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  • You're going to witness a title bout

  • between two of Australia's heavyweight economists.

  • I think if you tried to find two economists in Australia

  • who agreed less with each other,

  • you'd have a hard time finding anyone else to fill this stage -

  • and I'm sure they looked far and wide.

  • Our two speakers today have exchanged barbs in the blogosphere.

  • They've penned columns criticising one another.

  • And they faced off on 'Lateline' earlier this year.

  • and they're now in the room, we have confirmed, for the first time,

  • speaking face-to-face for the first time.

  • (LAUGHTER)

  • I'm going to stand in the middle if it gets too heated.

  • So we have, of course, here today -

  • and I'm about to introduce them in turn -

  • Professor Judith Sloan, and Stephen Koukoulas, who I'll get to.

  • First of all, Judith Sloan is one of Australia's best-known economists.

  • She's a leading figure in academic and business circles

  • with extensive experience in both the public and private sectors.

  • She's currently an honorary professorial fellow

  • at the Melbourne Institute of Applied Economic and Social Research

  • at the University of Melbourne.

  • She's also a member of the Westfield board,

  • a director of the Lowy Institute for International Policy,

  • and the contributing economics editor of the 'Australian' newspaper.

  • And although it's an accolade you might not think much of, Judith,

  • you are actually the first

  • female 'Australian' economics editor that we've had.

  • There was somebody else who was hoping for that title,

  • but you got there first - well done.

  • On 'Lateline' earlier this year, Judith said that

  • Australians are right to be nervous about public debt,

  • that the Labor Government wasted too much money,

  • and in fact a recession could have been quite useful in Australia.

  • Some dangerous ideas there.

  • We're going to stand by those and explore them in a bit.

  • Before we get to that, I'm going to introduce Stephen as well.

  • Stephen Koukoulas is the managing director of Market Economics,

  • which is a firm he established in January 2012.

  • He's been a working economist for more than 25 years.

  • That's a quarter of a century in journalist speak.

  • He started his career as an economist at the Commonwealth treasury

  • in the mid 1980s.

  • And most recently he worked his way all the way up to the top

  • and was a senior economic advisor to Prime Minister Julia Gillard.

  • Before that, he was the global head of economic research and strategy

  • for TD Securities, and he also spent five years working at Citibank.

  • It is timely for us to come together and talk about this topic today.

  • We're fresh from a rather gruelling federal election

  • which was fought, as elections often are,

  • on the issue of economic management

  • and whether we need to reduce waste and debt,

  • with the Australian electorate seeming to have produced a verdict

  • which said that, yes, we do need to be worried about debt.

  • The world economy is also still experiencing a bruising recovery

  • from a global financial crisis,

  • which arguably, was caused by too much debt, both private and public.

  • If it wasn't so much the public debt that was the problem to begin with,

  • it has been the lasting legacy of the GFC,

  • with public debt in Europe and the United States

  • keeps threatening to tip us back over the brink and back into crisis again.

  • So we come together today to discuss,

  • can we really afford to forget about debt?

  • And hopefully you'll know in about 57 minutes.

  • (LAUGHTER)

  • Just some administrative things before we start.

  • I'm going to ask the speakers to come to the podium

  • and do a sort of 10-minute kick-off rally speech

  • for their points of view,

  • which will be followed by some general fisticuffs,

  • as I've defined it in my mind,

  • between us all on stage.

  • Then we've set aside 10 minutes at the end

  • for you guys to ask some questions.

  • If you want to ask a question, just pop up to one of these microphones

  • that we've got there and there

  • and wave at me and catch my attention,

  • and I will turn to you.

  • Also, everybody, turn off your phones and turn on your brains.

  • It's time to start.

  • Can you join me in welcoming Professor Judith Sloan to the podium?

  • Thanks very much, Jess.

  • When I was invited to speak here, so, the Festival of Dangerous Ideas,

  • I was wondering, is it dangerous for me to attend?

  • I think it probably is a bit.

  • I am assuming I don't have many fans here,

  • but I come to the conclusion

  • that it is important to be involved in the discussion,

  • to put points of view that perhaps people

  • might not initially feel very favourable towards.

  • And even though I think I do disagree with Stephen in some ways,

  • I think we are very civil towards each other.

  • STEPHEN: Always.

  • Well, no, I'm trying to make an important point here,

  • because I think that if you look at the economic policy discourse

  • in the United States, for example, that is not what you'd call civil.

  • It's rude, it's personal, it's playing the man/woman.

  • And I don't think we ever want to get to that point.

  • And I guess Stephen agrees with me on that.

  • (APPLAUSE)

  • STEPHEN: Yes, I do.

  • I'm not saying I love him, by the way.

  • (LAUGHTER)

  • What I thought I'd do is just take a few minutes,

  • because I actually think, and I hope you all agree,

  • that if you have a debate,

  • it's always quite useful to have a kind of common set of facts.

  • If there's a certain sort of PowerPoint presentation

  • which you can basically agree with,

  • and then we can kind of debate where we should go in terms of policy.

  • I also think it might be quite important,

  • even though I am an economist who tends to specialise -

  • and I guess Stephen is too - in Australian economic policy,

  • that we shouldn't think of this just in an Australian context.

  • It's a very important worldwide context

  • both for developed economies and for developing economies.

  • So hopefully in the discussion, Jess, and in the questions,

  • we can broaden it out.

  • I guess when I saw the title 'Forget Debt',

  • I was going to say "Forget Debt: As If".

  • (A FEW CHUCKLES)

  • What is debt?

  • Debt, basically, is retimed spending.

  • It's spending undertaken now rather than in the future.

  • We should not forget,

  • and we can think of this in a personal way as well,

  • that debt must be repaid.

  • So if we think, then, about government debt,

  • government debt is effectively a liability on future taxpayers.

  • Of course, those future taxpayers, by and large,

  • are not voting for the current accumulation of debt.

  • So this may sound a weird thing for an economist to be saying,

  • but I think there is an important issue of morality,

  • because it is a sort of intergenerational transfer

  • that you build up in terms of accumulating current debt.

  • I'm hoping this is something that we don't deal with too much.

  • There are some technical issues about how we define government debt.

  • Is it face value or market value? Is it gross or net?

  • Now, where I'm coming at, Stephen,

  • is that really for most purposes,

  • you'd be thinking about net debt at face value.

  • So we don't...

  • And it'll put you to sleep -

  • you'll be going back to sleep, where you possibly want to be anyway.

  • (LAUGHTER)

  • So can I just put it in some sort of numbers, figures?

  • In Australia, when we think about net debt,

  • we're hovering a little under $200 billion.

  • We got about a $1.5 trillion, $1.6 trillion economy.

  • We're hovering around the 10% to 11% mark of GDP.

  • You might want to remember that figure.

  • I'm sure Stephen might want to emphasise that one,

  • because by international standards, that's a pretty low figure.

  • So it's about effectively 10% of our national income,

  • annual national income.

