Harry Jenkins (Speaker) Share this | Link to this | Hansard source

I have received a letter from the honourable member for North Sydney proposing that a definite matter of public importance be submitted to the House for discussion, namely:

The growth in Commonwealth Government debt which this week passes $100 billion.

I call upon those members who approve of the proposed discussion to rise in their places.

More than the number of members required by the standing orders having risen in their places—

Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

I thank my colleagues for supporting me in this matter of public importance—the appropriate protocol to follow at this juncture. It is not quite the same melancholy duty as a former prime minister had but, certainly, it is my melancholy duty, from an economic perspective, to inform the House that at the close of business last Wednesday, 24 June, the outstanding Commonwealth debt on issue passed the sad milestone of $100 billion. This comprised bonds of over $78 billion, indexed bonds of $6 billion and treasury notes of $16.1 billion. The milestone is all part of Labor’s plan to run up government debt of over $300 billion, a level unprecedented in our lifetime.

Interestingly, we saw this week revelations that state debt has now exceeded all expectations and by June 2013 state debt will exceed $230 billion, which means that, under Labor, Australian governments will have over half a trillion of government debt—of taxpayer debt. That is a massive amount of money. Why is Labor doing this? It is money borrowed from the next generation. In fact, I lie—I mislead the House: it is not from the next generation alone; it is from all generations. In order to repay this money it will have to be the old, the seniors, the young—every age group will have to dig deep. People not born yet will have to pay off this debt.

The economic slump will not last forever. The government’s own budget forecasts have the Australian economy recovering to above trend growth by 2011-12. We think the government’s overall forecast and projections are ambitious, to say the least. Having said that, let us accept what the government says: let us accept that for three years there is going to be growth in Australia of less than trend. It begs the question: if we are going to have three years of below trend growth, why do we have to have seven years of government deficits? Under the Labor Party, even on their projections, there are only three years of below trend growth. It is not three years of negative growth; it is three years of below trend growth. And yet we have seven years of deficits which are leaving Australians with over $300 billion of debt.

What is the impact of this debt addiction? It pushes up interest rates. The crowding out impact results not only from the government being a borrower from the Australian people and a borrower in international markets, but from the fact that the government is a very powerful borrower in the market. It is AAA rated and when the government borrows money it ends up being in competition at some point with business—big business, small business and everyone else.

David Bradbury (Lindsay, Australian Labor Party) Share this | Link to this | Hansard source

There’s not much demand!

Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

If you believe the Labor Party there is no crowding out. There is something absurd about that. Perhaps there is some crowding out. Arguably, the United States, the United Kingdom and the Euro zone are printing money. It works quite well in Weimar Germany and it still works quite well in Zimbabwe, and also in some other places. But there is a certain point where governments have to stop printing money and start pulling back that printed money from the economy. That has a real impact because, ultimately, it means that the only way to stop inflation getting out of control—because of all of this printed money—is to jack up interest rates. That particular time, as interest rates are going up, is exactly when we will be asking business to invest in new plant and equipment and in new enterprise and risk-taking activities. Investment often requires borrowed money. Those businesses will have to borrow at higher inflation rates because they will be competing with the 800-pound gorilla in the market, which is the Australian Office of Financial Management. For example, in Australia the secondary market yield on five-year Commonwealth Treasury bonds is 5.25 per cent. That is three-quarters of a per cent higher than at the time of the May budget. It is a full two percentage points higher than the low this year in February. So it went up from 3.26 per cent on 2 February to 5.25 per cent today. That is the five-year money. It is a massive increase. Private sector borrowing costs are, of course, priced off the Commonwealth benchmark. So the costs of finance for the private sector, which are based in many ways on the yield curve of the Commonwealth bond, have gone up in a similar trajectory. At the same time, the Reserve Bank has been cutting interest rates or leaving them at a stable level. So there is rising concern globally about the global supply of sovereign debt. It is a basic economic equation: supply and demand. If governments around the world, particularly the United States, the United Kingdom and the Euro zone, are issuing bonds, if they are creating a massive supply of government bonds and flooding the market, it will inevitably lead to higher interest rates. Those higher interest rates have to be paid for by not just taxpayers but by everyone, including people who do not pay tax. Everyone will pay a price because those higher interest rates will be built into the cost of everyday goods. They will be built into the cost of food, petrol, operating a car, buying a car or building a house. Those costs will all go up because the cost of running a business will rise directly as a result of the fact that governments have borrowed too much money.

