Frydenberg’s budget looks toward zero net debt, but should this be our aim?



File 20190402 177196 o4rspu.png?ixlib=rb 1.1
It’s a bit of a mystery how the government has made net debt disappear, but there are clues.
Wes Mountain/The Conversation, CC BY-NC

Richard Holden, UNSW

In his budget speech tonight Treasurer Josh Frydenberg announced that under a Coalition government we will see a decade of surpluses that will “continue to build toward 1% of GDP within a decade”.

He went on: “we climb the mountain and reach our goal of eliminating Commonwealth net debt by 2030 or sooner.”

But a funny thing happened on the way to paying off the debt.

As the budget papers point out, net debt as a proportion of Gross Domestic Product (GDP) is predicted in the budget to peak at 19.2%.

You might ask, then, how do we get from 19% to 0% debt/GDP in ten years if we’re generating a surplus of 1% per annum?



A small part of the answer is that with the economy forecast to grow at 3% a year, GDP is a fair bit bigger 10 years from now. And a 1% surplus of a bigger GDP number is a bigger dollar surplus. This has a larger impact on net debt.

That’s part of the story, but not much of it. If we make the most generous assumptions in favour of the treasurer and his surpluses (even if you believe them), they’re only paying down about two-thirds of the debt.

The case of the vanishing debt

So how does the treasurer get the rest of the debt to disappear?

The budget documents, voluminous though they are, don’t have the answers. But there are only a handful of logical possibilities.

First, let’s unpack what net debt is. Net debt is basically the gross debt issued by the government (for example, by issuing government bonds) minus the assets the government holds.

The surpluses Frydenberg announced help reduce gross debt. So, the debt-disappearing act has to involve some assets getting bigger.

The leading possibility concerns the Future Fund (Australia’s sovereign wealth fund). Simply put, if the Future Fund earns, say, 8% per annum, then those assets are going to be growing a lot faster than GDP. This reduces debt to GDP quite apart from anything else.

Another way to think about it is that the Australian government is running a big hedge fund with a lucrative profit opportunity. If it can earn 8% per annum while the government is funding this with debt that costs less than 2% (as is the case currently, given yields on 10-year Australian government bonds), then that’s a great deal.

Don’t get me wrong, I’m fine with that. But to the extent that debt reduction is coming from the Future Fund, it has nothing to do with fiscal rectitude.




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An even more obscure possibility is that asset values are being hypothetically affected by assumptions about the interest rate the government will pay on its debt. Currently, it is about 1.72%, but the budget documents suggest a return to long-run historical levels of around 5

First, that seems very unlikely to happen in a post-GFC world. Second, it’s unclear that it’s of a sufficient magnitude to explain away the vanishing debt. And third, it’s an accounting artefact, not a matter of economic substance. Again, whatever it is, it’s not fiscal rectitude.

The only other possibilities are even more remote. A massive increase in the value of the essentially defective National Broadband Network? A colossal spike in student loan repayments while future students pay their own way? Nope and nope.

Should we be aiming for zero net debt?

Another question altogether is whether it is wise to reduce government debt to zero in the coming decade.

Fiscal discipline is good and avoiding structural budget deficits is important.

But as I’ve written before, we live in an age of “secular stagnation”, where there is a glut of global savings chasing too few productive investment opportunities and where economic growth is permanently lower than in previous decades.

As former US Treasury Secretary Larry Summers has pointed out, in a secular-stagnation world it will likely take a lot more government spending to sustain full employment and reasonable wages growth without financial bubbles.

Or, to put it another way, if the Australian government can borrow at less than 2%, there are a lot of attractive public investments in physical and social infrastructure that should be made. The idea of “Social Return Accounting”, which the UNSW Grand Challenge on Inequality launched last year and I wrote about here, offers a framework for thinking about this.

The live hand of Peter Costello

The treasurer presumably didn’t mean to be ironic when he said of the down-to-zero debt paydown:

Only one side of politics can do this… John Howard and Peter Costello paid off Labor’s debt.

But it is ironic that Peter Costello’s Future Fund is doing a good deal of the heavy lifting in paying off Josh Frydenberg’s debt.The Conversation

Richard Holden, Professor of Economics, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Christian Convert in Bangladesh Falsely Accused of Theft


Muslims said to use mistaken identity to stop activities of Christian who refused to recant.

DHAKA, Bangladesh, August 27 (CDN) — A Christian convert from Islam was falsely arrested for cattle theft last weekend in a bid by influential Muslims to stop his Christian activities, area villagers said.