  • What's happened over time,

  • if we go back long enough, say like after the Second World War,

  • we had absolutely heaps of government debt as a result of the war effort.

  • If we think, though, in the late 1980s there was very little debt.

  • It then increased a lot in the last years of the Labor Government,

  • ending in its defeat in 1996.

  • John Howard was able to cut the debt considerably,

  • but he did have a lot of assets to sell, which he did sell.

  • He restricted spending for a while, but only for a while,

  • and in the end he basically secured a windfall tax gain

  • because of the early version of the minerals boom.

  • After that we've had what I regard as a massive increase.

  • Stephen mightn't, and I guess this is a point of difference.

  • We have got a gold medal -

  • or a wooden spoon, depending on your point of view -

  • in increase in government debt since 2008.

  • There has been a very, very significant increase in gross debt

  • under the Labor Government.

  • Now, of course, our newly elected treasurer

  • has increased the debt ceiling to $500 billion.

  • I think we should have a bit of a debate about that, Jess.

  • As I said, though, Australian government debt

  • is low by international standards.

  • But can I just get you to think about this?

  • That quite a lot of those countries which have very high debt

  • are complete basket cases.

  • They're the Greeces and the Portugals, Italy, Spain.

  • I mean, the UK and the US have very high government debt too,

  • and Japan, extremely high government debt.

  • So for at least some of them,

  • they are in a real pickle trying to adjust to their debt.

  • They're facing low growth and very difficult adjustments.

  • And there are quite a lot of important countries

  • that have lower net debt than Australia -

  • and I rattle them off - including basically all of Scandinavia,

  • Sweden, Finland, Norway, Denmark,

  • Chile, Singapore, Hong Kong and Estonia.

  • I think Stephen will agree with me on this point,

  • we have to think, when we think as an economist...

  • We mightn't just actually think about government debt,

  • we actually think about household debt.

  • Australia is very indebted in a household debt sense.

  • And secondly, we might think about our current account deficit,

  • which Australia runs chronically.

  • I'm just about to wind up, but it's worth, I think, thinking about

  • why do you have government debt?

  • This is, I think, where the arguments become kind of confused.

  • There is one reason why,

  • which is what you'd call a Keynesian reason for having debt.

  • So in the event of the economy growing below par

  • or in fact contracting and unemployment increasing,

  • the argument is that the government should increase spending

  • and that will involve deficit financing, which will involve debt.

  • So think of that - that's what you call the Keynesian argument.

  • There is another argument, though,

  • that you should use debt to finance long-living assets.

  • So you don't pay for your house using cash.

  • It's a long-living asset.

  • So you use a financial instrument,

  • which smooths the payments over the life of that asset.

  • That's, I think, a different argument.

  • Maybe that can be a central core of the debate.

  • And for my money,

  • as long as those assets clear

  • what I call a clear cost/benefit test -

  • so they're are clear net benefits to the community -

  • then there's probably no problem using debt

  • to finance those long-living assets.

  • I don't think Keynesian priming works,

  • but I'm not sure I'm totally opposed to raising debt

  • for the purposes of financing long-living assets.

  • Does that mean we forever should be increasing debt?

  • I don't think so.

  • We were talking about this in the green room,

  • which was green, by the way - I love that.

  • In the ABC, it's not really green,

  • it's some sort of hideous version of green.

  • But is debt like cigarettes where one is harmful to you

  • and 60 a day is definitely harmful to you?

  • Or is debt more like red wine?

  • Where one or two glasses a day really actually quite good for you...

  • 10 to 12 possibly not.

  • I think there is a nuance in this argument about...

  • My guess is it is more like red wine.

  • It's just how many glasses are actually safe.

  • So let me finish off by saying - can we forget debt?

  • It's like a good pipe dream, isn't it?

  • "Yeah, just forget it."

  • But no, Australia needs to defend its credit rating,

  • and I guess there's some issues about the credit rating agencies.

  • We could always use high inflation to reduce the real value of debt,

  • but that would actually impoverish us all,

  • so I don't think that's a good idea.

  • So my rule, basically, is that I want to have relatively low debt,

  • I want it raised for the purpose of constructing

  • quality welfare-enhancing assets, long-living assets.

  • And I really basically don't see that there is a case for

  • increasing the proportion of debt as a percentage of the economy

  • because we can't be imposing that kind of burden on future generations.

  • A little bit, a glass or two, is fine.

  • It's just 10 or 12 is not. Thanks, Jess.

  • Thanks, Jess. Thanks, Judith.

  • I owe you a debt of gratitude for those introductory comments.

  • I'm going to focus on a couple of the issues

  • that are dear to my heart about debt.

  • I think it is important to distinguish

  • between gross and net debt.

  • I know, Judith, you weren't so keen on that, but it does matter

  • to have gross debt for a functioning bond market.

  • I understand it's very, very boring,

  • but at least one issue from the GFC that we found

  • is that governments need to have a risk-free asset class

  • that at a time of crisis, financial institutions can hold

  • and sell back to the central bank or to the government.

  • The bond market is one of those, which is why Joe Hockey's plan

  • to increase the gross debt ceiling to 500 billion is such a good idea.

  • It's continuing this trend where we have a deep and liquid bond market.

  • Even 500 billion is actually too little,

  • given the regulations that

  • the Basel III requirements have for banking.

  • We can discuss that later.

  • Net debt is important.

  • Again, it's getting back to that housing analogy,

  • which is sort of OK.

  • The scenario where someone

  • sort of has $50,000 in the bank but no house.

  • Fast forward 12 months, they've got zero in the bank with $500,000 debt.

  • Aren't they bad? But actually they got an asset of a house.

  • So the debt measurement, the net debt is the important part to think about.

  • A lot of the discussion of debt is political.

  • And Judith did touch on it,

  • how the Howard government is lauded

  • for getting rid of net government debt when it was in office,

  • and it did do that, there's no question.

  • It inherited $96 billion of debt, I think it was,

  • from the Keating Government.

  • JUDITH: Doesn't sound like anything now, does it?

  • No, it's tiny!

  • And when it left, I think it had net financial assets

  • of about 40 billion, if I'm not mistaken.

  • So that was an interesting achievement.

  • But when you actually look about how he did it,

  • there's some interesting issues to sort of think about

  • about whether this debt reduction was actually a good idea or not.

  • First of all, about 40% of the debt that he inherited

  • was actually the debt that he raised

  • when he was treasurer under the Fraser Government.

  • The Fraser Government left the Hawke Government

  • about a net debt level of 7.5% of GDP.

  • So about 40% of the debt that he eliminated was his own debt.

  • That's the first part to think about.

  • The other way that it was eliminated

  • is also really interesting to think about.

  • It was done through asset sales.

  • It was done through a record low spending on infrastructure.

  • If you look at the government spending on infrastructure

  • as a share of GDP in the period from '96 to 2007, it fell to a record low.

  • So I don't know what sort of legacy that left the economy.

