Experts weigh in
Economists contacted by Fact Check offered a range of responses to Mr Hockey’s claim.
Richard Robinson, from business research and forecasting firm BIS Shrapnel, says it is “a reasonable claim” yet points out Australia’s total debt remains low by world standards. “So I would not say we are at a tipping point…yet,” Mr Robinson added.
“I think it’s a bit alarmist,” Jakob Madsen of Monash University told Fact Check, while noting Mr Hockey’s sums are correct.
Professor Madsen also said that while the $100 million a day figure sounds “astronomical”, Australia’s deficit measured as a proportion of gross domestic product is a better measure and at 2.5 per cent is “not too bad” in historical terms.
And former Reserve Bank economist Paul Bloxham, from investment bank HSBC, said that, strictly speaking, Mr Hockey’s assertion that Australia can’t continue borrowing is not correct.
“The market is currently prepared to lend to the Australian government at an historically low interest rate of 2.5 per cent for 10 years,” he said.
This means the market clearly believes Australia’s budget deficit is sustainable at this stage, Mr Bloxham said.
Good debt and bad debt
Gordon Menzies, another former Reserve Bank economist now at the University of Technology, Sydney, said if you think of government debt in terms of a household or business debt, then a relevant comparison is that borrowing to buy a house or factory is quite different from borrowing to have a party.
“Some government spending, such as infrastructure spending, will yield ongoing benefits even if the government has to borrow to do it,” Dr Menzies told Fact Check.
Mr Bloxham also said if government spending is directed to investing in future growth, then the spending itself could help to support growth and pay the interest associated with the budget deficit.
“This is why the right question is not if the deficit is sustainable, because it clearly is,” Mr Bloxham said. “It is whether the spending is well allocated to building capacity to support medium-term growth.”
As for whether Australia is living beyond its means, Mr Robinson said the Government’s main problem is that it doesn’t have enough revenue to match expenditure.
“In my opinion, a large chunk of the revenue problem is due to large tax benefits to already wealthy people, with the largest of these being superannuation breaks, capital gains tax breaks and negative gearing,” Mr Robinson said.
The verdict
Mr Hockey is using a conservative figure to estimate the daily cost of borrowing the difference between the Government’s expenditure and its revenue.
But economists said his statement that we are at a “tipping point” is more open to debate.
They point out Australia’s debt and deficit are not at particularly high levels historically, or internationally, and that investors are prepared to lend more to the federal Government. They also point out that some spending goes towards building infrastructure and investing in future economic growth.