The OECD has warned about the dangers of the rising debt. It notes that the outcome for the global economy could be less favourable if there is a faster increase in bond yields due to sharply deteriorating public finances. What does this mean? Quite simply, it means that, if governments are borrowing money and they are running deficits, they are borrowing money to fund their day-to-day operations; they are borrowing money from the general public. And, if it is not from the general public in Australia, which represents about 40 per cent of the government’s borrowings—the government borrows 40 per cent of its funding from Australian investors—the other 60 per cent has to come from overseas. Australia has always been an importer of money. We have needed to bring money into the country to fund the massive investment in mining and resources in particular. If you have the federal government borrowing hundreds of billions of dollars and if you have the state governments borrowing $230 billion, that money is going to replace the investment of foreigners in private sector investment in Australia, unless the pool gets bigger. The pool of investment is not going to get bigger because other governments around the world are borrowing so much money at the same time. There is only so much money you can borrow.

Too much debt got the world into this mess. Too much debt is not going to save the world from this mess. The countries that are strong economically at the moment are the ones with low debt or no debt. Look at China. China is an economic powerhouse. One of the reasons why it is so strong at the moment is that it has a massive surplus of funds. Some, not all, Middle Eastern countries are in great shape. Why? Because they have a surplus reserve of funds. Australia has been able to ride through this storm in better shape than most other nations. Why? Because the government did not have any debt going into this major downturn. The government not only had zero debt; it actually had surplus funds.

Let us look at countries that are in the worst position, such as Japan. In mid-May Moody’s Investor Services downgraded the Japanese government foreign currency credit rating from AAA to AA2. Japan’s government debt is very large, at more than 170 per cent of gross domestic product. Madam Deputy Speaker, to give you some perspective, that would be close to $2 trillion of government debt in Australia. It is the most indebted nation in the OECD. Do you know how Japan got into this position? It was as a result of its government’s massive spending and borrowing from the early 1990s. Now Japan is in its most severe recession since World War II.

In mid-May Standard & Poor’s switched the United Kingdom’s rating from stable to negative based on the view that the UK’s net general government debt may approach 100 per cent of GDP. This is a direct result of the fact that the UK government, when it should have been running surpluses, was running deficits. After the last few years during the biggest financial services boom in generations, the United Kingdom, particularly with London as the global financial centre, is now in the deepest recession since World War II. And why? One of the reasons is their massive debt burden. They have been running deficits, they have built up this debt and they have no capacity or budget flexibility to be able to address it. And it is most alarming.

There is a great quote from Warren Buffett that I read today. I think the member for Mackellar might be interested in this comment. Warren Buffett, the guru investor in the United States, was asked what he thought of government spending in the US and whether it was going to get them out of their deep hole. Warren Buffett responded:

… you can’t produce a baby in one month by getting nine women pregnant …

It was a good point. What he was effectively saying was that no matter how hard you try just spending so much in one block is not going to deliver your nirvana immediately. You have to be smart and you have to take it gradually. It might take nine months but what you have to make sure of is that what is delivered meets all of the expectations.

That is why the United States has a projected budget deficit for this year of 13 per cent of GDP. Its total accumulated government debt is currently at $11.4 trillion or 80 per cent of GDP. Reports are suggesting debt will go to $19 trillion in the United States—about 130 or 140 per cent of GDP. And think about it: if they have a budget of $3½ to $4 trillion, more than one-third of the US government budget will be interest alone on their debt. Then you have one-third of the budget on defence and one-third of the budget to run the country. This is why it is a sad day and this is why it has been a sad week, primarily from an economic perspective: because this government has taken us past $100 billion of government debt and, what is worse, the debt is growing.

Craig Emerson (Rankin, Australian Labor Party, Minister Assisting the Finance Minister on Deregulation) Share this | Link to this | Hansard source

Madam Deputy Speaker Burke, it speaks volumes, doesn’t it? A week has gone past, the last week of the sittings of this session of parliament and only in the last 30 minutes does the coalition seek to engage in a national economic debate. All the rest of the time the opposition sought to smear the Prime Minister and the Treasurer of Australia, and as an afterthought at five seconds to midnight, they no doubt thought that perhaps the media would get stuck into them because they have engaged in no debates about the future of this country, about economic policy, about emissions trading or about immigration. No debates until at five seconds to midnight they bring on a debate about the economy just so they would not be exposed for having had no interest in economic policy, only an interest in smearing the Prime Minister and the Treasurer.