Day laborer Abul Hossen, 41, was arrested on Saturday (Aug. 21) for alleged cattle theft in Dubachari village in Nilphamari district, some 300 kilometers (180 miles) northwest of the capital, Dhaka.

Christian villagers told Compass that Hossen was the victim of “dirty tricks” by influential Muslims.

“There is another Abul Hossen in the village who might be the thief, but his father-in-law is very powerful,” said Gonesh Roy. “To save his son-in-law, he imputed all the blame to a different Abul Hossen who is a completely good man.”

Hossen, who converted to Christianity from Islam in 2007, has been very active in the community, and Muslims are harassing him with the charge so his ministry will be discredited and villagers will denounce his faith, Roy said.

“If he can be accused in the cattle theft case, he will be put in jail,” Roy said. “He will be a convicted man, and local people and the believers will treat him as a cattle thief. So people will not listen to a thief whatsoever.”

Some 150 villagers, about 20 percent of them Christian, went to the police station to plea for his freedom, he and other villagers said.

Sanjoy Roy, a lay pastor with Christian Life Bangladesh, told Compass that Hossen was a fervent Christian and that some Muslims have been trying to harass him since his conversion.

“They are hoping that if he is embarrassed by this kind of humiliation, he might not witness to Christ anymore, and it will be easy to take other converted Christians back to Islam,” Sanjoy Roy said. “He is a victim of dirty tricks by some local people.”  

Hossen was baptized on June, 12, 2007 along with 40 other people who were raised as Muslims. Of the 41 people baptized, only seven remained Christian, with villagers and Muslim missionaries called Tabligh Jamat forcing the remaining 34 people to return to Islam within six months, sources said.

Local police chief Mohammad Nurul Islam told Compass that officers had arrested a cattle thief who confessed to police that his accomplice was named Abul Hossen.

“Based on the thief’s confessional statement, we arrested Abul Hossen,” said Islam. “There are several people named Abul Hossen in the village, but the thief told exactly of this Abul Hossen whom we arrested.”

Hossen denied the allegation that he was involved in cattle theft, Islam said.

“Hossen is vehemently denying the allegation, but the thief was firm and adamantly said that Hossen was with him during the theft,” he said. “Then we took Hossen on remand for three days for further inquiry.”

A former union council chairman who is Muslim, Aminur Rahman, also told Compass that Hossen was a scapegoat.

“He is 100 percent good man,” said Rahman, who also went to the police station to plea for Hossen’s freedom the day after his arrest. “There are two or three people named Abul Hossen in the village. Anyone of them might have stolen the cattle, but I can vouch for the arrested Abul Hossen that he did not do this crime.”

Whether Hossen is a Christian, Muslim or Hindu should not matter in the eyes of the law, Rahman said.

“He is an innocent man,” he said. “So he should not be punished or harassed. That is why I went to police station to request police to free him.”

Local government Union Council Chairman Shamcharan Roy, a Hindu from Lakmichap Union, told Compass that Hossen was not engaged in any kind of criminal activities.

“In my eight years of tenure as a union council chairman, I did not find him engaged in any kind of criminal activities,” said Shamcharan Roy. “Even before my tenure as a chairman, I did not see him troublesome in the social matrix.”

Immediately after Hossen’s arrest, Shamcharan Roy went to the police station and requested that he be freed, he added.

“I was under pressure from local people to free him from custody – more than 100 villagers went to the police camp, getting drenched to the skin in the heavy downpour, and requested police to free him,” Shamcharan Roy said. “Police are listening to a thief but are deaf to our factual accounts about Abul Hossen.”

In July 2007, local Muslims and Tabligh Jamat missionaries gathered in a schoolyard near the homes of some of the Christians who had been baptized on June 12, a source said. Using a microphone, the Muslims threatened violence if the converts did not come out.

Fearing for their lives, the Christians emerged and gathered. The source said the Muslims asked them why they had become Christians and, furious, told them that Bangladesh was a Muslim country “where you cannot change your faith by your own will.”

At that time, Hossen told Compass that Muslims in the mosque threatened to hang him in a tree upside down and lacerate his body with a blade. Hossen said the Muslims “do not allow us to net fish in the river” and offered him 5,000 taka (US$75) and a mobile phone handset if he returned to Islam.

“But I did not give up my faith, because I found Christ in my heart,” Hossen told Compass in 2007. “They threatened me with severe consequences if I do not go back to Islam. I said I am ready to offer up my life to Christ, but I won’t renounce my faith in Him.”

Report from Compass Direct News