  • And of course, we had the highest taxing government

  • in Australia's history in the Howard years.

  • So we had this dynamic where

  • you can get rid of debt if you sell the assets,

  • if you don't invest money in anything,

  • and if you tax the tripe out of people.

  • It's really easy to get rid of your debt level there.

  • I guess the question that you've got to think about

  • in that sort of scenario is is that worth it?

  • Is it really worth doing those sort of things?

  • Now, Judith quite rightly pointed out that since 2008,

  • the net debt level has gone up to about...

  • I think the last figure for June 30 was 155,

  • but it's going towards 200 in the next couple of years.

  • Now, let's have a think about how that debt was accumulated.

  • First of all, we had a doubling in infrastructure spending.

  • Things like school halls.

  • Things like the NBN - or the start of it anyway.

  • Things like some roads,

  • the funding that we hear Anthony Albanese talking a lot about.

  • There was actually some infrastructure spending that occurred

  • that was debt financed.

  • The other thing - there were no asset sales, or puny asset sales,

  • during the Labor Government from 2007 to 2013,

  • so they accumulated assets, if you like, on behalf of the people.

  • And the tax-to-GDP ratio was the lowest in 35 years.

  • So while not much of that was deliberate -

  • it was a function of the economy being weak and low inflation -

  • the end point of the debt accumulation was

  • having a very, very low tax-to-GDP ratio.

  • So you can argue that maybe if they'd hiked taxes,

  • maybe if they'd found a few assets to sell,

  • or had they not invested any money anywhere,

  • they'd still have no government debt,

  • but I don't think the Australian economy

  • would be all that appreciative of those sorts of things.

  • The other thing to remember is, of course, the GFC

  • in 2008 to 2010, and arguably still going on.

  • You've got to remember that the Australian economy is made up of

  • roughly 80% private-sector demand and roughly 20% public sector.

  • Yeah, those are the approximate numbers.

  • When the GFC hit, it was the private sector that was going into retreat.

  • The private sector did have a recession here.

  • We had a mining slump.

  • We had the whole housing slump, house prices fell.

  • We had a real shock to the economy.

  • Household saving rates went up

  • because people were really scared about their financial position.

  • So if you wanted to sustain GDP at 2% or 3%,

  • you had to have the other 20% of the GDP, the government sector,

  • ramping up spending.

  • That's why the fiscal stimulus measures in '08 and '09,

  • the cheques that went out to people, the school hall building,

  • all these other things, were so highly successful.

  • It stopped the economy going into recession.

  • And I think that was a wonderful thing

  • that the debt actually was able to achieve.

  • It wasn't blown.

  • And the legacy of that, of course,

  • we still have the school halls there, which is a good thing.

  • Now, the other thing to remember, of course,

  • is that...Mr Abbott himself

  • has got a bit of a personal track record on debt.

  • It was sort of widely publicised back in 2009, 2010, I think.

  • When he was in government in 2007,

  • a minister earning lots of money and all those other things,

  • he had a modest mortgage.

  • When he fell into bad times,

  • so his own personal financial crisis hit, if you like,

  • when he went into opposition in 2007,

  • he had a 40% reduction in his income.

  • He went to a shadow ministry role.

  • What did he do in response to that?

  • He didn't cut his spending.

  • He kept his children at private schools.

  • He didn't sell his house. He didn't sell his assets.

  • He went to the bank and refinanced his mortgage,

  • up to 3.5 times his income.

  • This is all sort of in the newspapers,

  • so there's nothing terribly secret there.

  • He himself applied the debt financing approach to his personal finances.

  • Lo and behold, he's back in the prime minister's job now,

  • half a million bucks a year,

  • and this level of debt that he's got is trivial.

  • And good on him - he made the right decision not to slash his spending,

  • not to take his kids out of private school,

  • not to sell his house and sort of go and live in a tent.

  • He made exactly the right decision. And good on him.

  • For that he should be applauded. That's a really good thing.

  • And finally, just one other small point to note

  • is that in terms of the gross and net debt concepts,

  • which I think is important

  • when we hear the 500 billion debt ceiling that Mr Hockey has now got,

  • even during the Howard Government,

  • when it eliminated net debt, it still had gross debt.

  • It's curious that in 2007, gross debt was about $50 billion,

  • and even during the election campaign in 2007,

  • the Howard Government was still borrowing...

  • Whoops!

  • The Howard Government was still borrowing money.

  • So the critical thing is there that debt does work.

  • He needed it to fund the economy to keep the economy going

  • to keep this bond market liquid.

  • The question, I guess, going forward

  • and things hopefully we're going to discuss in the next little while,

  • is what do we do about the level of net debt?

  • Do we have accumulating gross debt

  • to keep the financial markets functioning?

  • And do we have gross debt to fund nice things or productive things,

  • or productivity-enhancing things like...

  • Well, unfortunately the NBN seems to be kneecapped at the moment,

  • but even things like roads and ports and these other important things.

  • Hopefully we can discuss some of those things.

  • So, thanks.

  • (APPLAUSE)

  • I think the biggest grimace that I saw, Judith,

  • when Stephen was talking,

  • was when we were talking about the debt ceiling there.

  • And, Stephen, I didn't actually quote you - I meant to in my introduction -

  • you've said that gross debt is ridiculously low

  • and a trivial puny amount,

  • and that actually it would be better if we had more debt.

  • Would you have preferred the debt ceiling

  • to have gone to a trillion or something?

  • STEPHEN: We don't need it at the moment.

  • But I have no fears about it increasing over time.

  • I think that if we have the gross debt levels increasing,

  • with money allocated to sensible things -

  • infrastructure spending and those sorts of things -

  • I think it's a very desirable thing.

  • And it actually keeps the financial markets viable and fluid and liquid.

  • One of the critical things about a functioning financial market

  • is you don't want your banking sector to freeze.

  • You don't want your banking sector

  • not being able to have access to capital,

  • which is why a deep and liquid bond market's important.

  • And we know that foreigners love our bonds too,

  • and we're happy to issue them at these very low interest rates,

  • fund productivity-enhancing infrastructure,

  • so it doesn't worry me terribly much.

  • Judith.

  • No, I am quite opposed to it.

  • It was all politics, raising the debt ceiling.

  • I mean, they probably did need to technically raise the debt ceiling,

  • but, you know, governments find it really easy

  • to spend other people's money.

  • They like spending other people's money.

  • The thing is that the electorate really is best served

  • if there are some disciplines

  • and some constraints on politicians in doing that.

  • So I think what Joe is saying is that, "Look, I'm sorry.

  • "It's not my fault that I'm having to increase the debt ceiling,

  • "and I'm increasing it more because they were so irresponsible."

  • He's increased it way beyond what seems needed at this point in time,

  • and so if...

  • The trouble is governments dream up you-beaut ideas.

  • They dreamt up the Adelaide-to-Darwin railway, for example.

