"Australian Government debt per head of population is one of the lowest across all the developed countries in the world."
Kevin Rudd on Sunday, August 4, 2013 in his election announcement speech
Government debt in Australia is low by global standards
Central to the Coalition’s election pitch is the claim that Labor has lost control of Australia’s finances. Debt is escalating, revenue is in freefall and the promised surplus will never materialise – or so Tony Abbott says.
Announcing the election date, Prime Minister Kevin Rudd labelled these "false claims". In particular, he challenged the Coalition to explain why "Australian government debt per head of population is one of the lowest across all the developed countries in the world".
There are some discrepancies between the metrics used on each side. Gross debt is the figure the opposition likes to talk about because it is the biggest, scariest number. Last week’s pre-election economic statement revealed the market value of government debt would peak at $370 billion in 2016-17, compared to the $356 billion forecast in the May budget.
We’ve already examined why market value is a poor way of assessing gross government debt compared to the face value. There’s also debate about whether the debt is best measured in gross or net terms; the latter accounts for the government’s debts minus its financial assets. Rudd prefers to talk in net terms, by which debt will peak at 13 per cent of gross domestic product (GDP) in 2014-15.
Professor of Economics at UNSW’s Australian School of Business, Richard Holden, says net debt is the better measure. "Just like any household, the government has liabilities, the equivalent of say a home loan or some liability that you owe to other people, but it also has assets. If you’ve got $100,000 sitting in your savings account, and you've got a $400,000 mortgage…you should think of yourself as owing the world $300,000."
Nonetheless, for the purposes of comparison we need a level-playing field, and it comes from The Economist newspaper. Its "global debt clock" tracks gross government debt around the world, including debt per capita and as a percentage of GDP. The 20 nations listed are all designated by the International Monetary Fund as "developed economies".
And for the visual learners among us:
Of those 20 countries, only New Zealand and South Korea have lower government debt per head count than Australia.
And except for the great state of Luxembourg, Australia’s debt to GDP ratio is the lowest. OECD projections for gross government debt in 2013 and 2014 marry up to The Economist’s very closely.
Holden summarised: "Australia has pretty low government debt by global standards. That doesn’t necessarily mean that we should be complacent about it, but it’s in some ways a credit to the fiscal management of a variety of governments including both Labor and the Coalition. That can get larger and relatively quickly, but right now we’re in a pretty envious position."
Kevin Rudd said Australia’s government debt per head of population is one of the lowest in the developed world. With only New Zealand and South Korea below us, it’s hard to fault him.
That doesn’t mean the government has no questions to answer on why its debt projections have been consistently wrong. But even as it struggles with revenue shortfalls, it can still credibly argue that our debt is comparatively low.
We rate the statement True.
Published: Wednesday, August 7, 2013 at 6:27 p.m.
Phone interview with Richard Holden on August 5, 2013
Chris Bowen unveils $30bn deficit in economic statement, but keeps pledge to return to surplus, The Australian, August 2, 2013
Transcript of Kevin Rudd election announcement, August 4, 2013
Chris Bowen and Penny Wong economic statement, August 2, 2013
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