budget surplus and it’s possible none of his successors will either. But that’s okay. The United States and Britain haven’t delivered a budget surplus since 2001. Again, it’s okay. The obsession with budget surpluses has largely been a uniquely Australian phenomenon, one that had more to do with political symbolism than economic management. As such, there’s no need to panic about the state of Australia’s finances. But don’t take my word for it. That’s what the Morrison government is saying, too.

You can have too much debt, and you can waste borrowed money on bad ideas, but those truths are unrelated to the fact that the size of Australia’s current deficit or projected debt are not problems in and of themselves. We can, and we should, argue about how the money is spent, but it’s not economics to worry about the act of money being spent.

It is obvious why individuals who are planning to retire want to repay their debts before their income falls, but it has never been clear why Australia should be determined to settle up by a particular point in time. Was Australia planning to retire? What were we going to do in “retirement”?

Now Australia is free from the banal question of “when will we repay all our debts?” there is nothing to stop us from asking more economically important, and more democratically interesting, questions, such as: What do we want our country to be? What do we want more of and what can we do with less of? Do we want those who already have the most to contribute more or less to our common goals? Do we want the gap between those with the most and those with the least to shrink or grow?

The world is full of interesting answers to these questions. The Nordic countries not only have the highest rates of tax in the world but the highest average incomes as well. Their big and “expensive” public health and education systems provide low-cost health and education services. Publicly funded free childcare means they have some of the highest rates of female participation in the labour force in the world and, in turn, their economies are bigger and more vibrant.

The US offers clear evidence that starkly different choices, and outcomes, are also possible. A huge budget deficit won’t help your country, unless it’s spent wisely. It’s up to the Australian public to choose which path we go down. Now we all agree that public spending, public ownership and public regulation can improve our lives, the biggest excuse for ignoring the Nordic options has been ripped away.

Australia is one of the richest countries in the world. And, despite Covid-19, we still live at one of the richest times in history. We can afford to do anything we want, but we can’t afford to do everything we want. Choices matter, as do the people we elect to make those decisions on our behalf.

We can spend the next 20 years trying to repay all public debt by some arbitrary year, most likely one that ends in a zero. Or we can spend the coming decades embracing the fact that borrowing money to invest in services and infrastructure that deliver lasting benefits is as good an idea for a country as it is for the young people who we encourage to take out a HECS-HELP debt. It’s entirely up to us.

What we do know for certain is that when conservatives stare into the brink of a surging pandemic and a collapsing economy, they turn to public spending and public ownership to fix the problem. All of us facing the looming climate catastrophe should never forget it was the self-described “hard heads” in the Liberal Party and the business community who turned to the nanny state when they needed help during this pandemic. And good on them for doing so. After all, who doesn’t love their nan.

This is the second in a series of essays that will run through October, each examining how Covid-19 will reshape key issues facing our nation.

This article was first published in the print edition of The Saturday Paper on Oct 10, 2020 as "After the virus: Debt warranted".

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Richard Denniss is The Australia Institute’s chief economist.