Mathias Cormann leaves a legacy of losses as Finance Minister

by | Jul 10, 2020 | Featured, Finance & Tax

On nearly every economic indicator of wellbeing, Australians have gone backwards in the past six years of the Coalition government. Yet it, and particularly the Finance Minister, is lauded at every turn. Alan Austin takes a closer look at the figures.
Having announced his retirement from politics, Finance Minister Mathias Cormann is being feted by the pro-Coalition media for his services to the Coalition.

But what about his services to Australia, a key objective in the finance minister role? That scorecard is not so impressive. The failures in the finance portfolio since September 2013 encompass several areas, including government spending and revenue, net and gross debt, and the interest bill. Few seem to interest the mainstream commentariat, which is strange because all are important.

Moreover, despite the blowout in debt and increase in government spending there has been no increase in the wellbeing of Australians, relative to the rest of the developed world, as measured by any economic indicator. This includes un/underemployment figures, wages growth, productivity and so on.

True Lies: Mathias Cormann caught by his own department for economic fairy tales

Government spending

The Abbott Government surfed into office in 2013 largely on the back of outrage against Labor’s “reckless spending” and “disastrous deficits”. In Labor’s last three years in power, federal spending averaged 24.3% of gross domestic product (GDP). That was quite low in historic terms for Australia and relative to comparable countries. In Labor’s last full year, 2012-13, spending was cut to $367 billion — 23.9% of GDP.

Abandoning all promises, the incoming Coalition with Cormann as finance minister swiftly reversed this thrift. Outlays rose to average 25.4% of GDP in the first three years, and 24.7% over the last three. In the year to May, spending was above $489 billion, against MYEFO estimates of $456 billion.

Government revenue

Spending is no problem if revenue is flowing in. But it isn’t. This is largely due to the failure to collect taxes from the top end and foreign corporations. Revenue to the end of May was just $429 billion, against the MYEFO’s target of $457 billion.

Note: Most data in this analysis is from the monthly Finance Department reports and the weekly gross debt updates from the Office of Financial Management.

Net debt

Before the 2013 election, Tony Abbott said the Coalition would reduce net debt by $30 billion. (Net debt is gross debt minus interest-bearing loans.) Within nine months $30 billion had been added.

From $161 billion at that election, net debt continued to blow out to reach $400 billion last September. In May, this reached $464 billion, a total expansion of $303 billion.

Gross debt

From just $272 billion in September 2013, gross debt soon shot through $300 billion, to eventually reach $600 billion in May this year.

By April 2017, the Coalition doubled all Labor’s gross debt, and by March 2019 it had doubled all debt accumulated by all governments since 1854.

Global comparisons

Yet there has been no need for any extra debt since 2013. We know this by tracking the 36 wealthy, developed economies in the Organisation for Economic Cooperation and Development (OECD). Of these, a clear majority has taken advantage of the global boom in investment, jobs, profits and government revenue over the past six years to repay the borrowings needed during the global financial crisis.

Between 2012 and 2019, 19 countries reduced their debt, four of them by an impressive 15% or more. Fourteen increased debt over that period by less than 15%. Just three – Chile, Greece and Australia – increased borrowings by more than 15%. Of these, Australia’s was the worst, at 17.6% of GDP.

The interest bill

Interest paid on gross borrowings in the financial year just ended will be about $17 billion, which equates to about $1,180 per taxpayer per year. That is cash the Government must transfer to mostly offshore lenders.

Net worth

The mainstream media generally ignores this indicator of success in financial management, which nearly always reflects well on Labor but poorly on the Coalition.

Net worth measures all federal government assets minus liabilities. Assets include cash, investments, land, buildings, infrastructure and heritage and cultural assets. Liabilities include government borrowings, debts to suppliers, superannuation and other employee debts. [See the top table of page one of the monthly finance statements.]

Australia’s net worth has tumbled under the Coalition from negative $206 billion to negative $624 billion.

Discovered: Mathias Cormann’s billion-dollar black hole

Note on MMT

Modern monetary theory (MMT) claims deficits and debt pose no problem to countries like Australia with sovereign currencies, as they can never run out of money. While this is true, budgets framed by both sides of politics are still heavily constrained by revenue. Hence, in the real world, that $17 billion paid in interest on the unnecessary debt is not available for other priorities, which reflects a lowering of the quality of Australian life.