  • Did anyone really think that was a good idea?

  • That's gone broke about four times since they built it.

  • I mean, you talk about the school halls.

  • A new school hall in every primary school in the country,

  • including schools that were slated for closure?

  • I don't think so, Stephen.

  • Well, the alternative was just drop money out of a helicopter,

  • which would have been not quite as effective,

  • but with no lasting legacy.

  • But the money on the school halls was being spent

  • two, three years after the worst of the GFC had hit.

  • Not much of it.

  • In Victoria it was, because they wanted to get value out of it.

  • There was nothing Keynesian about a lot of the school hall spending.

  • Yeah, a lot of the school halls,

  • I think the report into the effectiveness

  • only found that 3% or so was wasteful.

  • In fact, I think that's, again, not a really small amount of money,

  • but at the end of the day,

  • those school halls are infrastructure there.

  • They're libraries, they're canteens...

  • But we don't need libraries now. No, I completely disagree.

  • (LAUGHTER)

  • We don't need libraries in terms of a physical space for books.

  • There will not be libraries in the future, believe me.

  • There will not. I know you all love your books.

  • But Stephen, do you agree with hindsight that we needed to spend...

  • I can't remember how much we did spend, it was $100 billion or so.

  • Do you think we really needed to spend that much, with hindsight?

  • Given that we didn't know, could we have spent less?

  • Probably not, no.

  • In fact, the issue that you remember about the GFC

  • is that there were weekends

  • when the government was meeting with the Reserve Bank, APRA,

  • they got all the banks in.

  • I think this in a couple of the books that have written about the GFC.

  • The banks were actually on the cusp of having to merge,

  • getting rid of the four pillars policy,

  • because they were about to fail.

  • They weren't being able to settle their foreign exchange transactions,

  • their bond market transactions with their international counterparts,

  • because not only did Lehmans fail, but the other big US banks,

  • the European banks, were just unable to settle their accounts.

  • Of course, what do you do in a bank in that sort of situation?

  • But, Stephen, that's got absolutely nothing to do with government debt.

  • That's actually about the government providing guarantees

  • for wholesale funding and retail funding and retail deposits.

  • That's absolutely a different issue.

  • No, I'm not talking about that, but that's the environment where...

  • JUDITH: They panicked, in other words.

  • -They addressed a true emergency. -They panicked.

  • They decided to ...

  • Ken Henry, the treasury secretary at the time, said,

  • "Make it temporary," so all this stuff was finished,

  • "targeted, and timely."

  • So let's do it now, not like the US...

  • And the experience in Australia in the 1990s when we had a recession.

  • "Let's build infrastructure."

  • It takes so long for that to be built

  • that you don't have an impact on your economy.

  • You still have a recession, and then you have the tail

  • going on for years and years and years.

  • This was money handed out.

  • You just have to look at the GDP numbers.

  • You have to look at the employment numbers.

  • But look at the GDP numbers now.

  • The thing is we've paid a longer term price,

  • so we've now got unemployment heading toward 6%.

  • If the participation rate hadn't fallen, it would be over 6%.

  • We've had sluggish GDP growth for the past nearly three years, Stephen.

  • So it was the classic sugar hit.

  • It was actually probably the 12 glasses of red wine

  • that we shouldn't have had and now we've got the hangover.

  • And the performance of the Australian economy in the past three years

  • has been extremely disappointing.

  • That's because we've had the biggest fiscal contraction

  • in the last three years.

  • You got to remember the temporary nature of the fiscal stimulus...

  • It's about to go to $30 billion, Stephen.

  • The temporary nature of the fiscal stimulus in 2008, 2009 and 2010

  • did see a really big increase in debt, government spending.

  • But now we've actually had...

  • The year that just finished, 12-13 fiscal year just finished,

  • the budget - go to budget.gov.au, Budget Outcome -

  • you'll see that spending in nominal terms, nominal terms, fell.

  • In real terms, it fell by 3.1%.

  • And it's about to go up again. It's about to go up again.

  • Mr Hockey should do something about it if he's worried.

  • It was a big fiscal contraction we saw last year.

  • That's why the economy's been disappointing,

  • the government's been too tight.

  • Remember when we were undergraduates, Stephen?

  • Remember we learned all that rubbish about the multiplier effect?

  • A little bit of government spending

  • was going to create all this private sector investment stuff,

  • and it hasn't.

  • I mean, investment in the non-mining part of the economy

  • is as low a proportion as pretty much we've ever recorded.

  • So all that idea of this actually

  • encouraging private sector activity, it's a failure.

  • So what would you have advised the government to do?

  • Because the coalition was at the time promising stimulus,

  • just a little bit less, and in tax cuts, not cash hand-outs.

  • Do you think that you would have

  • advised the government to spend a little bit?

  • And how much?

  • I go back to this point - there was sort of basically two prongs.

  • There's absolutely no doubt

  • they had to deal with the banking and the financial system

  • because effectively what happened at that time

  • was that the debt markets went on strike, or it was a complete drought.

  • So they had to deal with that. Absolutely agree with you there.

  • In terms of what they did...

  • And don't forget the Coalition did oppose

  • the second tranche of the stimulus spending.

  • So I would have been much more inclined to be cautious.

  • I think I would have had the first round of cash hand-outs.

  • But even if you look at the evidence on the cash hand-outs,

  • effectively, a lot of it was saved

  • because people were very, very nervous about it.

  • I remember a taxi driver talking to me.

  • I love to talk to them always.

  • He's saying, "Oh, things must be really bad.

  • "The government sent me a cheque for $900."

  • (LAUGHTER)

  • It had quite an ambiguous effect on people

  • instead of thinking, "Yeah, go and spend it."

  • So...yeah.

  • I mean, don't forget that there were other things going on at the time.

  • This is the important bit.

  • We shouldn't expect and we shouldn't want fiscal policy

  • in a small, open economy like Australia

  • to be doing the heavy lifting.

  • So we had monetary policy, we had the Reserve Bank, really,

  • with their shoulders to the wheel on this.

  • What was it?

  • They reduced the cash rate by 2.5 or 3 percentage points

  • really, really quickly.

  • The exchange rate went down from mid 90s

  • to sort of mid 60s really quickly.

  • We had quite a flexible labour market at the moment.

  • And all of a sudden, lo and behold, China was really kicking in.

  • So we were kind of lucky.

  • Someone was sort of giving us the Berocca

  • while we were drinking the wine.

  • So it sort of worked out for that period of time.

  • But I still come back to the point

  • that we seem to have been paying quite a heavy price for this

  • because certainly the last 3 years have been pretty disappointing

  • in terms of sub-par economic growth.

  • So one of the reasons why we should worry about debt

  • is if foreign investors worried about our debt

  • and suddenly decided that they'd either

  • charge a lot more from us to borrow from them,

  • or they started selling, or something catastrophic like that.

  • But actually, the problem that we seem to have in the post-GFC world

  • is that investors are too keen to have our bonds,

  • and this is actually putting upward pressure on our dollar.

