Australia’s deputy prime minister, Barnaby Joyce, took to the airwaves on Tuesday to argue, among other things, that Labor would “jack up interest rates” if they took power at the next federal election.
The Coalition’s attack line – echoed lately by prime minister Scott Morrison – extends to a Labor government inflicting higher prices on voters for petrol and power.
Joyce told ABC’s RN Breakfast listeners the cost of borrowing would be higher because under Labor, Australia would get “excessive mismanagement of debt”, perhaps compared with the current levels of mismanagement.
By his logic, interest rates would be higher under Labor because Australia would export less and the Australian dollar would be lower. The currency’s value, he argued “controls inflation, or your internal fiscal capacity”.
“If you lose sight of basically how much you owe the world or you lose sight of the capacity to repay it, then the only way to try and draw that money back into government coffers is to jack up interest rates,” Joyce concluded.
How do Joyce’s comments on debt match his past musings on debt, and do his latest ones make sense?
How it started
Joyce, it’s often forgotten, was a “hawk” on debt in the past.
Almost 12 years ago, Joyce warned in his “debt hangover’” opinion piece in The Australian that “if you do not manage debt, debt manages you”.
Back then Australia’s gross government debt had risen to $125.483bn, up about $2.5bn from a recent Senate estimates hearing, a pace that worried Joyce.
“If we keep borrowing at this rate Australia and all who rely on the government to provide a basic service of health, defence, subsidised medicine, childcare, unemployment benefits, pensions, are all going to arrive at a point of reckoning,” Joyce wrote.
“Stresses will be placed on the government budget because we did not manage the debt at a point where it was manageable.”
He went on: “It is a statement of the bleeding obvious that we cannot have government debt growing the way it is growing. The Labor party does not want to grasp the nettle to manage the debt.”
How’s it going?
If Joyce didn’t like government debt at $125bn, you’d have to wonder what he makes of the current government forecasts.
According to the latest projections, Australia is on track for gross debt of $1.134t by June 2024, or not far shy of an extra “0” being added since his “nettle” comment.
That about 40% of government debt is held by the Reserve Bank of Australia to keep borrowing rates low during the pandemic might also have disturbed Young Barnaby. Another oped opportunity for the deputy PM, perhaps.
But will Labor ‘jack up’ those rates?
Back to that radio interview.
So, Joyce’s wider case was that because Labor would be beholden to the Greens for preferences, they would be more likely to hurt exports of our sacred fossil fuels.
That in turn would push up rates because the government would face dwindling coffers – presumably from lower royalties – and would respond by lifting higher rates to fill its coffers, or so the argument seems to run.
Mind you, if a Labor government passed policies that cut fossil fuel subsidies – globally running at $US11m a minute or $36.7bn over a decade in Australia – they might have less of a need to borrow.
But either way, interest rates aren’t the responsibility of any government – Coalition or Labor – and haven’t been since soon after the Hawke government floated the dollar in 1983.
Good time to borrow
Most of the government debt has been accumulated since the Coalition led by Tony Abbott came to power in 2013, and Joyce hasn’t been talking about it that much lately.
Economists such as Prof Warwick McKibbin, now at the Australian National University and a former RBA board member, aren’t overly fussed about the scale of the borrowing itself.
“It’s what it’s used for,” that matters, Prof McKibbin said, adding that it makes sense to accumulate debt if it generates a higher return than the borrowing cost.
With global interest rates at record rates, including in Australia with the cash rate sitting at 0.1%, there’s probably never been a better time to borrow.
State and federal governments have been lining up to invest in new roads, tunnels, and other infrastructure that should generate net benefits for the wider economy in excess of the interest rate.
Similarly, there are benefits from investing in childcare, for instance that enables more women to enter the workforce. These deliver “a social rate of return that can’t really be monetised” but have lasting and widespread benefits just the same, McKibbin said.
