Fun facts about Australia’s debt at the end of the following governments …
- 37th Parliament (Keating, Labor) … $96 billion
- 41st Parliament (Howard, Coalition) … $58 billion (down 40%)
- 42nd Parliament (Rudd, Labor) … $147 billion (up 153%)
- 43rd Parliament (Gillard, Labor) … $257 billion (up 75%)
- 43rd Parliament (Rudd, Labor) … $257 billion (short period)
- 44th Parliament (Abbott, Coalition) … $369 billion (up 44%)
- 45th Parliament (Turnbull, Coalition) … $532 billion (up 44%)
- 46th Parliament (Morrison, Coalition) … $895 billion (up 68%)
- 47th Parliament (Albanese, Labor) … $897 billion (up 0.22%).
During the Australian Government’s covid overreach period, its gross debt increased from $534.4 billion in March 2019 to $885.5 billion in April 2022. This is the highest it’s been relative to GDP since the 1950s when the country was still repaying debts from WWII.
In 2007, the first Rudd Government introduced a debt ceiling of A$75 billion to demonstrate its supposed economic credentials. A cap on debt. You can’t be more fiscally responsible than that, right?
What happened next won’t surprise you if you’re a long-time observer of government.
The same government then increased the debt ceiling to A$200 billion, then to A$250 billion, then A$300 billion. Complete economic vandalism!
But that’s OK. To the rescue comes the Coalition, right? Wrong. In 2013, the Abbott Government lifted the cap to A$500 billion.
You get the picture.
Then, tired of the recurring process of increasing the debt ceiling again, the Liberal Party colluded with the Australian Greens and abolished it altogether.
Yes. You read that correctly!
Labor instituted a debt ceiling. Liberals and the Greens removed it.
So now the Federal Government can rack-up any sized debt it can get away with.
As Liberty Itch has said here and here, the general modus operandi is that conservatives conserve. They have a tendency to retain what they are given. It takes classical liberal zeal to adopt muscular forward-looking policies.
In this context, it was actually Labor playing at being fiscal conservatives with the introduction of a debt ceiling but they started the process of increasing the limit, wolves in sheep clothing.
So what did the conservatives in the Coalition do? They conserved the pattern they inherited and followed suit, lifting the limit too. Up and up it went. They simply conserved the new system they were given.
We small government Milton Friedman types watched aghast.
So, what would have been a better solution than a debt ceiling? What would a classical liberal government have actually tried?
The social welfare statists love a referendum. Let’s fight back and do more than resist …
Answer: a balanced budget and debt repayment enshrined in the Constitution.
The provisions would say something like this, with apologies to all the gifted constitutional draftsmen out there:
The Balanced Budget Provision
The Commonwealth Government shall prepare its annual appropriations bill for parliamentary approval such that, except in times when a joint sitting of the House of Representatives and Senate has made a Declaration of War, the expenditure shall not exceed taxation receipts.
Declarations of War Provision
Declarations of War, which require a two-third majority of the joint siting, shall only be voted on if Australia or its allies are under direct military threat from a foreign power. Declarations of War automatically expire on surrender of the foreign power or 12 months, whichever is the sooner, and may be renewed as required.
The Debt Repayment Provision
In the event that the Commonwealth Government has inherited a national debt from previous years, it shall ensure all subsequent annual expenditures are at least 10% less than taxation receipts, and that the difference be applied to extinguish the debt.
The only time a debt could be incurred is the one inherited when the Constitution is changed and during and after war.
I’m negotiable on the 10%. It could be 5% or 7% or 2%. I don’t mind.
However, the principle should remain, which is that government must pay past debts in regular, predictable timeframes and, once that’s done, budgets must balance except in times of existential threat.
A debt ceiling is now unnecessary. There’s no more ratcheting debt skyward and heading ever further towards mega-sized government.
Best of all, these provisions are enshrined in the Constitution so are hard to remove.
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An entrepreneur who has employed 1,470+ people, Kenelm was admitted to the BRW Fast 100 three times with businesses in Australia, NZ, Singapore and New York, where he lived for 12 years. Kenelm’s investment firm performs mid-market leveraged roll-ups. He was a regular columnist for the Australian Financial Review. Kenelm is the Founder of Liberty Itch.
