John Howard appears to be playing Paul Keating at his own game. In the 1993 election Mr Keating campaigned up and down the country with a disingenuous, simplistic argument about the goods and services tax.
This week Mr Howard launched his “”debt truck”. It, too, carries a simplistic and distorted message. The “”debt truck” displays the total foreign debt, the interest bill per day and then extrapolates that to every woman, man and child in Australia. It is inaccurate alarmism. Australia’s present foreign debt is a serious, but for different reasons than Mr Howard’s “”debt truck” portrays.
If Mr Howard wants to make an analogy between the national debt and the position of ordinary households he could look at typical household debt. Many Australians go into debt to buy a house to shelter the family, or for a car to go to work or, indeed, to buy a business. Usually they stay in debt for a very long time, but while they are in debt they have assets to back it and income to sustain the interest payments. Moreover, life without the debt would overall be more miserable than with the debt. A family that borrows for a house, lives comfortably in it, repays the debt over some years and gets an asset at the end, is better off than a family that rents a hovel and saves for decades until it can buy the house for cash.
For every cent borrowed that is registered on the current account deficit there is an equal amount registered as a positive on the capital account. Australia has run a current account deficit for two centuries in all but a very few years. The nation has always imported capital. Most of the time it has been beneficial. The real issue at present is whether the high current account is sustainable … that is, are the borrowings being used for income-producing capital or are they being frittered away?
There is a solid argument that the decade of high level of debt compared to Australia’s gross national product indicates that it has not gone to productive things, that Australia has run up the international credit card for consumer junk rather than projects that will make the nation more productive. Moreover, there is solid evidence to suggest that the high level of debt and the failure of gross national product to even look like controlling it are causing interest rates to be higher than would otherwise be the case. Governments (state and federal) and business are constantly in the market borrowing. Whether they borrow at home or abroad, each borrowing makes capital that much scarcer. As capital gets scarcer interest rates rights. So it is palpable nonsense for Treasurer Ralph Willis to argue, as he did yesterday that the debt does not cause higher interest rates. Further, bad government policy … such as tax and industrial relations … is contributing to the lack of productivity that is making the debt unsustainable.
Economic debate in the community may be higher than it was 10 years ago, but Mr Howard’s and Mr Willis’s appeal to public naivete this week indicate it has a long way to go. Whether the scare tactics come from the Coalition or Labor, they have the same unfortunate effect: good policy ideas get snuffed out and election campaigns degenerate into contests of who can fool the most people with the biggest lie.