Fact check: Hockey over-eggs 'borrowing $100 million a day' claim
Treasurer Joe Hockey is working on the 2015-16 federal budget at a time when the Abbott Government is still struggling to pass some elements of its 2014-15 budget through the Senate.
Speaking on ABC TV's 7.30 program, Mr Hockey warned that Australia is at a "tipping point" and living beyond its means. "We cannot continue to go on borrowing $100 million a day as a government just to pay our daily bills," he said.
It's a talking point that Mr Hockey has used again and again, and that has been taken up by other government MPs, including Rowan Ramsey, the Liberal member for Grey in South Australia, who told ABC Radio: "We are borrowing $100 million a day, $100 million a day to pay interest and fund our lifestyle."
ABC Fact Check investigates whether Australia is borrowing $100 million a day, and it "cannot continue" as Mr Hockey claims.
Checking the numbers
Mr Hockey's office told Fact Check that the $100 million figure is based on the estimated underlying cash deficit for this financial year, which in the mid-year budget update published in December 2014 was $40.362 billion.
In simple terms, that figure represents how much more the government intends to spend in 2014-15 than it expects to raise in revenue.
Mr Hockey's office confirmed that $40.362 billion was divided by 365 to reach a ballpark "$100 million a day" figure.
In fact that calculation comes up with $110,580,821.91 - about 10 per cent higher than Mr Hockey is claiming.
In order to make up the difference between revenue and spending, the Australian government borrows money from investors by issuing Commonwealth Government Securities, mostly in the form of Treasury bonds.
According to Australian Office of Financial Management, the face value of those securities when Mr Hockey made his claim on 7.30was $354.734 billion, which is often referred to as Australia's gross debt.
Experts weigh in
Economists contacted by Fact Check offered a range of responses to Mr Hockey's claim.
Richard Robinson, from business research and forecasting firm BIS Shrapnel, says it is "a reasonable claim" yet points out Australia's total debt remains low by world standards. "So I would not say we are at a tipping point…yet," Mr Robinson added.
"I think it's a bit alarmist," Jakob Madsen of Monash University told Fact Check, while noting Mr Hockey's sums are correct.
Professor Madsen also said that while the $100 million a day figure sounds "astronomical", Australia's deficit measured as a proportion of gross domestic product is a better measure and at 2.5 per cent is "not too bad" in historical terms.
And former Reserve Bank economist Paul Bloxham, from investment bank HSBC, said that, strictly speaking, Mr Hockey's assertion that Australia can't continue borrowing is not correct.
"The market is currently prepared to lend to the Australian government at an historically low interest rate of 2.5 per cent for 10 years," he said.
This means the market clearly believes Australia's budget deficit is sustainable at this stage, Mr Bloxham said.
Good debt and bad debt
Gordon Menzies, another former Reserve Bank economist now at the University of Technology, Sydney, said if you think of government debt in terms of a household or business debt, then a relevant comparison is that borrowing to buy a house or factory is quite different from borrowing to have a party.
"Some government spending, such as infrastructure spending, will yield ongoing benefits even if the government has to borrow to do it," Dr Menzies told Fact Check.
Mr Bloxham also said if government spending is directed to investing in future growth, then the spending itself could help to support growth and pay the interest associated with the budget deficit.
"This is why the right question is not if the deficit is sustainable, because it clearly is," Mr Bloxham said. "It is whether the spending is well allocated to building capacity to support medium-term growth."
As for whether Australia is living beyond its means, Mr Robinson said the Government's main problem is that it doesn't have enough revenue to match expenditure.
"In my opinion, a large chunk of the revenue problem is due to large tax benefits to already wealthy people, with the largest of these being superannuation breaks, capital gains tax breaks and negative gearing," Mr Robinson said.
The verdict
Mr Hockey is using a conservative figure to estimate the daily cost of borrowing the difference between the Government's expenditure and its revenue.
But economists said his statement that we are at a "tipping point" is more open to debate.
They point out Australia's debt and deficit are not at particularly high levels historically, or internationally, and that investors are prepared to lend more to the federal Government. They also point out that some spending goes towards building infrastructure and investing in future economic growth.
Mr Hockey's claim is over-egged.
Sources
Joe Hockey, ABC 7.30 interview with Leigh Sales, 10/2/15
Joe Hockey, Sky News interview with David Speers, 8/2/15
Joe Hockey, ABC NewsRadio interview with Marius Benson, 5/2/15
Rowan Ramsey MP, ABC North and West SA, 9/2/15
Australian Office of Financial Management, Australian Government Securities on Issue
OECD Government Debt, 2014
