Take the Mid-Year Economic and Fiscal Outlook. That News Corp would run this set-piece through its lazy and deliberately misleading partisan filter ('Labor's Debt Bomb!') was not surprising. But when the ABC recycles the official spin you have to wonder at journalists' competence:
"The Abbott Government's first budget statement has revealed an economy in dire trouble with historically deep deficits, more people out of work, slower wage growth and massive revenue write-downs."This is how the public broadcaster's 'chief political correspondent' spun the fiscal update. An economy "in dire trouble"? Deficits that are "historically deep"? Says who? The banks? Nope. The credit ratings agencies? Nope again. In a statement after the release of MYEFO, New York-based Moody's had this to say:
But a deficit of $47 BILLION (shouty emphasis added)? It's a big number, yes. But one rule in journalism is that just reporting big numbers in relation to nothing else is meaningless ('The road toll was 350 last year'. Yes, but what was it the year before?) The fact is in an economy with annual output of $1.5 trillion, a $47 billion deficit is not so big at all. If the MYEFO projections are correct (and remember it is in a new government's political interest to paint the worst possible scenario early in its term), this still represents only 3% of GDP, which is close to the average for the past four decades. And it comes after a period which included a global financial crisis."The Australian government has very low debt levels as a starting point and the larger deficit in the current fiscal year--while leading to a rise in debt--is not likely to change Moody's thinking about the Aaa rating of Australia."
Whether it is due to ignorance, incompetence, under-staffing or lack of time, the depiction in much of the media (with some honourable exceptions) of the state of the Australian economy is a disgrace. Political journalists with little grasp of economics casually recycle the sly talking points of cynical spin doctors seeking an easy splash. And a frightened public is left to make sense of idiotic statements that we are "going the way of Greece" or "heading for an IMF program".
Sydney-based business journalists like Michael Pascoe and Ross Gittins (away from the Canberra hothouse) can see the self-serving spin. But the bloodhound political journos, the ones who should have the 'BS' scent detector on full, roll over on their backs at the first sight of forward estimates. Of course a new government - particularly one as ideologically opposed to public programs as this one - is going to throw open the cupboards and declare them bare. Talking up a crisis justifies an austerity program that conveniently gives it an excuse to lay the boot into its political enemies. And making it seem as bad as possible sets it up as the fiscal saviour when things don't turn out to be that bad after all. Well, duh! Who knew? So why don't the geniuses in the press gallery point that out?
Yes, Australia does face real challenges. Ross Garnaut in his recent book has nominated a few - like a replacement for the commodities boom as a driver of growth, an unsustainably strong Australian dollar and a lack of investment in the skills and infrastructure to drive future productivity gains (the latter problem partly due to politicians' propensity for paying permanent tax cuts out of temporary revenue gains). But the utterly dishonest depiction of our public finances and the infantile political point scoring around this in the media ('will you rule in; will you rule out?') robs of us of the capacity to deal with these challenges effectively.
In my view, the problems arise because the media has convinced the public that the budget is the economy and that any deficit - regardless of the global economic circumstances - is a policy failure. But perspective, please. Australia's net public sector debt is about 12% of GDP. This makes us one of the least indebted developed economies, a fact reflected in our Triple-A credit rating from all the major agencies. Arguably (and no less a figure than NAB's CEO has said this), our debt is TOO low. And that's one reason the $A has been killing industry - because foreign lenders needing to diversify away from the relative basketcases of Europe and the US are attracted to a rare ÁAA borrower. In the chart below, Australia's debt position is in red, ranking us just ahead of the Scandinavians.
What's more our public debt is dwarfed by the nation's much more substantial household debt. Australians have leveraged themselves up to the eyeballs, largely by chasing their own tails on the property ladder. But in the Alice in Wonderland world of our media, this debt is fine, while governments that allow the budget to play its legitimate role as automatic stabiliser in the world's biggest recession since the 1930s are deemed to be reckless. Just think for a moment how big the deficit would be had the Rudd government allowed the economy to go into recession and ignored Treasury's advice to throw cash at consumers. In the meantime, this "public debt crisis" is dwarfed by the massive debt burdens owed by individual Australians financing their own consumption and chasing a property bubble. (The graph below, courtesy of Professor Steven Keen, compares government debt - in black- with household debt - in red)
Having watched the breathless and gullible reporting on ABC television today, I turned back to a research note from Macquarie Bank about the fiscal outlook statement. The tone from economists there was calm, measured, non-fussed and just a little aghast that the media had so readily swallowed the doom and gloom spin from the government PR machine. It says something about the state of journalism when an investment bank gives a saner and more nuanced account of a conservative government's economic statement than does the media itself. The Macquarie take:
"Given that the release of the government's Mid-Year Economic and Fiscal Outlook update has been accompanied by dire headlines about a massive blow-out in debt and a need to cut spending dramatically to get the budget back on track, one could be forgiven for thinking the MYEFO reflects an economy that is listing badly and that fiscal policy is set to become very contractionary. In our view, however, this would be completely erroneous."Is it any wonder the public feel confused? Is it any wonder our democracy feels broken? And is it any wonder that our Fourth Estate seems more and more like a Failed Estate?
(Further Reading From the Fifth Estate):