Making Our Necessary Public Debt Work for Us

 "Broader than just regional economic growth, our national position will be improved and prosperity maintained if the increased levels of Commonwealth Government expenditure and investment can be amplified through corresponding reductions in red and green tape."

AUTHOR: Carl Valentine

In my recent article I expressed the sentiment that our public debt (Commonwealth Government borrowings), forecast to peak in 2024 at over $1.1 trillion, was necessary to maintain our national prosperity in the face of the recession induced by COVID-19. The alternatives of raising taxes or cutting public spending are likely to create a prolonged recession, or even a depression (as was the experience in the early 1930’s with the Great Depression).

Recognising that our public debt is necessary is one thing, but it’s a far more important exercise to ensure that public debt is working for us, that its good debt not only for us but also for future generations. Good debt is debt used to invest in Australia’s future. It is used to fund infrastructure, education and healthcare systems and build communities that benefit both the current and future generations.

Our Commonwealth Government regularly makes expenditure and investment decisions around the application of its operating receipts – funds raised predominantly via the taxation of income we earn through hard work, hard earnt business profits and astute investment decisions. We all hold our Commonwealth Government to a high standard of account when spending our taxes.

An even higher standard of account must be applied when the Commonwealth Government is making expenditure and investment decisions around the application of borrowed funds (monies that we will be paying for not only in our lifetimes, but potentially over the course of future generations).

How then do we determine if the accumulating public debt is good debt or bad debt?

From a regional economic perspective, my view is that public debt is good debt when utilised to contribute positively to one or more of the following inter-dependant drivers of regional economic growth:

1. catalytic regional projects;
2. alignment between Commonwealth, State and Local government; and
3. policy settings that enable localised private sector involvement in regional economies.

The 2020/21 Federal Budget did go some way towards supporting catalytic regional projects with over $14 billion of new investment. It also considered the need for alignment between levels of government via the use it or lose it approach to funding State and Territory projects (funding not utilised in a timely manner will be reallocated to other States or Territories).

A key feature of the Federal Budget was policy settings to let the private sector get on with growing the economy. The clearest alignment between regional economic advancement and our increasing public debt is via the taxation policy initiatives that enable business growth and sustainability. Measures like tax loss carry back and the significantly expanded temporary full expensing of assets (instant asset write-off), along with JobMaker, go some way to creating a fiscal environment within which businesses have the confidence to invest and grow as the economic opportunities exist for them to do so. These measures either defer tax collections or increase government spending and hence need to be funded via public debt in the absence of higher current levels of Commonwealth Government receipts.

Broader than just regional economic growth, our national position will be improved and prosperity maintained if the increased levels of Commonwealth Government expenditure and investment can be amplified through corresponding reductions in red and green tape. Such reductions will reduce the cost of doing business and the cost of delivering all kinds of infrastructure (whether this be “hard” or social infrastructure). This in turn enables funds that would otherwise be spent on compliance activities being applied to business growth and developing other infrastructure projects.

Our economy, and our collective prosperity will benefit from long-term bi-partisan and aligned support for economic priorities. Going forward, it is paramount to maintain a strong bias towards productive investments when utilising all government receipts and borrowed funds.

All levels of government should ensure they are focussed on providing greater support to those who will positively contribute to the economy, providing a safety net for those who can't contribute and limit what goes to those who won't contribute to the economy.

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