On this sad occasion, when we have only a short time, I have been left with a little over 10 minutes to respond to one of the important economic discussions of our time. I point out in response to the statements that have been made by the shadow Treasurer that, since the budget was brought down in May, Australia’s AAA rating has been reaffirmed. So where is the basis of the concern about Australia’s standing, Australia’s capacity to borrow money and Australia’s fiscal position when our AAA rating has been reaffirmed?

Andrew Laming (Bowman, Liberal Party) Share this | Link to this | Hansard source

Mr Laming interjecting

Craig Emerson (Rankin, Australian Labor Party, Minister Assisting the Finance Minister on Deregulation) Share this | Link to this | Hansard source

I hear the member for Bowman now getting stuck into the ratings agencies. Yet, it was just a moment ago that the shadow Treasurer was pointing out that Australia remains AAA rated—the highest in the world. I point out that Australia’s debt will be seven times lower than that of any of the major advanced economies—seven times lower. The global recession has caused government budgets around the world to go into deficit and here in Australia it has ripped off $210 billion from the Australian budget, which is about $1 in every $5 of taxation revenue. Of course in those circumstances a budget will go into deficit—of course it will.

Another major fact is that, if Australia did not have a budget deficit and if the government did not step in to fill the gap left by the private sector, we would have a deeper recession, slower recovery and hundreds of thousands more Australians out of work. Indeed it has been estimated by Treasury that about 210,000 more Australians would be out work if it were not for the active involvement of the Rudd government in managing the economy.

The truth is that the Liberals are running another dishonest scare campaign on deficit and debt. But when they are actually pressed they admit that they would do the same thing. The shadow Treasurer, when he was pressed on this point, said: ‘It would be a lot less than what Labor is doing. It would be at least $25 billion less.’ So he is arguing that instead of $188 billion, it would be around $150-odd billion debt that the coalition would have. But when the opposition leader was pressed on this the journalist asked him: ‘What does the coalition regard as an acceptable level of debt?’ he said—and this is a beauty:

Well, the level of debt should be no more than is absolutely necessary.

That is a profound statement, isn’t it? The journalist said: ‘What then?’ and he said:

Well, it’s not a question of a number.

So they actually do not have a very different or any different position from the Rudd Labor government’s position on debt. They simply want to run a scare campaign—on the day when two major economic reports have been released. One is the OECD Economic Outlook, which says that in 2009 it expects Australia’s economy to contract by 0.4 per cent, yet other major advanced countries will contract by 4.1 per cent—0.4 per cent for Australia, 4.1 per cent other major advanced countries. The second is the consultation report released by the International Monetary Fund, which says:

We welcome the quick implementation of targeted and temporary fiscal stimulus.

It goes on to say:

The government’s commitment to return to surpluses and achieve a positive budget balance on average over the medium term is commendable. Few other advanced countries have adopted such a clear commitment.

There is an endorsement of the government’s economic strategy, of the government’s fiscal strategy, by both the OECD and the International Monetary Fund. And, hot off the press today, the Australian Chamber of Commerce and Industry put out a supporting press release entitled ‘Stimulus measures are helping business in a difficult trading environment’.

This MPI is just another example of a dishonest scare campaign—this one on debt—by the coalition. The fact is that, when I go around Australia, small business owners tell me how important they regard confidence in the economic outlook to be in sustaining their businesses during these challenging economic times. The Rudd government understand the importance of confidence, and that is why we are talking the economy up.

Yesterday the Australian Retailers Association’s June index showed a 24 per cent jump in confidence among small and medium enterprise retailers over the past quarter—a 24 per cent jump in confidence. The Sensis Consumer report says ‘Australian consumer confidence has jumped to a 15-month high’, rising by a record 10 percentage points during the quarter. Well, that is good news, but you would not think so if you were listening to the coalition because yet again the opposition are intent on talking the economy down. They have been scaring people about their job prospects for their own base, opportunistic political purposes. The shadow Treasurer, who just spoke, declared in parliament on 12 March:

… 80,000 Australians have lost their jobs in the last two months …

The truth is that, at that time, far from 80,000 jobs having been lost, 2,000 extra jobs had been created. Now, we are concerned about the economic outlook, we are concerned about the job outlook, but it does not do Australia, or the unemployed or small business any good to have the shadow Treasurer misrepresenting the jobs figures for the base political purposes of the coalition. It has suited the coalition to engage in this fear campaign and talk the economy and the jobs situation down, promoting fear to smash consumer confidence and drive small businesses to the wall. It has suited the coalition to do that.

