ABC’s 7.30 Report last night ran an interesting segment examining Treasurer Scott Morrison’s proposed change in Budget reporting to separate “good” debt from “bad” debt.
The segment did a good job of highlighting the flaws in Morrison’s approach:
ANDREW PROBYN: So what does the Government mean by “good” debt, as opposed to “bad” debt?
SCOTT MORRISON: It can be very wise for governments to borrow, specially while rates are low, to lock in longer-term low cost financing and invest in major growth-producing infrastructure assets, particularly in transport and energy infrastructure.
But to rack up government debt to pay for welfare payments and other everyday expenses is not a good idea.
ANDREW PROBYN: So roads, rail, gas pipelines, ports, dams: that’s good debt, right? But does that mean running costs in health, welfare and education are bad?
REPORTER: What about education?
SCOTT MORRISON: Go on.
REPORTER: Well, is that a good debt, if debt is run up for something which will increase the capacity of the…?
SCOTT MORRISON: Well, everyday expenditure is everyday expenditure. You know, food is everyday expenditure. Now, if you’re borrowing money to buy food every week, then that is not sustainable either.
I made a similar point yesterday. Increasing spending on recurrent Budget items, like education, can also drive productivity, and could just as easily be classified as “good” debt. Similarly, funding a dodgy infrastructure project with poor potential returns should be classified as “bad” debt.
The ABC segment suggests that this latest announcement is merely designed to distract voters from housing affordability, as the Coalition realises they can not solve that problem:
ANDREW PROBYN: There’s evil genius afoot with the distinction between good and bad debt. It’s part budget fiddle and part groundwork for what’s coming.
It’s dawned on the Government that making housing affordability its headline act wasn’t so wise after all, especially when it can’t solve the crisis alone.
So infrastructure is now going to be its big focus. I understand that much of the $50 billion infrastructure plan from last year’s budget is going to be brought forward.
And that’s not all: 7.30 can reveal that that the Government is now intent on taking equity stakes in big infrastructure projects…
Experts are also not convinced by Morrison’s “good debt/bad debt” Budget fiddle:
ANDREW PROBYN: Peter Newman, one of the PM’s advisers on cities policy, says infrastructure projects don’t always offer good debt, nor are they always popular. WestConnex in Sydney, Melbourne’s East West Link and the Perth Freight Link have each had their critics, either on economic, community or environmental grounds.
PETER NEWMAN: There’s some very bad examples, where Tony Abbott dropped big road projects on us that we didn’t need. They were just designed to sort of create jobs out of digging up places.
MARTIN NORTH, FINANCIAL ANALYST: When the mining boom came off, essentially they were looking for the next wave of growth engines, right. And effectively the one selected was households and household debts.
ANDREW PROBYN: Financial analyst Martin North says the Government is looking to catch a more promising wave for growth.
MARTIN NORTH: What we found in practice is that whilst, we have high house prices, high debt, high mortgage stress, poor affordability, we still haven’t solved our growth equation.
So essentially now, there’s a need to find a new narrative around growth and how growth can be developed.
And so perhaps this is a way of trying to twist the story a little bit and give a different perspective on things. But you know, debt is still debt. It needs to be repaid…
I think we’ve still got the basic problem: that debt is debt is debt.
Now, you want to be investing in the future. You want to be investing in growth because if you can get enough growth then you have got the ability to repay the debt.
If you haven’t got growth, what happens is that the debt just goes down the generations and never gets paid off.
As I said yesterday, there is at least one silver lining in all this: the Australian Government is now looking to take advantage of near record low borrowing rates to build for the future, which is a fundamental shift in ideology since the Howard Government days when delivering Budget surpluses became the be all and end all.
This is particularly important given the federal government remains intent on running a mass immigration program and expanding Australia’s population by one million people every 2.5 to 3 years, which means Australia must boost its infrastructure spending, or risk incumbent residents’ living standards being crushed.
