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Milne plays Hockey with Debt Ceiling

“We can never build a better future by doing cheap and tawdry deals with the Greens” – Tony Abbott, August 2013

The Greens and the Liberal National Party have joined forces in a rare display of collusion across the extremities of the political sphere. Both parties have collaborated with the aim of repealing parts of the Commonwealth Inscribed Stock Act 1911, last altered by the previous Labor government in 2008. This will (amongst other proposals) raise Australia’s debt ceiling. The debt limit reasonably acts as an established upper limit on the amount that the Commonwealth government can borrow.

What this means for the practice of government is that rather than the Treasurer asking parliament publicly and controversially to raise the debt limit as Joe Hockey did in November, the they are instead required to submit a statement of debt at every $50m increment including the reasons why the debt was necessary. Prior to the September election, the debt limit was sitting at around $280bn and the Coalition unsuccessfully attempted to raise the debt ceiling to $500bn almost immediately after taking office despite their oft-touted promise to address a “budget emergency”.

These statements are merely notifications and do not require the consent and prior-approval of parliament. This is a contradiction to the supposed enhanced transparency that Senator Milne and Joe Hockey promise this process will bring to fiscal expenditure. “We have a mandate to fix the problem – we will fix the problem”, Hockey told reporters. The problem, apparently, was fiscal responsibility and government accountability.

So why then have the Greens backed the coalition’s decision to abolish a limit on borrowing? For the Liberals, the abolition of a debt ceiling de-politicises a key component of their campaign while in opposition., This removes any doubt that Abbott and Hockey’s “budget ceiling” that was drilled into the public was no more than a political crowbar used to pry the electorate’s trust away from the ALP. The Greens, however, see the debt ceiling’s removal as an opportunity to eliminate the structural safeguards that prevent the fiscal irresponsibility and endless promises that form the bulk of their platform.

Numerous commentators have encouraged the reform, noting that the debt ceiling does not actually constrain debt, but simply allows politicians with another mode of point-scoring. Supporters of the economic reform encourage the move which will see parliament lose control over borrowings above the limit. A majority of supporters compare the benefits a similar reform would bring to the US economy. While this comparison is not completely irrational, it needs to be placed in context. The US Federal Debt Ceiling was introduced in the 1960s and has been increased over 70 times – currently over several trillion dollars. The US also has a debt-to-GDP ratio of over 100 per cent. In comparison, Australian debt currently lies at around 20 per cent of GDP, which is around 1.5 trillion dollars and well within a manageable threshold. Sovereign debt at this level actually (ideally) pays itself off through the boosts to output, consumption, liquidity and subsequent tax revenue that it promotes. This debt additionally adds to head off and moderate recessions, preventing revenue shortfall and broader economic stagnation.

Hockey and many of his LNP colleagues have stated that the government must “live within its means”. While this statement draws an inappropriate comparison to a budget of household or small business, it completely fails to address core macroeconomic principles. This deliberately misleading rhetoric over-simplifies and distracts from the purpose and function of government expenditure and debt, and so it is understandable that this is not a debate that the Liberal/National Party coalition want continued while they are in government. Once again government takes a seat to politics, kept safely from the view and scrutiny of parliament and the Australian public.

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