From: Damien Broderick (d.broderick@english.unimelb.edu.au)
Date: Sat Apr 13 2002 - 00:11:51 MDT
I'd be interested to hear the extrope (range of) reading/s of this piece on
recent Aussie political choices:
http://www.theage.com.au/articles/2002/04/03/1017206220409.html
Costello's debt reduction could leave
us all in debt
By Kenneth Davidson
April 4 2002
Despite inadequate budget accounts, there is accumulating evidence
of financial mismanagement by the Howard-Costello government.
Between 1996 and 2001, the government reduced its debt by $48
billion, according to the Australian Office of Financial Management
- $38 billion from the sale of Telstra and Commonwealth Bank
shares and $10 billion mainly from the sale of airports, property,
railways and radio and telephone spectrum.
Over the same period the government ran up a net surplus of $15
billion, or 2.2 per cent of gross domestic product.
The government is proud of this record. It was the centrepiece of
its
claims to superior economic management in the recent federal
election campaign.
But, really, how good a record is it?
Most commentators take the
government and financial market
line. They compare the record of
the Labor government in the first
half of the 1990s (during the
downswing in the business cycle)
with the record of the Coalition
government in the second half of
the '90s (during the upswing in
the business cycle).
Prudent governments run
surpluses during the good times,
and this creates greater scope for running up budget deficits during
the bad times.
Thanks to a boom in housing construction, fed by low interest rates
and $2 billion in subsidies to first home buyers, the domestic
economy is forecast to grow 4 per cent this financial year - yet the
cash surplus is expected to be only $500 million.
In the argot of economics, this suggests the budget is already
running an underlying deficit of around $200 million to $300
million, based on an underlying long-term GDP growth rate of 3 to
3.5 per cent.
In the previous upswing in the business cycle, in the five years to
1990-91, the Hawke-Keating government ran up a net budget
surplus of $12.7 billion, equal to 3.4 per cent of GDP.
After allowing for the changed size of the economy, the surplus
built up in the upturn of the last business cycle during the
watch of
the Hawke-Keating government was more than 50 per cent greater
than the surplus built up in the first five fat years of the current
business cycle.
The Coalition appears to have built in a structural deficit as a
result
of its privatisation program in which the government has exchanged
high-yielding assets such as airports, Telstra, the Commonwealth
Bank and Commonwealth real estate for low-yielding or even
loss-making assets.
For instance, it appears that already this financial year the
Australian
Office of Financial Management has realised losses of $800 million
on currency swaps.
(Last week your correspondent put in a series of written questions
to the Treasury on this issue. The verbal response - that the
questions would not be answered - I take as unofficial confirmation
that the claim made in Treasury "Press Release No. 1" to the effect
that so far this financial year Treasury had made gains of $43
million on currency swaps is wrong.)
The former auditor-general of New South Wales, Tony Harris,
asserted in a recent article in The Australian Financial Review that
the Commonwealth stood to lose $4.8 billion on currency swaps.
This has not been denied or challenged officially.
Interest rates are about to rise; it is now a matter of when, not
if.
Age financial markets expert Stephen Dabkowski wrote yesterday
that bond markets have already factored in an interest rate rise of
1.75 percentage points by the end of the year. This translates
into a
loss on the $32 billion in interest-rate swaps entered into by the
Treasury since 1997 of $2.8 billion.
These losses are all the more galling because they were unnecessary,
given the government's announced policy of eradicating debt.
The government's asset eradication program has been undertaken
utterly heedless of the cost to the commonweal.
For instance, the government decided to flog off government
properties worth $1 billion for no better stated purpose than that
they weren't yielding a rate of return of 15 per cent - even though
the industry rate of return on property is 9 per cent. According to
the Australian National Audit Office, 70 per cent of the properties
were yielding a return to the government of 12 per cent or more.
The cash from these sales was then put into buying back
government bonds, yielding 5-6 per cent.
The government is now renting these properties back at exorbitant
rents, which still manage to push most of the risks normally
associated with property ownership on to the government.
The indulgent financial misadventure embarked upon by the
Coalition government, if unchecked, will lock Australia into
substandard, high-cost public services - which will eventually
affect
every taxpayer.
Kenneth Davidson is a staff columnist.
E-mail: dissentmagazine@ozemail.com.au
-------------------------------------
Damien Broderick
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