Overall decline in outcomes

Through the past six years of the global recovery Australia has tumbled from near the top of OECD rankings to among the losers on unemployment, underemployment, wages growth, productivity, income per person, median wealth, retail sales, infrastructure development, interest rates and the value of the Aussie dollar.

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https://www.michaelwest.com.au/cormann-duttons-60000-domestic-raaf-flights/

ABOUT THE AUTHOR

Alan Austin

Alan Austin

Alan Austin is a freelance journalist with interests in news media, religious affairs and economic and social issues. You can follow Alan on Twitter @alanaustin001.

11 Comments

  1. Avatar

    so who would be happy that they ‘Ditched the Witch’ and ‘Axed the Tax’ ?

    of course – tax avoiders – ‘the top end and foreign corporations’ – mates of the Liberal Partly !

  2. Avatar

    WOW! is all I can say! I had no idea of these disastrous figures. They are selling Australia down the river big time.

  3. Avatar

    The notation on MMT where it infers that revenue is income is incorrect. MMT does not say this at all, in fact what it does say is that taxes do NOT pay for services. The purpose of taxation is not to raise revenue but to place a “value” on the fiat currency by legislating that all taxation debts are required to be paid in Australian currency. As soon as taxation is collected the balances are destroyed. It is not kept in an account for Treasury or the Reserve Bank for future spending. Spending by Government is made by crediting commercial bank accounts for the various expenditures laid out in the budget or demanded by Treasury on instruction by the Government by computer entry without reference to any stored funds. This negates the entire argument of balanced budget mantra on which this article is based. The issue of Bonds is not needed to fund Government expenditure. The Government simply issues the currency by the aforementioned method. Before commenting on MMT it’s wise to understand the principles.

  4. Avatar

    Blame the dumb fools that elect them time and time again, they made their bed now they must lay in it.

    • Avatar

      “they made their bed now they must lay in it.”

      Unfortunately, so do the rest of us

  5. Avatar

    Thanks for this.
    Yes, the failure to effectively tax foreign corporations has been a huge revenue hole. Many losses (Ford, General Motors etc) were deliberate and designed to pay for employment (and failed), Others included a failure to prohibit transfers (“R&D”, “Intellectual property” etc) which exported pre-tax revenue earned in Australia to offshore havens.
    The most corrupt of the coalition revenue leakages was the gift of all gases from the Timor sea to Woodside. This was a handout made wholly at the expense of the Australian (and Timorese) taxpayer. The coalition benefit was political campaign donations, plus a position for Downer in retirement from Foreign Affairs.
    These are losses Cormann inherited, rather than generated.
    An ICAC would hardly know where to start !
    We need a policy “If you want to do business in Australia, you had better pay taxes here”, backed up by legislation and audit.

  6. Avatar

    Then how can Australia justify the spending of 270 billion on defence for an imaginery enemy. Australia is no longer the lucky country its the stupid country. The one country that is buying from Australia it insults everyday and follows like merino sheep everything that stupid Trump and the GOP tell them to do. For the sake of the future of Australia wake up Politicians.

    • Avatar

      We spent $250 million on Morrison’s private jet, didn’t we? And Michael Pascoe has written that #sportsrorts is just the tip of the iceberg. $8.1 billion was thrown at the targeted rlectorates across 11 programs.

  7. Avatar

    budgets framed by both sides of politics are still heavily constrained by revenue

    The point however is that this is a completely artificial restriction. A currency sovereign faces no financial constraint.

    It’s good to see MMT principles being discussed in articles such as this, but not so good to see misunderstandings.

  8. Avatar

    Neither side of politics will address to problem of Corporate tax evasion, they don’t even acknowledge, publicly anyway, that it exists, while they keep wagging their fingers at us ‘commoners’, about spending deficits, like, it’s our fault. There’s even talk about raising the GST to make up shortfalls in revenue. AND when these clowns like Abbott, Bishop, Pyne, etc, retire, they get an IMMEDIATE pension in hundreds of thousands of dollars. WE are being drowned in Bovine Excreta…….

  9. Avatar

    Certainly no “Back in Black” in these examples.

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