  • It seems like foreign investors have forgotten about our debt already,

  • and actually maybe it would be better for us

  • if they were a little bit less keen to give us the money,

  • the dollar was a little bit lower,

  • and that would give our economy a bit of a kick.

  • Of course, the dollar's high partly because of the carry trades.

  • So the carry trade is because Australian interest rates

  • have been relatively high, relative to particularly Japan and the like.

  • But you're right. But let's broaden this conversation out.

  • What happened in Greece and in Spain

  • and Italy and Portugal and Ireland

  • was that they were sitting there with this large amount of government debt.

  • In a number of those cases it was expanded dramatically

  • because they actually had to bail out failed banks

  • and so all of a sudden, the debt increased dramatically.

  • And the providers of the bond monies said,

  • "Well, hang on, this looks pretty bloody risky."

  • And so instead of paying 4%, 5% or 6% yield,

  • you're all of a sudden paying 12%, 13%, 14%.

  • And that is incredibly damaging to the economy and to public finances.

  • It is damaging, and that didn't happen here.

  • I think Jessica's point is absolutely fantastic...

  • JUDITH: Yeah, yeah. Oh, it's not bad.

  • ..in that we've got such a hot demand for Australian assets.

  • It's not just the running yield, it's the AAA credit rating,

  • it's the fact that we've got

  • not many people worried about our level of debt.

  • In fact, the curious thing, certainly in my old job -

  • and I still keep in contact with these people -

  • the big fund managers sitting around the world,

  • whether they're sitting in New York or Tokyo

  • or in Frankfurt or goodness knows where,

  • they look around the world for low-risk, high-return assets

  • that they can invest in.

  • And in terms of the yield, we've got a relatively high yield -

  • a couple of percentage points above the US or Japan and the like.

  • And in terms of our credit rating and the level of debt,

  • it's a real beacon for these investors.

  • They just love the Australian economy.

  • They can see, even though they've got ongoing concerns

  • about "Will the housing bubble burst?"

  • or these sorts of things,

  • we know that about three-quarters of our bond market

  • is held by foreigners.

  • So the curious thing about that is

  • that we do have this debt issuance occurring,

  • but the foreign investors just love to buy it

  • because it's very, very low risk

  • unlike Italy, Greece and these other countries that you mentioned.

  • It's very low risk.

  • It's a safe haven, in a sense,

  • and that's what's pushing the exchange rate higher.

  • Maybe to get the currency down,

  • we just need Barnaby Joyce to be finance minister

  • and talk about these things - maybe that's the solution.

  • But we shouldn't forget that a number of those countries -

  • you think of Spain and Ireland -

  • it was not that long ago

  • that they were regarded as actually quite miraculous

  • in terms of their economic performance.

  • The market got it wrong.

  • There was the 'Celtic tiger'.

  • And actually it's interesting -

  • and this is something Australia needs to watch -

  • a lot of their economic prosperity was founded on housing bubbles.

  • It's ever vigilant, Stephen.

  • You, probably, and I agree on that point,

  • that you can never relax on this stuff.

  • And that's why I'm delighted

  • that we've got the Reserve Bank being vigilant about housing,

  • and they're doing a great job.

  • The other thing to remember too

  • is that one thing that I think we've forgotten

  • is that in 2015-16, we've got a budget surplus already

  • that was left there by the previous government.

  • Mr Hockey seems to be endorsing that

  • without any action on emergency budget setting.

  • He's done nothing on the budget other than borrow another 8.8 billion

  • to give to the RBA for whatever reason that is.

  • But the bottom line is that we're getting a budget surplus anyway,

  • and if you look at the budget papers, you can see

  • the level of net government debt falling away to nothing

  • in the not-too-distant future.

  • -If those forecasts are achieved. -Yeah, come on, Stephen.

  • But I am interested -

  • it seems like our new treasurer, perhaps, has forgotten about debt,

  • because he doesn't seem to be doing too much about it

  • beyond increasing the debt limit.

  • We've got the commission of audit

  • that will look at identifying asset sales or some spending cuts,

  • but I actually doubt that that will be enough

  • to really produce a budget outcome

  • that is much changed from what Labor would have delivered us.

  • I mean, you've mentioned that

  • it's a tendency of all politicians, not just Labor politicians,

  • to want to spend a lot of money and not raise enough tax.

  • Do you worry about that with the current treasurer?

  • Oh, absolutely.

  • I don't regard the Coalition

  • as a government that's committed to small government,

  • they just want different kind of government.

  • They want to spend a lot of money,

  • they just want to spend money on different things than Labor spent.

  • And there aren't any sort of...

  • It probably does require warriors,

  • because the thing is if you look at the $400 billion or so

  • which is spent in the federal budget each year,

  • I think most politicians would say most of that is not discretionary.

  • You're kind of looking at education, health, welfare, defence.

  • They would argue that a huge proportion of that is basically...

  • Not discretionary or just too hard to do.

  • Yeah. Well, but you know.

  • Yeah, maybe some of the very generous payments that go to...

  • I call it upper-class welfare, not middle-class welfare.

  • We've got a lot of money going to people who basically don't need it.

  • I think that that's where, hopefully, the commission of audit comes back

  • and just sort of redefines some of this money,

  • because we do have some big-ticket items on disability care,

  • on paid parental leave, getting defence spending up to 2% of GDP.

  • They're all really, really big numbers.

  • And if they're not prepared to look at the tax scales...

  • No-one's talking about income tax hikes

  • or GST changes or anything else -

  • capital gains tax on your house or anything like that -

  • it's got to come down to trimming other areas of spending.

  • There's just not that much that's easy to do.

  • I can assure you, the previous government,

  • every budget and every MYEFO looked where they could save money,

  • and they went pretty hard on the things that were possible,

  • so we have to think about this upper-class welfare

  • and whether we should be giving such generous amounts

  • of public sector money to people who, frankly, don't need it.

  • Yeah, and I do feel, as a commentator,

  • it's no long incredibly conservative commentators

  • who are worrying about debt.

  • Perhaps we all need to worry about debt

  • just because the politicians aren't worried too much

  • and neither are the investors.

  • But actually, we do have a problem

  • with the two sides of the budget not quite meeting.

  • The ageing of the population means that every thing's becoming

  • much more expensive in terms of health to support everyone,

  • and nobody wants to pay any tax,

  • that there actually is a budget emergency

  • even if it is a longer-term one

  • and you don't have to be particularly conservative to say that.

  • Would you agree with that?

  • -Yes. -Yes.

  • -Oh, no, we're agreeing! -Sorry, I agree.

  • The demographics, the ageing population, living longer,

  • these sorts of things are expensive for the public purse -

  • while they're funded by the public purse.

  • So I think there's this question about whether

  • we want to have it continually provided by the public sector,

  • or whether we trim some of the...

