Today’s The Australian carries the following letter to the editor from Shadow Finance spokesperson, Andrew Robb.
I have reproduced it in full.
Debt comment clarified
In response to your editorial (“The Coalition’s credibility gap”, 7/3) it was asserted that I “stumbled” by “erroneously” comparing Australia’s debt to Ireland’s and Iceland’s.
The Australian can do much better than repeat Labor's subsequent misrepresentation of my comments.
I simply referred to the research of one of the world's leading economists in Kenneth Rogoff, which showed that the growth in Australia's gross debt since Labor came to office is third only to the growth of debt in Ireland and Iceland.
This helps demonstrate why Australia's economy is vulnerable to any downturn in commodity prices, given our structural deficit which is 30 per cent worse than Italy's.
Andrew Robb, opposition finance spokesman, Canberra, ACT
In writing the letter, Mr Robb has only gone to highlight the absurdity and deception of those comments. It shows a deep misunderstanding of public finances and the economy.
For those who read this before, I apologise for repeating, in full, my analysis of Mr Robb’s comments. It was from my blog posted on 16 January 2012. Every word and number remains correct. Foreign investors should be very worried if this is the sort of economic analysis that the alternative government is discussing at a time when Australia's fiscal position is the envy of the world.
Mr Robb's Embarrassing Lack of Understanding
OMG! The Coalition Parties seem to be keen to keep on highlighting their frightening ignorance on economics and economic management. Even basic maths seems to be an issue sometimes.
It perhaps wouldn’t matter so much if it were an odd backbencher shooting from the hip, but this time it is the Shadow Finance Minister, Andrew Robb, mouthing an analysis of Australia’s debt and fiscal position that would be humiliating to any high school economics student, let alone someone wanting to run the budget of Australia’s $1.5 trillion economy.
In The Australian today, Mr Robb is quoted:
- “growth in the nation's level of indebtedness since Labor came to power has been outstripped only by global financial crisis casualties Iceland and Ireland; it [the Opposition] warned of a European-style budget crisis here.”
Mr Robb also said:
- "Under Labor, commonwealth debt in gross terms has grown by around 250 per cent, putting us third only behind those powerhouses Iceland and Ireland.”
What? Is this a mistruth or a very basic misunderstanding?
The facts show that Australia’s net debt is projected to move from a net asset position of 3.8% of GDP in 2007-08 to a net debt position peaking at 8.9% of GDP by 2011-12 - a widening of around 13% of GDP.
According to the IMF data base, Iceland’s net debt is projected to rise by 58% of GDP, from 11% in 2007 to 69% in 2012. Ireland’s net debt is projected to rise by 92% of GDP from 12% in 2007 to 104% in 2012.
Then there’s this suggestion:
- Mr Robb said a commodities slump could push Australia into European budget crisis territory. "Debt just keeps growing under this government and if we experience any downturn in commodity prices the $50 billion budget deficits that have become the norm under Labor will stretch out as far as the eye can see," he said.
Let’s have a look at some of those “European crisis levels” of net government debt:
Between 2007 and 2012, net government debt is projected to rise by 53% of GDP in Greece (from 105% to 158%); Portugal 32% of GDP (from 58% to 90%) and Spain 30% of GDP (from 26% to 56%).
As an aside, according to the same IMF database, net debt in the US is projected to rise by 35% of GDP between 2007 and 2012 (from 42% to 77%); in the UK, the rise is 41% of GDP (from 38% to 79%), while in Italy, is a relatively modest 13% of GDP albeit from a high starting point (from 87% to 100%).
All of which make’s Mr Robb’s claims completely ridiculous and for him, quite embarrassing.