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How Peter Costello got rid of government debt
Topic Started: 13 Aug 2014, 12:48 PM (542 Views)
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How Peter Costello got rid of government debt

Tue, 12 Aug 2014 | Stephen Koukoulas

Given the kerfuffle over asset sales and Treasurer Joe Hockey's flailing with the budget and former Treasurer Peter Costello's suggesting that the government redo the budget, I thought it useful to up the debate on debt, asset sales and the fiscal follies of the Howard government.

There are a few updates from when this was initially published.

Australia's net Government debt was $96 billion in June 1996. By June 2007, Australia had net financial assets (negative debt) of $29 billion. The Howard Government and the current Liberal Party point to this turn in the finances of the Government with pride and say it is a sign of good economic management.

To be sure, this is a significant turnaround but there are some interesting facts behind the issue of Government debt in the past 30 or so years

The first point to note is that the $96 billion of debt inherited by the Howard Government from the Labor Party in 1996 comprised around $39.9 billion of debt accumulated by the Fraser Government under the Treasury-ship of Mr Howard and left to the Hawke Government in 1983! See Table 3 of Budget Paper 10 for more details.

As I discussed a while back, http://alturl.com/4o973 , when the Coalition talks of the $96 billion of Labor debt that it inherited, recall that just under half of it was in fact Liberal Party debt that was a hangover from the Fraser era that ended in 1983.

That slightly embarrassing issue aside, let's look at how else the Howard Government "got rid" of that debt.

Asset sales loom large in that discussion. The list of government assets sold by the Howard government is here: http://alturl.com/bjhqk . This table shows the asset, the time of sale and the price.

To get an accurate indication of the true dollar impact on debt of those asset sales, I have converted them into June 2007 dollar terms. Take the sale of DASFLEET, for example, which was sold for $408 million in July 1997. In June 2007 terms, this was worth $536.8 million. Or perhaps the first tranche of Telstra is interesting. Sold for $17.2 billion in November 1997, that converts to $22.6 billion in June 2007 terms.

The value of all asset sales under the Howard Government totalled a very hefty $71.8 billion in June 2007 dollar terms. This means that around three-quarters of the pay-down of the $96 billion of government debt was simply from selling assets to the private sector. Nothing more, nothing less.

To summarise the above facts:

The $96 billion "Labor debt" inherited by the Howard Government in 1996 comprised $39.9 billion of Fraser Government debt that carried through the Hawke/Keating period meaning that the true level of Labor debt in 1996 was $56 billion. To pay that $56 billion off, the Howard Government sold almost $72 billion of Government assets meaning the move to negative net debt was not really due to any miraculous and bold fiscal settings, but owed everything to a series of asset sales.

Read more: http://thekouk.com/blog/how-peter-costello-got-rid-of-government-debt.html
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Chris
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Spot on. I am sick and tired of hearing the same mantra over and over "Howard and Costello made us wealthy and Labor threw it all away'. Labor aside, my gripe has always been with how the Howard government and other Liberal state governments made the 'surplus's' they so consistently champion as great economic strategies.

The sale of Telstra looms large in my mind. We sold it bit by bit to PE but with no regard of the real cost to our nation. We have the highest network charges in the world when compared to the rubbish network we are provided with for that money. We applaud these decisions but no one ever takes stock of the true cost to our nation, in a modern world they have essentially provided the nation with an economic disability and charge us a premium for the privilege.

And here in Victoria we sold off our roads, Citylink was given to TransUrban and although they don't own the road KENNETT championed the project saying they would bare the costs and the state would to have to folk out the $2.6B estimated to complete the project. Citylink was given a 36yr contract and allows to toll the road.

15 odd yrs later we have a road system that is not fit for purpose, tolls that have almost tripled and Citylink earning over $1B last year in net profit. The fact remains the Liberal party raped us, as a, state we could have borrowed the money and yes, possibly run the possibility of running a budget deficit in the short term but with 5-8 years of tolls we could have paid back the money and have no tolls. But now we have another 3=25-30 yrs of making TransUrban, on average, $1B pa profit.

If you then look at our utilities like water and electricity and the story is very similar. Liberal party sold it off and we pay back billions more than we ever made and the profits don't go back to society they go back to whatever PE group brought it.

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Elastic
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Chris
13 Aug 2014, 08:39 PM
Spot on. I am sick and tired of hearing the same mantra over and over "Howard and Costello made us wealthy and Labor threw it all away'. Labor aside, my gripe has always been with how the Howard government and other Liberal state governments made the 'surplus's' they so consistently champion as great economic strategies.

The sale of Telstra looms large in my mind. We sold it bit by bit to PE but with no regard of the real cost to our nation. We have the highest network charges in the world when compared to the rubbish network we are provided with for that money. We applaud these decisions but no one ever takes stock of the true cost to our nation, in a modern world they have essentially provided the nation with an economic disability and charge us a premium for the privilege.

And here in Victoria we sold off our roads, Citylink was given to TransUrban and although they don't own the road KENNETT championed the project saying they would bare the costs and the state would to have to folk out the $2.6B estimated to complete the project. Citylink was given a 36yr contract and allows to toll the road.

15 odd yrs later we have a road system that is not fit for purpose, tolls that have almost tripled and Citylink earning over $1B last year in net profit. The fact remains the Liberal party raped us, as a, state we could have borrowed the money and yes, possibly run the possibility of running a budget deficit in the short term but with 5-8 years of tolls we could have paid back the money and have no tolls. But now we have another 3=25-30 yrs of making TransUrban, on average, $1B pa profit.

If you then look at our utilities like water and electricity and the story is very similar. Liberal party sold it off and we pay back billions more than we ever made and the profits don't go back to society they go back to whatever PE group brought it.

The story of Liberals as good economic managers looks likely to end with the current government. Howard was fortunate in that the mining boom kicked off as well as a surge in private sector debt driven growth during his reign.
Only a rat can win a rat race.

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Ned Flanders
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Elastic
13 Aug 2014, 10:36 PM
The story of Liberals as good economic managers looks likely to end with the current government. Howard was fortunate in that the mining boom kicked off as well as a surge in private sector debt driven growth during his reign.
The surge in private sector debt was a deliberate outcome, not something serendipitous. By selling government assets, Howard/Costello were able to issue less government bonds. The banking system was forced to go to the private sector for credit growth. If not for the mining boom and China's post GFC stimulus, it would have all ended in 2007/08 with the GFC.

When all the players are long gone, historians will recognise both Howard governments, as treasurer and PM, as the worst this country ever had post WWII, and possibly of all time.
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" ... which is that all-too-familiar dynamic in Irish life where people tell lies, cover them up and create all sorts of collateral damage, sometimes spread out over decades, and never take responsibility."
- Alan Glynn
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Trojan
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Not sure why the kouk converts all the sales to 2007 dollars but the debt he left at 1996 dollars. He then says the asset sales account for 3/4 of the debt repayment. Sounds like he is trying to deliberately mislead.
I put trolls and time wasters on my ignore list so if I don't respond to you, you are probably on it ....
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Dr Watson
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Trojan
14 Aug 2014, 12:14 AM
Not sure why the kouk converts all the sales to 2007 dollars but the debt he left at 1996 dollars. He then says the asset sales account for 3/4 of the debt repayment. Sounds like he is trying to deliberately mislead.
You're not suggesting ... Koukie might have ... a political agenda here, are you? The Kouk I know has no political affiliations or biases at all!!! The Kouk I know is completely impartial!!! The Kouk I know never lets his emotions get in the way of his reasoning!!!
The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt — Bertrand Russell
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