  • Maybe it's got to be on the tax side,

  • with some of the very generous concessions on superannuation,

  • 'cause I think that's the biggest rort at the moment.

  • There's a lot of money there.

  • And you saw back in April, I think,

  • Treasurer Swan tried to think about whether he could tighten up

  • some of the taxing of these very generous concessions for retirees,

  • and he got shot down by the industry,

  • a little bit like the mining tax issue of three or four years ago.

  • I think it's an important issue

  • because you go back to my idea about...

  • It's basically re-timed spending,

  • so you're imposing a liability on future taxpayers.

  • Now, if you then bring in the changing demography,

  • you're actually going to, because of the ageing population,

  • you're going to have a lower ratio of workers to dependents.

  • That's a real issue in terms of

  • servicing a high proportion of debt going down the track.

  • So we've got to sort of think about that.

  • I don't believe the treasury figures.

  • Come on, they were kind of cloud cuckoo land.

  • They were out of a fairy book.

  • They've just got trend GDP and inflation - I think they're fine.

  • I mean, it's a really interesting philosophical point,

  • because, of course, the social democrat model,

  • which is to have relatively high taxes

  • but to have everyone participating in government benefits, right?

  • Now, if we moved to an arrangement

  • where we really restrict government benefits

  • to people on relatively low incomes and exclude everyone else,

  • that's modelled...

  • There are some issues, come on, because you get

  • really funny effective marginal tax rates with the means testing,

  • but leave that bit aside -

  • the trouble is then do you have a society

  • where those wealthy people are quite happy to pay a lot of tax,

  • even though they don't get anything back personally?

  • It's a really kind of interesting issue about

  • does the social democrat model make more sense

  • where there's a bit of an in/out?

  • Which then basically underpins

  • people's preparedness to pay a reasonable amount of tax.

  • Isn't that just churn? The in/out is inefficient.

  • Churn, or is it actually the means of ensuring

  • that people are happy to pay a fair share of tax

  • and not sort of spend all their time trying to avoid it?

  • That comes back to this issue that we want to have these...

  • We're somewhere in the middle, I think.

  • We want these services provided by the government, or some of us do,

  • and that we don't want to accumulate government debt to fund it.

  • I think that's where we keep coming back to,

  • that if we want to have disability care,

  • if we want to have good roads and another airport built in Sydney

  • and all these other really good, productive, decent things

  • that a rich economy like Australia could and should be doing,

  • to make it sustainable, we've got to be very, very careful

  • that we don't end up with a high level of debt,

  • which, again, comes back to this whole political question

  • about where other money is spent unproductively

  • or where the revenue is raised to fund it -

  • if we increase the GST or those kinds of things.

  • You shouldn't think that increasing taxes is some free lunch.

  • You have to take into account the fact

  • that this will reduce the rate of economic growth, and depend on...

  • I mean, I would personally increase the GST.

  • But you know, there's a lot of opposition like Wayne Swan...

  • -Do you think Tony would do that? -No. No, no.

  • And people would say - maybe this group too...

  • I think I've lost my thing, but I'll shout.

  • ..you know, think the GST is unfair.

  • You have to see it as a package.

  • What would happen is that you could compensate the low-income earners

  • and raise a whole lot more money and it would be a good outcome.

  • I'm interested, Judith, in... Just get your mic together.

  • You mentioned in your introductory remarks

  • that this is actually a morality issue.

  • We'll tackle morality and the more technical issues of microphones.

  • STEPHEN: There's a microphone. Sorry.

  • So debt is a problem if the mums and dads go about racking up debt

  • and spending it irresponsibly,

  • and the children have to pay off the debt.

  • That seems to be the emotional argument against,

  • the intergenerational argument of debt.

  • But if the mum and dad are actually going out and buying a house

  • that they're financing with that debt

  • and they leave the house for the child

  • and the child has a house that's increased in value

  • so that they can...

  • They have to repay the debt, sure,

  • but they've got an increased earning capacity to be able to do that,

  • that that's actually a good thing for future generations

  • if we do invest in some of this infrastructure.

  • Which seems to get us to the

  • is there such a thing as good debt versus bad debt?

  • Would we agree that there is such a thing as good debt and bad debt?

  • Good debt being sort of investing in assets for your children,

  • bad debt being just not being able to pay your credit card bills on time.

  • STEPHEN: Yes. There is good debt and bad debt.

  • Debt that's used to fund consumption

  • is generally - not always, but generally - bad.

  • Debt that's used to increase productivity

  • or an asset that's going to accumulate in value

  • or to give you some return

  • is generally very, very good.

  • So, yeah, there is good and bad debt.

  • I think this sort of comes back to this issue of house prices.

  • Not that I want to touch on house prices all that much,

  • but this discussion now about whether housing is pricing people out

  • and whether the amount of debt that first home buyers

  • need to have to buy their first home is so oppressive,

  • but I think what we're seeing there is a change in attitude

  • from the people who apparently can't afford to buy their house.

  • They're choosing different consumption patterns.

  • They prefer to have cappuccinos,

  • go to Mr Wong's for dinner and have holidays

  • rather than to stay at home and save for the deposit for their house.

  • I think there definitely is good and bad debt, but the thing is...

  • And I probably come across as some sort of wacko from the United States,

  • but I don't trust governments...

  • (LAUGHTER)

  • JESSICA: You've got the eye twitch.

  • I think that was that guy at LAX.

  • But the thing is, do they make good decisions?

  • They might make some,

  • but I think of the six submarines that were built in Adelaide

  • that basically never worked.

  • They cost billions of dollars. Was that a good accumulation of debt?

  • They've done some pretty stupid things.

  • It seems to me that the way to think about that is...

  • Can we think of institutional arrangements

  • which might guarantee that we have a higher proportion of our debt

  • funding good projects, worthwhile projects,

  • as opposed to stupid, politically attractive projects?

  • And I think that's really a discussion worth having.

  • In Chile...

  • OK, I know you're thinking, "Chile, what would they teach us?"

  • But I think it's quite an interesting story,

  • because they've got one commodity, copper,

  • which has been relatively highly priced in the past several years.

  • They have a sovereign wealth fund.

  • They have some very strict budget rules

  • in respect of moving into deficit,

  • and they also have a kind of independent institutional arrangement

  • which judges what will be funded out of this sovereign wealth fund.

  • I honestly think that there might be some lessons in that

  • because I don't think we want another Adelaide-to-Darwin railway line.

  • We also, I don't think, really...

  • If we're going to be spending our precious defence dollars

  • propping up an industry in Adelaide

  • to build even more submarines that don't work -

  • I think there's a really important issue there.

  • (APPLAUSE)

  • And when you ask the governor of the Reserve Bank,

  • Glenn Stevens, what should you do...

  • He has a list on productivity for things that you should do,

  • but he also says that there should be a list of shovel-ready projects,

  • that if we did have another GFC

  • or if we did decide that we wanted to invest in infrastructure,

  • there should be a list of projects

  • that's compiled by some sort of independent body

  • so we would know which ones would actually make sense to do.

