“Gratitude” for Howard & Costello’s legacy? Hardly.

Chris Gardiner thinks he’s making a case for former PM John Howard and his lawyer Treasurer Peter Costello when he declares that they’re responsible for modern Australian governments’ obsession with surpluses at all costs:

If we are hearing a lot about the need to return Government to surplus, and hearing the PM use the word ‘conservative’ as much as he can, it is because Howard and Costello set the governance benchmark and changed our political culture in their term in office…

The Government is touting its projected return to surplus in three years. The reason it must is that the Howard and Costello achievement includes an electorate that assumes that a good government is one that has no debt, one that funds tax and social reform from private sector wealth creation and government surplus.

Ignoring for a moment that H&C’s main method of “achieving” surpluses was selling off public assets, being in office during a mining boom, and cutting services for the poor (something you’d think would bother Chris, given his earlier role as Director of the Anglican Archbishop of Sydney’s Overseas Aid Fund), he’s missing a more fundamental point here: scaring governments away from deficit spending is one of the worst things that they could have done for the future prosperity of the country.

Think about it for a moment. The majority of people who’ve built wealth in this country, and around the world, borrowed to build assets. They borrowed to buy their first house. They borrowed to buy investment properties. They borrowed to start a business. They borrowed to expand a business. And because they were borrowing to build something valuable, it was the financially prudent thing to do and they prospered – even if, at many stages of that growth, it looked like they were massively “in the red”. This is analogous to deficit spending – you borrow to build infrastructure, and whilst you’re in debt in the short term, you’re in debt to build an asset of value. In the long run, you’ll be well ahead.

What’s analogous to the current public-private partnership model, the insistence on relying on private companies to build public infrastructure? Where government takes on most of the risk and the private companies profit at public expense? The closest I can think of is the rent to buy model – you know, when you buy a TV from Radio Rentals and end up paying twice as much for the same thing. And although you’re never actually in the red, in the long term you’re very much worse off.

But that’s what (we’re told by the media is) the public insistence on surpluses has wrought.

If Howard and Costello are responsible for Labor’s complete refusal to borrow to build infrastructure, then it’s just one more reason they should hang their heads in shame.

PS Like Peter Costello, I’m a lawyer, not an economist.

7 responses to ““Gratitude” for Howard & Costello’s legacy? Hardly.

  1. Splatterbottom

    It is the private sector that needs to borrow to build. The government is inherently incompetent, and as Gillard’s BER and the Celebrity Arsonist’s insulation scheme have amply demonstrated, they a chronic inability to manage public spending efficiently. Already they are turning the NBN into a jobs-for-the-boys fest.

  2. Wisdom Like Silence

    I would have thought that the government being in surplus would prove our tax dollars were being mismanaged.

  3. Oh, SB. You haven’t actually swallowed that guff about the insulation scheme, have you? Jesus. I thought you were an intelligent man.

    And why would the government be any different to a private sector organisation investing in infrastructure?

  4. Splatterbottom

    Keri: “And why would the government be any different to a private sector organisation investing in infrastructure?”

    Because governments are driven by political considerations.

    I have no problem with governments regulating the market, and doing stuff like breaking up Telstra.

    But governments should not run commercial enterprises. Look at the link above – they gave a Labour mate a high-paying job which was unadvertised and uncontested. You only have to look at the eternally corrupt NSW railways to understand that governments cannot efficiently run a business.

    I have serious doubts about the efficacy of spending $42bn (or whatever it is now) on a fibre network.

    Given this government’s track record on waste and it’s demonstrated incompetence, it is not surprising that people are sceptical.

    And when Rudd releases his correspondence with Garrett, I might alter my view on the insulation scheme. But for as long as Rudd keeps showing his contempt for the victims of his ill-conceived policies by hiding the facts, we can only conclude that his alleged commitment to open and transparent government is, like everything else he says, a sham.

  5. “But governments should not run commercial enterprises. “

    Natural monopolies (such as over public infrastructure) are not “commercial enterprises” and the private sector can’t be trusted with them. See: Telstra.

  6. Splatterbottom

    The problem with Telstra is that Howard wanted to maximise the share price, so he sold it off as a monopoly, instead of splitting it up and selling the bits. The result is that Telstra screws its customers.

    The belated attempts to regulate it have been only partially successful. The fact still remains that government enterprises are inherently corrupt, and the answer is to let enterprises be owned by the private sector within a decent regulatory framework.

    The NBN proposal seems to be to build it and sell it off progressively. I am more concerned about the very high price tag.

  7. “you should be grateful we didnt stack you with debt during our glorious reign”

    “hey, dont look at that personal debt chart, only focus on government debt! …”

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