Australia has a serious debt problem and our government is more concerned with appeasing minorities and being an obedient lap dog for the United Nations, rather than making a serious effort to get us back into surplus.
Whilst Treasurer Scott Morrison is talking up the $21bn in emergency budget measures pushed through parliament, we are looking at a further $50bn in federal and state debt as a result of the drop in our economic growth. Morrison to his credit is pushing a further $20bn in savings through parliament, yet the Labor party continues to block these important budget measures. But even with the new measures, our debt will blow out from the drop in growth and still surpass current and potential future savings. The maths just doesn’t add up and neither our current government nor the opposition are taking this matter seriously enough.
The consequence of failing to bring debt under control is a drop in our AAA credit rating, already the S&P Global Ratings has us on the “negative watch”, and failure to reign in our spending and improve our budget deficit will likely see S&P Global Ratings downgrade our credit rating.
If our ratings are downgraded this could have a serious impact on our banking sector. Our banks are rated individually but those ratings are linked to the credit rating of the nation. In the event of the banks’ credit rating being downgraded it is likely that they would need to raise interest rates which would hit mortgagees severely in the hip pocket. With additional financial burden placed on households and property investors, national spending would drop having a negative effect on all businesses especially the retail sector. This in turn would result in lower company tax going into the government coffers and the potential for widespread job losses resulting in an increased welfare bill.
It’s a viscous cycle and one that both the government and opposition need to take very seriously. Currently our federal debt is sitting at $420bn; this is expected to blow out to over $600bn by 2020-21. This is not sustainable, but yet both the current government and opposition are not acting in the best interest of the nation. We still have a large backlog of budget saving provisions yet to clear the Senate; some go back as far as the 2014-15 budget. Savings of $7bn in social services, $5.1bn in education and $2bn in health urgently need to get through the Senate. These budget measures include pharmaceutical co-payments, family tax benefit cuts and the prevention of mothers claiming both the government and employer provided paid parental leave.
Whilst Labor likes to position themselves as champions for the social welfare state, there refusal to budge increases the social welfare burden. When the economy continues to spiral into a worsening situation it will impact on jobs, wages and growth, it’s basic Economics 101. Not to mention that when the deficit is in such a severe situation, the government has no room to move to invest in the nation and stimulate the economy. As such we are in a position presently where we are at the mercy of world resource prices, especial iron ore.
In some promising news, iron ore prices have risen to $83.58 a tonne, the highest levels in 26 months. This will help our economy, but once again it highlights successive government failures to manage our economy. The fact that we are so reliant on resources like iron ore, shows that our nation has been managed by people that lack foresight, vision and ideas. Successive governments have squandered money on harebrained schemes like the failed pink batts debacle, costing approximately $3bn. Then the NBN government investment was meant to be capped at $29.5bn, but in May, the government announced an additional $19.5bn loan because the NBN had failed to attract significant private investment as forecast in business plans. Once again this proves that the government failed to adequately understand the market.
We continue to see our government pledge money to social programs like Safe Schools, and to other social activist organisations and programs. We also continue to see our government pledge large amounts of money under United Nation agreements, in December 2015, Turnbull pledged $1bn to the global climate fund. Decisions like these are continuing to worsen our situation.
It is time for the real leaders to stand up, the ones who place the importance of managing our economy as the number one obligation of government.