  • I don't think we have that list...

  • Well, we had Infrastructure Australia,

  • but really that just got nobbled politically almost immediately.

  • Look, we do have to understand that we live in a federation

  • and that they'll spread the money across the states.

  • I accept that.

  • But the thing is you want the highest net value projects

  • in each state, pretty much,

  • because otherwise you're racking up debt

  • and basically for things that have negative net value.

  • Don't you love the way economists speak? "Negative net value."

  • That means it's a dud.

  • (LAUGHTER)

  • Just back to the submarines for a second.

  • I agree with you, governments do make some bad decisions,

  • but we all make bad decisions.

  • -One of them nearly never came up. -Yeah.

  • But again, I guess it's easy to cherry-pick the odd bad decision

  • that governments make, but they make a lot of good ones.

  • I've made some bad decisions too in how I've spent some of my money.

  • JUDITH: But generally not in the billions.

  • No, no, no, it hasn't bankrupted me or anything,

  • but it hasn't bankrupted the government either.

  • I think it's very easy to be cherry-picking

  • some of these bad investment decisions,

  • 'cause they are bad, they're dumb - the submarines is dreadful,

  • car industry assistance, waste of money.

  • Just stop it straightaway.

  • STEPHEN: But the point is that there's a lot of good decisions.

  • Yeah, but you yourself would admit

  • that the decision making is far from rational.

  • STEPHEN: Ah, yes, that's correct.

  • (LAUGHTER)

  • JUDITH: That if you had some...

  • We've got the Productivity Commission,

  • which has been a good institutional organisation.

  • I think if we had something of a similar ilk

  • in respect of kind of assessing these projects

  • and then somehow, in a sense, binding governments.

  • Because the thing is when you rack up debt

  • and you've got nothing to show for it, just think of it personally,

  • this is a really bad outcome.

  • When you rack up debt and you've got an ongoing valuable asset,

  • which you can hand over to your children,

  • it's a completely different ball game.

  • Yeah, and the decisions...

  • Many - not all - but many decisions are politically motivated.

  • Again, it's things like paid parental leave schemes and...

  • -Jess is in favour of that. -I know!

  • We're not, because we've had our children.

  • -(LAUGHTER) -That's not the reason.

  • That's not the reason I'm not interested in it.

  • JUDITH: He could have more, I guess.

  • (LAUGHTER)

  • The issue is to...

  • I've forgotten what I was going to say now!

  • (LAUGHTER)

  • -JUDITH: Thinking about sex. -JESS: Children.

  • -Their mind turns to it quickly. -STEPHEN: It does.

  • The question is just on the bad decisions that are taken

  • and how are decisions actually formulated in government.

  • This is, I think, one of the reasons

  • why Abbott and Hockey have started off so slowly.

  • It's actually hard being in government.

  • They are lobbied within their ministry,

  • they are lobbied from without.

  • And they get all these terrific ideas on the table.

  • And the difficulty of government is actually saying,

  • "Well, where are we going to be spending our money?"

  • Most of the time you hope it's a good decision on where it should be spent,

  • but some of the time, clearly,

  • it's got nothing to do with good economics,

  • it's got everything to do with politics.

  • I think that's the problem

  • that I think that Mr Abbott will have to confront

  • as he sits down and works out his budget strategy

  • for the next few years.

  • So we do have some time for questions

  • if anyone was keen to make their way very quickly to the microphones.

  • It seems like we've agreed that

  • there can be good debt and there can be bad debt.

  • But the good debt is hard to come by

  • and it's hard to identify, which makes it tricky.

  • We've got lots of questions, which is great.

  • We'll go over to my right here, to the gentleman.

  • If you'd like to just say your name, maybe, and then ask your question.

  • G'day, my name's Brendan, I'm Canadian Australian.

  • As an outsider in this country, it's...

  • Well, I guess first off,

  • we actually need more high-profile female economists.

  • -JESS: Got two. -JUDITH: Very good.

  • (LAUGHTER)

  • I come from a family of matriarchs, so it's really great.

  • I guess part of why I say that is what I've observed is that...

  • Maybe gender has nothing to do with it,

  • but Judith is obviously talking about having a moral compass involved

  • in the decisions around how investments are made.

  • Stephen's talking in 1s and 0s.

  • It's more of an investment looking at returns.

  • The question is...

  • Our government policy is to narrowly focus on the numbers

  • like GDP and the growth there

  • without considering other indices

  • around happiness or benefits for future generations.

  • As an outsider, I observe that

  • Australians can sometimes have a sense of entitlement

  • because of the sugar hit of the cash hand-outs as given,

  • which has an impact on the culture

  • and attitudes towards productivity and working hard.

  • And so while you say negative net value,

  • it can still be good for happiness.

  • Yet, it doesn't seem into enter into the discussion about

  • whether or not a dud makes people happier in the long run.

  • I mean, I totally agree with your first point.

  • (LAUGHTER)

  • And also, you seem to be implying that I'm some kind of pussycat.

  • No, he's the pussycat, really.

  • -Yeah, I'm the chardonnay socialist. -(LAUGHTER)

  • I saw you had claws there. It's OK.

  • JUDITH: I'm the sort of libertarian bitch.

  • (LAUGHTER)

  • STEPHEN: No comment!

  • Look, the thing is you really make a fair point

  • because this is this -

  • there are always beneficiaries in virtually...

  • The government goes on about waste.

  • I actually don't think there's much out-and-out waste.

  • There's stuff that has benefits and stuff with attached costs

  • and probably has negative net benefits -

  • see, I'm really good at it -

  • but probably stuff with small net benefits.

  • So the thing for governments, you know, they can't do everything

  • so it's about prioritisation, it's about allocating scarce resources.

  • And that's really why economists are so loathed, I think,

  • even the female ones,

  • because at the end of the day

  • there are projects that have people who would like them

  • and would increase their welfare, that don't make the cut.

  • But I think that's the way of the world.

  • As to the point about GDP...

  • I guess you're saying that GDP doesn't kind of cut it all together,

  • we need wellbeing?

  • I'm OK with that.

  • I just saw that other countries are using different indices...

  • JUDITH: Yeah, Bhutan? Come on, give us a break. Go and live there.

  • (LAUGHTER AND APPLAUSE)

  • And I'll just quickly say that I'm all for

  • things that don't necessarily lead to the bottom line,

  • like building the Opera House - what a waste of money that was! -

  • or New Year's Eve fireworks - what a waste of money that is.

  • -JUDITH: Oh, they are. -(LAUGHTER)

  • No, they're terrific things.

  • Think of the carbon footprint!

  • There are some good things that the public sector spends money on

  • that are wasteful and indulgences and all the rest,

  • but while we're one of the richest countries in the world,

  • let's have more fireworks and more opera houses and...

  • (LAUGHTER)

  • Excellent. Over there, your question.

