Like with any financial crisis, the coronavirus recession has forced Australia to rethink its relationship with debt and deficit.
We've come a long way since 2009, when Tasmanian senator Eric Abetz was given the opportunity to beam a message to the planet Gliese 581d. Rather than extend friendship to the closest potential intelligent life, his message instead said: "The Coalition dreams that by the time you receive this message in 2029 Australia will be free of Labor debt. Sadly we're not holding our breath."
That one message summed up the toxic debate about government finances in the aftermath of the Global Financial Crisis.
Fast-forward to May 26, 2020, and Prime Minister Scott Morrison had his first chance to set the narrative for Australia's economic pathway out of the coronavirus.
While his speech to the National Press Club was largely conciliatory, there were some harks back to the debt fear campaigns of the past: "Governments therefore must live within their means, so we don't impose impossible debt burdens on future generations that violates that important caring for country principle," he said, trying to make a link between Aboriginal land stewardship and government finances.
The way in which this debate is framed in the coming months will be crucial to how Australia recovers from recession.
Framing it along the lines of "living within our means" plays into the old comparison that used to be made between household debt and government debt. The two are completely different, though. For households, they borrow against a fixed asset, such as a house, that has a defined end point. Governments, on the other hand, do not have a timeframe for when a debt must be repaid, and no fixed asset like a house. Instead, they borrow against the productive capacity of the economy.
This comparison has been used time and again to soften the electorate up for cuts to services. But this must not be allowed to happen in the aftermath of the recession, for both economic and moral reasons.
Globally, Australia's debt to GDP levels are low, although it has been rising steadily since the GFC while most other countries in the OECD used the relative economic calm to pay down their debt levels. From 2012 to 2019, OECD figures show Australia's debt to GDP rose from about 30 per cent to over 60 per cent, mostly under coalition governments. Remember Joe Hockey's "debt bomb" warning? That rhetoric vanished pretty quickly, but the debt didn't disappear. It just became politically inconvenient to mention it anymore.
Even so, we still have plenty of room to increase debt to fill the private investment gap during the recession. Our debt to GDP is far lower than the US, UK, Japan and others, and our economy has far more leverage than Greece, Portugal, Spain and Italy, which have faced their own recent financial crises, and where austerity hampered their recoveries. On top of having low debt levels, Australia has the benefit of its own currency, is resource rich and is not tied to the Eurozone, giving it more flexibility with monetary policy. We just need to make sure spending is targeted to the right areas. That means avoiding providing stimulus to areas of the economy that will create few jobs, absorb the extra finances themselves or park it in offshore tax havens, and instead provide funds to productive sectors and to people who need it most - the poor - who will immediately spend it as a means of survival.
And early on, that was the case.
But there is no reason why a country as affluent as Australia can't use the need for stimulus to permanently lift jobseekers out of poverty, construct enough social housing to bring down the waiting list, keep universities afloat and support the ailing arts industry that has been decimated first by the lockdowns, then by the lack of government support. An analysis by the Australia Institute found that spending in education and health would create vastly more jobs compared with construction.
"The problem with having such a focus on spending in construction is that it might have been a good idea in the 1930s when it took a lot of people to build roads and railways, but now these processes are much more mechanised," Australia Institute Tasmania director Leanne Minshull said.
"It doesn't create as many direct jobs than if you spend the same amount of money on other sectors like the arts, health and education. The arts will be so important in the recovery, because when we come out of this the last thing we want is a cultural desert."
If Australia was at a decent economic starting point before the pandemic, then Tasmania was better still. Economist Saul Eslake said a forecast $2 billion net deficit in Tasmania put the state's debt to GDP at 6 per cent, still incredibly low by both national and international standards.
"Before the crisis broke, in their most recent state budgets, Victoria, South Australia, Northern Territory and the ACT were all projecting state debt of more than 6 per cent of GDP," he said.
"The option for Tasmania in regards to debt, at the moment, would be not to do anything at all, to just live with it. We can afford to do that because interest rates are so low and the cost of servicing this debt is relatively small."
This is a vitally important point. The 10-year government bond rate is 0.78 per cent and, as UNSW economics professor Richard Holden points out, it means if Australia came out of the crisis with net debt to GDP at 70 per cent, then interest payments would be $14 billion a year - smaller than the tobacco excise.
"It's not that big a price to get through a once-in-a-century event," he said.
And that's only if the government takes on an ambitious stimulus to completely replace lost private investment. If we targeted stimulus to our health, education, arts and social support sectors, it would stand our economy in better stead than before as well. We'd have far more people engaged in the economy because they would have opportunities that were missing before.
Who knows, it might even give Eric Abetz something else to tell our friends on Gliese 581d.