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Issue #1736      June 22, 2016

Their debt, our repayments

The federal budget or any other government budget is in many respects similar to a family or worker’s budget but on a far larger scale. There are two components – income and expenditure.

Prime Minister Malcolm Turnbull and Treasurer Scott Morrison.

Surplus

A budget surplus occurs when income is larger than spending in any one year. This surplus might be used towards paying off any debts, put in a savings bank or credit union, invested in shares on the stock market, etc.

Deficit

If spending is larger than income then there is a budget deficit for that year. A worker may cover that deficit by the use of a credit card or borrowing the money from a bank or some other source such as the government in the case of student fees.

People borrow for many things such as a car, treatment in a private hospital, education, a holiday, to make investments, as well as for home loans.

Debt

The amount borrowed becomes a debt. Interest is normally paid on that debt until it is paid off. When debts are not fully paid off they can accumulate over the years.

Housing loans are an example where it might take 10 or 20 or more years to pay off the debt and interest to a bank or other lender.

Companies also borrow and carry debts. They borrow for such purposes as expanding their operations, new developments, making take-overs, buying public assets, replacing workers with new technology, and so on.

Debts and deficits are not evils in themselves. As can be seen from the above examples, they are widely accepted practices and can be of benefit. What is important is whether the debt is manageable and the purpose of the borrowing.

For example, it is irresponsible for a bank to lend someone a large sum to purchase an overpriced home when they do not have the income to make the repayments. A loan to a gambler with huge debts will only go up in smoke with the borrower sinking further into debt and unable to repay it or even the interest on it.

When corporations overextend their borrowings and cannot pay back their debts or the interest on them, it is the workers who lose their jobs and entitlements and their shareholders who lose their savings.

Government deficit

The same applies to the government. Its budget deficit must be funded by some means so that the government can meet its expenses and any debt be manageable. (Another option would be to print money, but that’s another story.)

The government can borrow the money by such means as loans and the issuing of government bonds. It can also sell off public assets such as it did with Medibank Private. In the case of the sale of federal government assets, the deficit and debt are usually excuses for its unpopular neo-liberal agenda.

Government debt

The government debt is the accumulation of government deficits which have not been paid off. Like any other borrower, the government must service this debt with interest payments. These payments, referred to as the “cost of the debt”, appear in the budget papers as an item of expenditure.

The former Rudd/Swan Labor government’s $42 billion stimulus package introduced in 2009 pushed the budget into deficit. It put billions of dollars directly into the hands of those on middle to low incomes, pensioners, carers and single parents. It benefited small farmers and students. There was also the pink bat insulation program and spending on school building upgrades and public housing.

The Coalition and other neo-liberals screamed from the rooftops warning that the debt created was unsustainable.

The stimulus program was brought in when forecast growth for the GDP was 0.75 percent, unemployment was on the rise and other western economies were reeling with the impact of the global financial crisis. The aim was to boost spending and hence growth and jobs which it succeeded in doing.

The Turnbull/Morrison 2016-17 budget with its tax cuts for corporations, tax cuts that benefit middle to high incomes and $1 trillion program for military is set to drive the government debt deeper into the red.

Largely as a result of these tax cuts, the hike in military spending and other corporate welfare, the forecast deficit in the May budget for 2016-17 is $37.1 billion and the total debt is set to rise to $567 billion.

Sound and unsound debts

Clearly it makes sense to talk in terms of good and bad or sound or unsound deficits and debts.

It is just as unsound to lend money to a gambler as it is to borrow to spend billions of dollars on killing machines. On the other hand, borrowing for such things as public transport infrastructure or investment in renewable energy could be described as sound investments.

Successive federal governments, have simultaneously run up budget deficits with tax cuts, spending on the military, etc, and then used these debts as an excuse to cut social security and defend the sale of public assets.

Clearly, the deficits and debt being run up by the Coalition government are not sound from a working class perspective.

As then treasurer Joe Hockey said in his 2014-15 budget speech: “I say to the Australian people, every dollar we spend in this Parliament comes from you.” By “Australian people” he means working people and the most disadvantaged who will be repaying the debt. It won’t be the big corporations or the rich!

There is another way. The Communist Party of Australia calls for a slashing of the military budget, making the big corporations pay tax on profits made in Australia and ending all the corporate hand-outs and subsidies to the fossil fuel industry and mining corporations, private hospitals through the private health insurance rebate.

This would balance the budget and put the government in a position to adequately fund public education, hospitals, transport and housing and invest in renewable energy sources.

There are many other social and economic projects and programs the government should be funding that are of benefit to the people. There is nothing criminal or unsustainable about borrowing for such purposes. Quite the contrary.

Next article – The myths of privatisation

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