Unlike a household budget, the national economy goes on forever

A COMMON criticism against governments running budget deficits is: "We can't go on borrowing like this forever." In fact, we can.

The statement isn't always correct. It fails to take into account that debt actually declines if an economy is growing faster than debt is being accumulated as a percentage of GDP.

Governments can go on borrowing forever, as long as they also go on growing forever.

A disjuncture between political rhetoric and economic reality has long been the case in Australia.

The current opposition is using waste and debt as the twin pillars of its attack on the government.

The former is a fair line of attack. From the pink batts disaster to the waste and mismanagement associated with the Building the Education Revolution, money is pouring down the economic drain, as is perhaps the case again with the billions of dollars being pumped into the National Broadband Network without a cost-benefit analysis.

But the second pillar of the opposition's assault on the government -- unsustainable debt -- is a misnomer given the low level of debt in this country as a percentage of GDP, and the strength of our economic growth projections.

Political rhetoric is generally kept as simple as possible by our politicians because they are trying to appeal to a mass market.

It might not be politically correct to put it this way, but when you are trying to win over a broad spectrum of the population, nuance is a hard sell.

Retired finance minister Lindsay Tanner alluded to this unfortunate truth last week.

Most people aren't well-educated enough to unpick economic arguments, and that includes the increasing number of Australians who are well-educated, but not in economics.

So, to win elections, politicians use simple language to defend their positions or attack those of opponents.

In the past, complicated political arguments have been made, and politicians have won elections while doing so: Bob Hawke in the 1980s, John Howard when selling his goods and services tax in the 1990s.

But the easier path to election or re-election is simplicity.

When it comes to government debt, comparisons with household debt are commonly used by politicians to convince voters of their economic approach.

Politicians talk about needing to "tighten our belts" or "stop selling the family silver" when public assets are transferred into private hands. But comparing government debt with household debt is like comparing chalk with cheese.

For a start, households move from working years into retirement years, which means they must plan for a time when their income dramatically reduces.

Households also die out, a sad but unavoidable fact of life, which means they have an end point. In contrast, national economies continue infinitely (barring a loss of sovereignty or a cataclysmic event such as a meteorite hitting the earth's atmosphere).

An infinite lifecycle for a national economy means it should always plan for the challenges of the future (ageing, climate change, you name it), but it can rely on ongoing revenue streams a household heading towards retirement cannot -- and, hopefully, economic growth.

In Israel last week with a delegation, I received a briefing from the head of Israel's National Economic Council, Professor Eugene Kandel.

The centrepiece of his message was pride in Israel's economic performance over the past 10 years.

He glowingly highlighted that its national debt was only 72 per cent of GDP, down from more than 100 per cent at the turn of the century. Only? In Australia he would be laughed out of the room.

Incidentally, much of the reduction came from balancing the budget, not paying back debt, and letting economic growth do therest.

The figure of Israel's net public debt as a percentage of GDP that Professor Kandel referred to should cause most Australians to pause and consider the overblown fears our opposition tries to evoke when complaining about the Labor government's so-called build-up of public debt.

By all means whinge about waste when it is apparent, but the size of net debt in Australia is minimal, at less than 6 per cent of GDP, according to the International Monetary Fund.

Compare that with countries we like to see ourselves as sharing long-term economic and cultural links to: the US 66 per cent, Britain 69 per cent, Japan (where Tony Abbott is visiting to talk up such links right now) 121 per cent.

Granted, each of these nations is moving towards austerity measures to get their economic houses (there is that inappropriate comparison with households again) in order, but even a nation like Canada, with abundant natural resources similar to our own, has net debt of 32 per cent of GDP, more than five times Australia's.

We have one of the lowest levels of net debt anywhere in the advanced world, and we have one of the highest rates of economic growth in the advanced world.

That double act means we can afford debt to finance the infrastructure we need to back up our economy so that we don't hit capacity constraints in the years ahead.

Where the political debate in this country should focus is how debt is spent, not whether it should be accumulated.

That means the opposition should keep up its attacks on waste and mismanagement, but stop conflating those attacks with criticisms of budget deficits.

We have low debt by world standards, and so long as our economy keeps growing that won't change, even if we keep spending.

The twin threats to Australia's prosperity come from low productivity and under-investment in infrastructure.

Debt can buy improvements in productivity -- by better educating the workforce, for example, to move the non-mining sector into high-tech industries able to compete with parts of Asia and Europe.

That way we could live up to the mantra of the clever country, not just the lucky country.

Under-investment in infrastructure doesn't just happen when governments don't borrow. It also happens when they don't do adequate due diligence before embarking on an infrastructure drive.

The NBN is an example of a large public investment in infrastructure, but it has been done without a cost-benefit analysis, and the public has been kept in the dark about much of the due diligence the government has done.

Commercial confidentiality is the excuse given for the lack of public disclosure. Where is WikiLeaks when you need it?

If the opposition wants to play politics with government waste, mismanagement and lack of due diligence before spending our money, go right ahead.

But when the Coalition links such attacks to assaults on levels of government debt, it damages its own economic credibility.