Australian Modern Money enthusiasts are a passionate bunch. Many have got on their soapboxes about our newest Treasurer’s first appearance on 7.30.
The challenges in the economy are pretty clear. We’ve got high and rising inflation and, therefore, rising interest rates.
We’ve got real wages falling backwards quite substantially and we’ve got a trillion dollars of debt in the budget, which will take generations to pay off, but is not currently going to deliver a generational dividend.
And so, the challenges that I’m inheriting from my predecessor are pretty serious challenges. We want to be up-front about that.
We’ve already begun the work of trying to address particularly those three challenges that I mentioned.
The promises that we made during the election, the commitments that we will budget for in the October budget, are all about trying to increase the speed limit on the economy without adding to those inflationary pressures.
It’s economic orthodoxy to say, if you’ve got inflationary pressures, then you need to increase the size of the economy and you need expand its capacity and you do that with cleaner and cheaper energy, you do it by making the workforce bigger through childcare reform.
You train people so that they can work more and earn more in those higher-wage, higher-skill opportunities that emerge in an economy like ours.
And so, our economic plan, our economic agenda, is geared towards those inflationary pressures, and also getting real wages moving again, in a way that doesn’t add substantially to the budget bottom line, but improves the quality of the spending in the budget.
It will take generations to pay down the debt that we’ve inherited.
The budget is heaving with a trillion dollars in debt – not enough to show for it, because there’s all of these rorts and all of this waste that you and I have talked about before.
So the first step is Katy Gallagher and I will begin, as soon as possible, an audit of those rorts and that waste in the budget and that will be an important way to try and go through the budget line by line to make sure that we can either improve the budget position or invest the taxpayers’ money more wisely to get a proper economic dividend for the country.
We’ve already highlighted $11.5 billion worth of budget improvements. We did that when we released our costings during the campaign. We hope to find more budget improvements so that we can improve the budget over time.
But I’ve got to be up-front with you and with all of your viewers, Leigh, and say this is a big, substantial problem – you can’t just flick a switch and make a trillion dollars of debt disappear. It’s going to be a lot of hard work over a long period of time but that hard work has already begun. – Jim Chalmers, Treasurer.
I interpret these statements a bit more generously than most. They are a startling contrast to his 2019 comments.
“I don’t believe MMT is a sustainable funding model for the services that Australians rely on. The only way to properly fund these is by ensuring we have a sustainable level of revenue.
People raise MMT from time to time and I find the conversation interesting, and I try not to dismiss any genuinely-held ideas, but I’m not convinced.
Richard Holden is an economist I have a great deal of respect for and his views aren’t a bad summary of mine, at The Conversation.
Job Guarantee also very interesting and I’m following the debate in the US fairly closely.” – Jim Chalmers, MP.
Reviewing his comments today that it will take generations to pay off the debt is correct if we assume by paying off the debt, he means letting the government debt mature. We are always issuing new debt. The AOFM has announced its future plans. The followers of MMT know that over the course of time the total number of dollars that have been drained from the banking system to maintain the overnight cash rate is called the national debt.
“That’s just a rule someone made up.”
What I believe he really means is there is little productive investment coming out of that deficit matched with debt. As Ross Gittins recently wrote “Who said the shortfall between what a government spends and what it raises in taxes must be covered by borrowing from the public? That’s just a rule someone made up.” This is what I believe the Treasurer means by not delivering a generational dividend.
What is interesting are his remarks on the speed limit of the economy & reference to inflationary pressures, it is as if his words are taken from Stephanie Kelton’s NY Times best seller The Deficit Myth
Every economy has its own internal speed limit, regulated by the availability of our real productive resources—the state of technology and the quantity and quality of its land, workers, factories, machines, and other materials. If the government tries to spend too much into an economy that’s already running at full speed, inflation will accelerate. There are limits. However, the limits are not in our government’s ability to spend money, or in the deficit, but in inflationary pressures and resources within the real economy.
There is only so much demand that can be placed on our material resources—our workers, factories, machinery, and raw materials—before we push things too far. Once an economy reaches its full employment potential, any additional spending—whether it comes from the government, the domestic private sector (households and businesses), or the rest of the world (foreign demand for our exports)—carries inflation risk.
Chalmers continues about building capacity, increasing wages & removing inefficient spending from the reported rorts. All good things!
The Treasurer does put much of the focus on the debt & the budget bottom line. The debt is in service of targeting the overnight cash rate & the budget bottom line outcome is determined by many different actors outside of government spending and can not be successfully targeted by the government. This is known as an endogenous outcome.
And the debt can be disappeared with the flick of a switch, stroke of a pen, and so on, just by debiting the securities (debt on issue) accounts & crediting the exchange settlement (reserve) accounts. Or you can shift debt issuance to the purview of the RBA – very similar to the previous remark – and ta-da, no more national debt. The choice whether to do this or not is a political policy choice.