  • WOMAN: My question goes to Judith.

  • You just said you're for financing long-living assets

  • and you mentioned earlier

  • about libraries are going to end in the future.

  • What are you views on the National... like, the NBN?

  • 'Cause I feel that that would actually support future libraries

  • and that is worth increasing the debt for.

  • What are your views on the NBN?

  • Well, I'm an appalling know-it-all,

  • but I don't think I'm a complete expert on telecommunications policy.

  • I mean, there is going to be a really substantial investment

  • in broadband networking, as I understand it,

  • it's just going to be a different model.

  • It's a really interesting question

  • because you then are interested in what you'd call the delta.

  • You'll get some benefits from Malcolm Turnbull's version.

  • You might get more benefits from Stephen Conroy's,

  • and what's the delta, and was the delta worth it?

  • The delta also has to be worked out in terms of timing.

  • If you can get something sooner rather than later,

  • because economists think in net present value terms,

  • it's better to get it sooner rather than later.

  • But it's a fair point and it's a fair point to discuss.

  • Yeah, one thing with Malcolm Turnbull's plan

  • is that it's still going to use copper wires, some part of it,

  • which will need to be replaced and serviced,

  • which would cost more money for future generations.

  • So that is why optic fibre everywhere would be a much better...

  • It could be, but like...

  • We'd all like to drive Rolls-Royces...

  • I don't think I would, actually.

  • We'd all like to drive fancy cars,

  • but some of us have got the 5-year-old station wagon,

  • and so be it.

  • I really think it's an important point to debate.

  • Yes, over on the right there. My right.

  • My name's Chris. I have two observations/questions.

  • The first is all three of you mentioned

  • the waste of government money

  • and lack of tax collections.

  • I'm interested in your views on the what I think are idiot treaties

  • that we have with countries

  • where the likes of eBay

  • and Google and HP

  • pay next to no tax in Australia.

  • That's the first observation.

  • The second is about our currency.

  • Why don't we cap it like Switzerland does

  • rather than allow the European Economic Community

  • to have a managed currency by virtue of the fact

  • that there's 25 different countries, but one rate,

  • Germany and France and the other big economies

  • get the benefit of the low currency

  • and the US with their hedge funds

  • and their management of the world rates at large.

  • STEPHEN: I'm happy to go on the second one first,

  • because that's the easy one, I think.

  • The floating exchange rate has served us very, very well for 30 years now.

  • Picking a cap - what level would you make it?

  • 1.05, 1, 95, 90, 80, 70? What number? Who decides that?

  • Is it some boffin in treasury or the RBA

  • or, heaven forbid, in Parliament House

  • that decides what level this exchange rate should be?

  • How does Switzerland do it?

  • STEPHEN: Well, they get it wrong. It kills their economy.

  • And they're running out of FX reserve.

  • There's a question there about what happens if we get a...

  • And we're a commodity currency.

  • What happens if you set the exchange rate -

  • just for example, let's say 80 cents -

  • and we get another surge in the terms of trade?

  • We get a rebound in Chinese GDP, the US recovers,

  • and all of a sudden we've got a 20% increase in our terms of trade.

  • The 80 cent exchange rate would lead to huge problems in inflation

  • and while the floating exchange rate does have some issues

  • when it's overvalued and everybody wants to buy our bonds

  • and pushes it higher and these sorts of things,

  • it's the best thing that we've got, I think, and for its faults,

  • I think it's actually not a bad way to be running it,

  • even though it might not be perfect and occasionally it overshoots.

  • JUDITH: On the second issue,

  • it's actually the lack of treaties that's the problem

  • in respect of companies like Apple and Google and the like.

  • They're able to locate their IP assets in a low-tax jurisdiction.

  • Actually, it's great for Ireland.

  • So the only way that's going to get sorted -

  • Australia cannot sort it themselves -

  • is through some international cooperation.

  • It may be the G20.

  • Maybe Joe needs to step up to the plate,

  • use the G20 and the OECD to try and deal with it.

  • Because it's not just an Australian problem.

  • They basically, at the moment,

  • are legally able to transfer their IP assets

  • to that lowest taxing jurisdiction,

  • and then there's all sorts of

  • other complicated legal corporate shenanigans.

  • Yeah, it's a good topic too.

  • JESS: Excellent. We've got time for one more over there.

  • If instead of giving out $900 cash to people,

  • they gave out a $900 gift card that expired after a certain time,

  • would that kind of fiscal stimulus work

  • because they were forced to spend it?

  • That's actually quite a good suggestion.

  • Because what happens...

  • JESS: At Harvey Norman, probably. At the time it was Gerry who...

  • No, no, because what the research showed was that actually

  • a very small proportion overall of the cash handouts

  • was spent immediately.

  • So a lot of people saved it.

  • That's quite an interesting...

  • The use of technology to deal with that issue.

  • So people would get whatever...

  • $900, quite a lot of money!

  • You'd get, say, six months to spend it.

  • I mean, it's a sort of rather paternalistic approach

  • with the Indigenous community,

  • but they get cash cards that can only be used for certain things.

  • You could do that too, but... It's a really good idea.

  • STEPHEN: Just one quick thing too.

  • There was discussion about this in Japan where they've had basically

  • 20 years of deflationary...growth, I suppose, or near recession.

  • There was some discussion

  • that you actually print notes, paper money, with a use-by date.

  • Unless you actually spent it by a given date, it was worthless.

  • So your incentive to spend was actually very, very high,

  • otherwise you end up with this 1,000 yen note

  • that on 31 December is worth nothing.

  • That's one way to get people to spend.

  • JUDITH: You can use it for wallpaper at that point.

  • But do you think it would work?

  • In terms of the multiplier in terms of the economy,

  • getting people to spend money,

  • would that help the economy in a Keynesian way?

  • In the short term yes, but of course, Judith's pointed out

  • the fact that a lot of people saved the money.

  • The fact that they saved it was not necessarily a bad thing,

  • because it actually enhanced

  • their future capacity to borrow and then spend

  • because they'd reduced their debt by $900.

  • In 6 and 12 months time, they found out,

  • "I've actually got a bit more money than I thought,"

  • and then they started spending it.

  • JESS: Great. Well, that's all we've got time for today.

  • That was a really lively discussion. I thank you both for that.

  • -JUDITH: We didn't even come to... -JESS: To blows, no.

  • -(LAUGHTER) -Well, yet.

  • -JESS: I think we've all decided... -The green room.

  • ..we're allowed to go have a few red wines as well - just not too many.

  • So thank you very much for being here today and...fantastic.

  • STEPHEN: Thank you.

  • Thanks, Jess.

  • And thank you.

You're going to witness a title bout

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2013年危險思想節。Stephen Koukoulas和Judith Sloan--忘記債務。 (Festival of Dangerous Ideas 2013: Stephen Koukoulas & Judith Sloan - Forget Debt)

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    Yuquan Ou 發佈於 2021 年 01 月 14 日
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