The truth is—again, far from 80,000 jobs having been lost—employment has grown by 35,000. That is a 35,000 increase in employment. On the day that the national accounts were released for the March quarter, showing that the Australian economy had grown—that it was one of only two advanced economies that actually grew in the March quarter—what happened? What happened on that day when the good figures came out? The coalition switched its tactics because it could not continue with its fear campaign any longer. So it switched its tactics from fear to smear.

The fact is that, in the last few weeks, the opposition leader has been promoting a false email that he hoped would be a dirty little shortcut to the Lodge. He sought to smear the Prime Minister over the government’s support for struggling car dealerships. As for policy development, the opposition leader has relegated that to the backbench. You know who he has appointed to be the policy supremo? The co-author of Work Choices, the member for Menzies. He took that job off the Deputy Leader of the Opposition because every idea she came up with he felt he had read somewhere before. So low a priority has the opposition leader assigned to policy development that he has consigned responsibility for it to the backbench. This is extraordinary—policy development goes to the coalition backbench, freeing up the frontbench to concentrate on the opposition leader’s No. 1 priority: to smear the government. That is what has been happening all week when we could have been engaged in the great debates about the economy, immigration or the emissions trading scheme. But, no, they would not do that! My advice to the opposition leader is to abandon his dirty little smear campaign and take an interest in the hard policy work of federal politics. The opposition will never become competitive if they do not do the policy work.

I also say to the member for Bradfield and the member for Higgins that the door is wide open to one of them becoming the Colin Barnett of the Australian parliament. Colin Barnett was able to do it. He said: ‘I’m not running for preselection anymore.’ Someone was actually preselected in his place; I think they ended up in the upper house in a deal. At the last moment, when Colin Barnett realised that this was his chance, that he might be able to do something constructive, what did he do? He said, ‘Well, I am interested,’ and he became the Premier. I know that if the member for Bradfield were to reconsider, he could become the Colin Barnett of the Australian parliament. The member for Higgins is not too late. He said he was not going to renominate. He can renominate and he can become the Colin Barnett of the Australian parliament. Come on down, Member for Bradfield; come on down, Member for Higgins; and put this useless, hopeless opposition leader out of his misery. I say to the opposition leader: he tried fear, he moved to smear and now he should just disappear.

Tony Smith (Casey, Liberal Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

Mr Speaker, I thank you for this unexpected opportunity of a couple of minutes. The Treasurer will not turn up to an MPI, and the Donny Osmond of the Labor Party here cannot get through the full 15 minutes. You are a joke. You are an absolute joke. Your job is to do the—

Craig Emerson (Rankin, Australian Labor Party, Minister Assisting the Finance Minister on Deregulation) Share this | Link to this | Hansard source

Dr Emerson interjecting

Tony Smith (Casey, Liberal Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

Oh, yes, I’m really in for a surprise! You surprise everybody. At least you turn up—but you cannot talk for 15 minutes. Every MPI this week involved the Treasurer—

Harry Jenkins (Speaker) Share this | Link to this | Hansard source

The member for Casey will address his remarks through the chair.

Tony Smith (Casey, Liberal Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

and he has not turned up to one. He has not turned up to one MPI all week. The Treasurer has been asking all week for this MPI on debt. He has not turned up, so the minister for small business comes in here in his place.

Yesterday we had the Leader of the House reminding us of Mark Latham, and that reminded me of course of the Treasurer not turning up to MPIs. Remember that wonderful column that Mark Latham wrote where Joel Fitzgibbon, the former Minister for Defence, revealed that Wayne Swan as shadow Treasurer refused to do an MPI the day after a budget. We have got a Treasurer who will not do an MPI, who will not answer a question and who cannot even mention the size of the deficit in his budget speech.

Craig Emerson (Rankin, Australian Labor Party, Minister Assisting the Finance Minister on Deregulation) Share this | Link to this | Hansard source

You are about to get your surprise.

Tony Smith (Casey, Liberal Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

Donny, sit down!