Politician’s promises are a road paved in economic ruin, just look at Argentina | Alexander Downer

This election, politicians are once again recklessly spending borrowed money but at what cost, writes Alexander Downer.

With the 2025 election campaign kicking off, there has been an endless stream of spending announced by politicians.

What interested me about the recent federal budget and the beginnings of an election campaign was the endless boasting by politicians about how much money they’re spending.

Well, it’s not their money that they’re spending of course.

It’s not even just taxes collected, and there are plenty of those.

Much of it is borrowed money.

The public demand for welfare, entitlements, handouts and infrastructure spending is insatiable.

Listening to ABC talk radio on the morning after the budget, caller after caller rang in complaining the government wasn’t spending enough money on their particular pet causes.

The host of the program didn’t ask people where the money was to come from or ask questions about high levels of taxation and borrowing.

He gave comfort to people who just wanted more spending.

Historically, the great constraint on politicians handing out taxpayer money has been the unpopularity of taxation.

So here is the dilemma: Spending public money is very popular and can endear politicians to the public.

Spraying around taxpayer dollars can make a politician look “humane and caring”.

And if ever there’s any discussion about increasing taxes, it usually focuses on cries of envy demanding the rich pay more.

That may not be very fruitful.

Already the top 10 per cent of Australian income earners pay 50 per cent of all income tax. The top 1 per cent pay 18 per cent. By contrast, the bottom 50 per cent of income earners pay no net income tax at all.

Of course, we think it’s a fair thing to make high earners pay more but increasing their taxes still further won’t generate much income.

Then there’s corporate tax.

Spending public money is very popular and can endear politicians to the public. Picture: Lyndon Mechielsen / NewsWire

That affects the returns companies are able to get from the capital they’ve invested.

Of course, it’s possible to take much more of it away from them and as a consequence they will invest less.

If they invest less than the economy will grow more slowly and there will be less employment and the government will get less overall tax revenue.

It’s obvious of course but not apparently all that obvious to elements of the media and some politicians!

Anyway, politicians have found an easy answer to the dilemma of popular handouts and unpopular taxes. It’s borrowing.

That imposes relatively little short-term pain and just passes the problem down to future generations.

So if you just want to get through an election campaign promising a whole lot of so-called generous handouts, they won’t be funded from taxes in the short term.

It’ll be funded from loans.

We’ve seen this model tried all over the world.

The best example of all is Argentina.

In 1900, Argentina and Australia were in the top 10 richest countries in the world in per capita terms.

At the end of the Howard government, Australia had paid off all government debt. Picture: NewsWire / Martin Ollman

Today, Australia is in the top 20, although gradually slipping, but Argentina has slumped to 71st.

The collapse of the Argentine economy began in the 1950s with the election of Juan Peron.

This was when the government decided that it had a big heart and would offer generous grants, subsidies, benefits and corporate support to anybody who asked for it.

The country simply couldn’t afford it, the debt accumulated and the downside of massive government debt was exposed.

Argentina has failed, up until recently, to escape its chronic spend-and-borrow catastrophe.

So huge was the government debt that the government on several occasions was unable to borrow any more money.

It wasn’t even able to service its loans and so it defaulted. The solution? Print money.

And the result of printing money was to push more cash into the economy chasing the same number of goods and services and, you guessed it, the country was hit with hyper inflation. So there you have the model to think about.

Well, we’re nothing like in that situation of course. Hopefully we will never get there.

But we’re heading in that direction.

Already the federal government which, at the end of the Howard government, had paid off all government debt, has accumulated debts which are approaching $1 trillion.

The cost of servicing government debt is an astronomical $28 billion a year.

That is a huge amount of money and that is just paying interest on the government loans.

You’ll get fussed about it when debts become so huge we spend more on servicing our debts than we do on our defence force – the UK has already reached that point – and when we start to struggle to attract lenders.

The interest on Australian Government bonds is around 4.5 per cent but in the last 20 years we’ve seen some countries in Europe such as Greece, Portugal, Spain and Italy struggle to borrow money at all and the interest rate on their loans has reached over 20 per cent.

It’s not just Argentina that has gone down this mad path, it’s quite a few European countries as well.

Sadly this is not an issue that worries today’s voters.

But it will worry their children mightily one day. After all, nothing is for free.

Originally published as Politician’s promises are a road paved in economic ruin, just look at Argentina | Alexander Downer