Joe Hockey removes the debt ceiling

December 04, 2018

On 4 December 2013, Joe Hockey - as Treasurer of the three-month old Abbott Coalition Government, supported by the “economic fringe dwelling” Greens – removed the Australian Government’s $300 billion gross debt ceiling (which was about to be reached within days).

This removed a key restraint on the inherent, fiscal excesses of modern governments (as well as deal-making cross-benchers in Parliament) and their natural tendency to:

  • spend more than they earn (tax) due to the electoral popularity of spending promises, and
  • dumping the resulting debt burden onto future generations.

After the debt ceiling was removed, Australia clocked up another nearly quarter of a trillion dollars in gross Federal government debt (it was $296 billion when removed, reaching at least $536 billion), with gross interest on that debt averaging $18 billion per year - and that is with interest rates currently at or near record lows.

This dead money paid in interest costs could instead have been going towards building countless schools, hospitals, bridges, roads, base-load power stations and/or drought-busting water infrastructure projects (See Senator Bernardi's speech below about what $17-18 billion in annual interest payments could achieve)

Throughout the Swan-Labor treasurer-ship, the debt ceiling helped keep the profligate spending and budget troubles of the government in the news. It served as a regular reminder of government reaching a new level of excess. The debt ceiling also applied greater pressure to the Senate opposition and spend-happy crossbenchers for fiscal responsibility and assisted more savings measures passing the parliament.

Instead, government remains unconstrained by debt, the topic of debt and interest rarely hits the news and future generations pick up the tab.

We need to restore this key fiscal discipline on Australian governments by bringing back the debt ceiling, especially as a big tax-and-spend Shorten Labor government looms large and likely at the next Federal election.

Mark/commiserate this anniversary of Australian taxpayers losing the leash they had on their governments spending more than they earn/tax by:

  • signing our petition to bring back the debt ceiling but also observing our debt clock and what we forgo as a result of interest paid (ie money wasted)
  • reading Senator Bernardi’s speech in Parliament to his bill that sought to restore the debt ceiling on the Australian Government (which the Senate blocked by voting it down on 13 August 2018)
  • further understanding the purpose and virtues of a debt ceiling on governments and their profligate tendencies to grow, overspend and rack up debt
  • perusing then Coalition Treasurer Hockey’s media release removing the Federal government’s debt ceiling with the Greens’ support
  • being acutely aware of “Greens bearing (budgetary) gifts”
  • exploring the reasons why the debt ceiling was introduced in the first place (by then “fiscally conservative” pre-GFC Labor in June 2008, and raised several times after their fiscal stimulus packages and subsequent spending habits just wouldn’t heel)
  • checking out the Conservative Party’s principles and policies around smaller government, lower taxes, tighter budgets and less regulation, and/or
  • sharing this Action Plan post on social media with family, friends, conservatives, classical liberals, responsible budgeters and those that want governments to stick to their knitting and live within their means.

Further details on Hockey’s removal of Labor’s (gross) debt ceiling

After learning how the state of the budget had deteriorated further, and significantly, from the incredibly sanguine 2013 Pre-election Economic and Fiscal Outlook (PEFO) left by the Rudd-Gillard-Rudd Labor governments – note that the revenue and other PEFO estimates were signed off by then Secretary to the Treasury, Dr Martin Parkinson, now Secretary of Prime Minister and Cabinet – the Abbott-Hockey Coalition Government attempted to increase the debt limit by $200 billion to $500 billion (as a once-off or “reset and forget” move).

  • The emerging MYEFO estimates for the 2013-14 year were $17 billion worse than expected at the 2013 PEFO less than four months earlier – more than $6 billion due to over-stated, Labor-budget-fattening tax revenue being written down, $8.8 billion replenishing the Labor-looted capital reserves of the RBA, and almost $1 billion to fill the funding hole of Labor’s cobbled-together, election-eve offshore processing facilities on Nauru and Manus Island (see especially pages 32-26 of the 2013-14 MYEFO).
  • This extra $17 billion guaranteed that the debt ceiling would be reached just months after Labor was booted out of office (in fact, before the end of 2013).
  • Former Labor Treasurer, Wayne Swan, refused to increase the debt ceiling yet again late under his watch. He (and his replacement, Chris Bowen) instead left it to the incoming Coalition government to suffer the political ignominy associated with such a move.

Newly installed on the opposition benches, Labor played hard-ball and would only support a debt limit increase to $400 billion, knowing the Coalition Government would then wear the opprobrium of seeking to later increase it.

With the then $300 billion debt limit almost reached (only days off), the Coalition Government did a hasty or desperate deal with the Greens to remove the debt limit altogether (in exchange for more detailed and transparent reporting on government debt and… climate change policy).

After the deal was reached, rather than staging a joint press conference with the economically maligned Greens, the Abbott-Hockey Coalition Government issued their own media release later that day (and let the Greens issue their own, separate one). This avoided the terrible optics and political fall-out the Gillard Labor government suffered when conducting their fateful but sanguine joint press conference with the Greens over the announcement of the Carbon Tax in February 2011.

Whilst Hockey’s deal with the Greens added a useful Debt Statement added to the Budget Papers – transparently explaining and setting out in detail the current debt and its likely trajectory over the medium term (10 years) – the debt limit removed in the deal was a budgetary and political constraint on the fiscal excesses of governments that badly needs to be restored.

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