Economist Judith Sloan writes (my emphasis added):
In the past week, both the Treasurer and the Treasury secretary have highlighted Australia’s favourable fiscal position relative to our European cousins.
“Maintaining our fiscal rigour is absolutely essential at a time when markets are punishing those without discipline” the Treasurer’s economic note stated.
And rest assured, “Australia remains among the best placed of all the world’s advanced economies to weather the fallout from global developments,” according to Treasury secretary Martin Parkinson.
One of the ironies of Swan’s defence of Australia’s “rigorous” budgetary policy is that had the eurozone’s proposed new fiscal rules – that deficits not exceed 3 per cent of gross domestic product – been in place here, they would have been flouted in two of the past three financial years. In 2009-10, Australia’s fiscal balance was minus 4.2 per cent of GDP (the highest figure recorded since 1945) and in 2010-11, the figure was minus 3.7 per cent.
General government expenditure went from 23.8 per cent of GDP to 25.9 per cent in one year (2007-08 to 2008-09). It rose further in 2009-10, to 26.3 per cent.
This short period saw the biggest splurge in government spending since Gough Whitlam was in office.
The increase in real government spending was twice the rate of the period 2002-03 to 2007-08, a period Kevin Rudd used to fashion that laughable statement that “this reckless spending must stop”.
Another lesson that we might care to learn from our economically irresponsible cousins in Europe is that budgetary and debt positions can actually deteriorate very rapidly.
It was not that long ago that both Ireland and Spain were running small surpluses and government debt was at acceptable levels.
In 2005 Ireland was judged as having the best quality of life in the world by The Economist magazine. In 2007, Ireland recorded a balanced budget; by last year, the budget deficit was over 30 per cent.
Spain went from having a budget surplus of 1.9 per cent in 2007 to a deficit of nearly 11 per cent two years later. Irish government debt now stands at close to 100 per cent of GDP; for Spain, the ratio is over 60 per cent.
In both cases, the need for taxpayers to bail out banks to avert a default crisis – once their property bubbles had popped – led quickly to budgetary and government debt calamities in both countries, particularly Ireland.
Just as we have long argued here at barnabyisright.com.
The tireless (and tiresome) refrain that Australia’s public debt is “low”, compares “well/better/favourably with other advanced economies” etc etc ad nauseum, is a wilful distraction.
The claim that our banking system is “the safest in the world” is a wilful deception.
The circumstances, and sequence of events that have flattened our northern hemisphere “cousins”, will flatten us too.
It’s just a matter of time.