In truth: our debt growth faster than Europe’s

AUSTRALIA is addicted to public spending.

Our debt growth faster than Europe’s

AUSTRALIA is addicted to public spending. Since the global ­financial crisis the government’s debt burden has nearly tripled whereas in Britain and Spain, which endured a full-blown economic disaster, it merely doubled.

Unless the Senate passes the Coalition’s budget it will continue to rise. Real public spending is set to grow 16 per cent from 2012 to 2018, says the IMF, faster than 17 other rich countries, including France, the US, Sweden, and New Zealand. Without action Australia faces never-ending public deficits, even with healthy increases in tax revenue of 6 per cent a year.

Australia’s fiscal deterioration is all the more embarrassing in the midst of an unprecedented resources export boom and a historic surge in terms of trade that left households and governments awash with revenue.

Were GFC Mark II to unfurl itself — an ever-present danger given the state of the world’s banks and the as-yet-unknown impact of money printing in the US and Europe — Australia would be far less prepared than it was in 2008.

Sure, the level of federal government debt remains relatively low, but its growth has been world-beating and the outlook is grave thanks to Labor’s populist but unsustainable increases in school and disability spending, which the Coalition has inherited. The IMF, which has no political axe to grind, also noted Australia would have the third-largest increase in net debt as a share of GDP among the group of rich countries.

The Abbott government des­erves credit for wanting to stem the escalation in public debt and never-ending budget deficits that, left unchecked, will ultimately ­require actions that will undermine the steady increase in living standards Australians have enjoyed.

A culture of handouts, subsidies and “free services” has no place in a country whose residents are richer than ever and richer than almost any other comparable people.

Yet Clive Palmer, a man possessed of obvious business acumen, seems set to damn Australia to ever large debt and deficits. His weight in the crucial Senate presents a major potential roadblock to the government’s plans to introduce modest co-payments for visits to the doctor and take cash welfare from individuals who do not need it.

The government’s Commission of Audit made clear that if Australia wants to rein in and pay down debt without increasing taxes it must limit real spending growth to about 1.75 per cent a year over the next decade, roughly what the government is trying to achieve.

Mr Palmer should not take comfort in misguided comparisons with countries in Europe and the US, whose economies are inherently less vulnerable to foreign sentiment.

The British government, with a debt burden vastly greater than Australia’s, is able to borrow money at 2.5 per cent compared to almost 4 per cent for Australia. Unlike Japan or Italy, whose citizens largely finance their own government’s borrowing, only one third of Australia’s debt is owned by Australians. Nor is Australia’s government as small as Labor makes out: public spending to GDP is about 37 per cent including state governments.

The government should not fear cutting spending further in later budgets.

Successful fiscal consolidations in Canada and Sweden in the 1990s, and now Britain and the US this decade, refute the claim that spending cuts damage economic growth.

For 40 years Australia’s public debts have stayed relatively low.

Wilfully changing this is one experiment Australia doesn’t want to have.