Former Liberal treasurer Peter Costello has launched a broadside against both the Labor Party and the Coalition, accusing each of bad economic decisions in recent years.
Costello, the country's longest-serving federal treasurer, slammed Australia's current level of debt and questioned why governments had not done more to "rein in spending" and balance the budget.
"The fastest growing area of government expenditure now is interest on debt. If you can believe it, the interest payments that we have to make on our debt are growing faster than the NDIS," he told ABC RN's Between the Lines.
"You can get into this debt trap, where a very large proportion of your income has to go on servicing past debt."
Paying off debt
Costello served as federal treasurer from 1996 to 2007 under Liberal prime minister John Howard. Today, he is chair of Nine Entertainment and the Future Fund.
Since the Howard years, Australia has been battered by two major economic disruptions: the global financial crisis and the COVID-19 pandemic.
The Australian government, like many others, responded to each of these with massive stimulus, to prevent an even worse economic disaster.
"If you look back at the 2008 financial crisis, we had stimulus. And the idea was, when we came out of that financial crisis, the stimulus would be paid back. It never was," Costello said.
"Then we go into COVID. We have stimulus. The idea is when we come out of COVID, it will be paid back. But it won't be."
"The reach of government, the cost of government, the debt incurred by government is just starting to ratchet up through each cycle", Costello said.
He specifically criticised Labor's recent federal budget for "not aiming now to pay back the debt we incurred when the economy was down … we're just going to carry the debt from the bad times forever".
He said unlike its recent predecessors, the Albanese government had totally "given up" on balancing the budget over the course of the cycle.
"When the times are good, we should be paying this stuff back."
The numbers
Australia's total net debt is around $500 billion and gross debt is nearly $900 billion.
It may sound like a huge figure, but context is important. The country's gross debt-to-GDP is below average in the OECD and nowhere near the UK and US.
There are varying opinions about how much debt is too much, with many economists agreeing Australia's debt is not near crisis levels.
After being challenged that Australia is currently reflecting global trends, with many other countries in similar situations after funding COVID measures, Costello said, "we're falling into line with other countries that run big deficits and big debts, you might be right about that. But we used to be better".
He also cited worries about "higher defence spending coming in, the NDIS growing extremely fast … the ageing of the population, the move to a carbon-free future" which "are all going to cost money".
Costello added that Australia should be able to better address its debt due to high commodity prices.
"These are the best times for Australia. Our terms of trade are the highest ever. In trading terms — these are the greatest days since the gold rushes," he said.
"When you're trading in the greatest time since the gold rushes, you shouldn't be trading at a deficit … We should be putting some money aside. And if we don't put it aside in the good times, where are we going to be in the bad times?"
Job Keeper criticism
Looking back at Canberra's fiscal response to the pandemic, Costello offered a mixed review.
He said "it was warranted to have a fiscal response and to have a strong one" but took aim at one "design flaw" in the Job Keeper program, namely how companies "self-assessed" their losses.
"There were a lot of companies that said, 'oh, well, we think we're going to go down by 30 or 50 per cent [in revenue], they self-assessed and got the government payment," Costello said.
"Some of them got the government payment, even though their revenues went up. So the taxpayer ended up subsidising companies, not who were in trouble, but who were actually profiting during the pandemic."
"Governments normally say, where they've made an overpayment, they claim it back in the next year. But the government didn't do that. And it's estimated something like $27 billion was paid to companies who in fact weren't qualified to receive it."
"The government can ask for it back, it can legislate what's called a clawback," he said.
"The government decided it wouldn't claw it back. Now, that's an obvious design fault. It could have been fixed with legislation. [Instead] $27 billion went out to people who didn't deserve it."
RBA 'failures'
Some of Costello's harshest words were directed at the Reserve Bank of Australia (RBA).
He said the RBA "did the right thing" during the start of the COVID-19 pandemic.
"When we went into this crisis in 2020, [it] cut interest rates and eventually they went to 0.1 per cent. That was stimulatory."
But he took aim at "two additional things which it had not done before".
"It tried to give forward guidance. That meant, 'We're not just fixing the interest rate now, we'll tell you what it's going to be in the future' … That was a failure."
In 2020 and 2021, RBA Governor Philip Lowe said interest rates would not likely rise until 2024.
This year, the RBA hiked interest rates for seven consecutive months, prompting an apology from Lowe.
"At the time, we thought it was the right thing to do. And I think looking back, would have chosen different language," Lowe said.
Costello also took aim at the RBA for "engaging in a big bond buying program".
Throughout the pandemic, the RBA purchased $281 billion of federal, state and territory government bonds, designed to lower the structure of interest rates in Australia.
The spend was intended to provide "extra insurance against the ongoing risk of very bad economic outcomes" for Australia, but Costello said it resulted in "very big losses" for the RBA.
"The losses are so great that [the RBA] wiped out its equity. It's a bank who's got what's called 'negative equity'. So all of those losses wiped out the capital that it had," he said.
"That was a terrible failure. The capital will have to be made up over the next several years. And as a consequence, the Reserve Bank will be a loss-making activity for several years and we, the taxpayers, will have to support it."
The RBA has reviewed the bond purchase program and in a September speech, Deputy Governor Michele Bullock said "the review concludes that it broadly achieved its aims".
"As the bonds mature and the Bank's balance sheet declines, the Bank will once again return to positive earnings. These earnings will result in the Bank returning to positive equity over time."
Liberals in opposition
Finally, Costello offered some advice for what should be on the agenda of the federal Liberal Party, now that it's in opposition.
"We've got to, in my mind, unwind the stimulus. The stimulus came for 2020 and COVID. COVID has passed, we've got to unwind it, we've got to try and get back to where we were," he said.
"And then moving on to the new agenda, which is going to be productivity. There's an old expression in economics: Productivity isn't everything, but it's nearly everything."
"Long term, we can have real wage increases, as long as we're increasing the productivity to underpin them, so that they can be paid without increasing inflation," he said.
"The only way you can get to real wage increases, long term, is by making the economy more productive."
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