Has the Coalition Government doubled net debt? – Fact Check
RMIT ABC Fact Check
Shadow assistant treasurer Andrew Leigh says that net debt has doubled under the Coalition Government. (ABC News: Jed Cooper)
A budget surplus has proved elusive for federal governments since the global financial crisis, and their failure to achieve one politically damaging, with each side of politics blasting the other for failing to rein in government debt.
On November 27, 2018, Labor’s shadow assistant treasurer, Andrew Leigh, told 2GB listeners that despite positive forecasts for government revenues:
“We have net debt more than doubling since the Liberals came to office. It’s just hit a record high, some $350 billion.”
The Liberals, Dr Leigh later reiterated, “have doubled net debt in Australia”.
Is he correct? RMIT ABC Fact Check investigates.
Yes, Mr Leigh’s claim is correct, but there’s more to it.
The Government’s monthly financial statements show net debt has doubled over the Coalition’s two terms in government — from $174.6 billion in September 2013, when it was first elected, to $354.5 billion in October 2018.
However, this is not the only way to track net debt.
Measured as a share of gross domestic product, which takes the size of the economy into account, net debt grew more slowly over the five years to June 2018 compared to the simple dollar amount.
Experts said paying down debt wasn’t entirely within the control of government, with broader economic circumstances also playing a significant part. Some Coalition savings measures had also been blocked in the parliament by the Opposition.
When the Liberals came to office
Dr Leigh provided Fact Check with figures that take the 2013 federal election as a starting point.
Now in its second term, the Liberal-National Coalition came to office in September 2013.
It took the helm during Labor’s final budget year (2013-14), and delivered the mid-year budget update in December 2013 — by which time it had already made spending and revenue policy decisions worth several billions of dollars.
So while the Coalition didn’t deliver a full budget until May 2014, Fact Check accepts the date of the election as a fair baseline from which to assess the Government’s record.
Indeed, spending decisions made by the new Coalition Government during what was, in effect, Labor’s last budget year were sizeable. They included an $8.8 billion grant to the Reserve Bank and $1.7 billion paid to Victoria for the East West Link.
To assess Mr Leigh’s claim on the basis of financial years, then, Fact Check has taken 2013-14 to be the first year of Coalition Government.
The difference between debt and deficit
A budget deficit, as Treasury explains, is where a government’s revenues fall short of its expenses, and refers to net expenditure flows in a single financial year.
The debt, meanwhile, reflects the cumulative balance of these flows over time, and comes in two flavours: gross debt and net debt.
Gross debt is the value of Commonwealth Government Securities, which the government issues to investors when it needs to borrow money to cover its costs.
Net debt, on the other hand, is calculated by taking into account money owed to the government, along with selected financial assets it can sell to meet its financial obligations.
According to the federal budget, net debt is “the sum of deposits held, government securities, loans and other borrowing, minus the sum of cash and deposits, advances paid, and investments, loans and placements”.
John Edwards, adjunct professor with the Lowy Institute and a former Reserve Bank board member, told Fact Check: “If net debt’s going up that means, basically, the deficit is increasing faster than the increase in the value of financial assets.”
“[A]lthough the deficits have been coming down, they continue to add to net debt,” he said.
What data is available?
In an email to Fact Check, Dr Leigh cited two sources for the Government’s current net debt — the latest Monthly Financial Statement ($354.5 billion) and the 2018-19 federal budget projection ($349.9 billion).
“So whether you look at the Government’s Monthly Financial Statements or its budget, we’ve had net debt double under this Government,” he wrote.
Experts consulted by Fact Check nominated budget figures as the best way to measure net debt.
To do this, it’s best to compare figures from within the one set of budget papers. As the 2017-18 final budget outcome notes, numbers for previous years have been revised “to improve accuracy and comparability through time”.
Additionally, published figures are subject to change, the result of the budget’s accrual accounting methodology and changes over time to statistical classifications.
But while the budget might provide the most accurate numbers, it paints an incomplete picture of the Coalition’s time in government.
The most recent actual figures, published in September, were for June 2018. These lag the date of Dr Leigh’s claim, from November, by about five months.
Meanwhile, the budget estimates quoted by Dr Leigh are projections for net debt come June 2019.
While preferable to use actual figures rather than estimates, the prospect of a May 2019 election makes it reasonable to attribute the 2018-19 financial year figures to the Coalition — although these estimates may change.
Mr Leigh also cited net debt as listed in
figures from the Government’s Monthly Financial Statements.
These provide the most up-to-date numbers (to October, 2018) for assessing the claim. They also adopt the same definition of net debt as in the budget.
Comparing like with like
In his interview, Mr Leigh cited the debt in dollar terms, noting it had passed $350 billion.
However, AMP Chief Economist Shane Oliver told Fact Check that while politicians of both stripes refer to the dollar amount, a fairer and more meaningful measure of debt over time was net debt as a proportion of gross domestic product (GDP).
“It might sound factually correct that [net debt] has doubled since 2013, but you’ve got to allow for the fact that the size of the economy’s gone up,” he said.
“Therefore, it’s better to look at it as a share of GDP.”
What the data shows
The monthly statements show that between September 2013 and October 2018, net debt increased from $174.6 billion to $354.5 billion. That’s an increase of $178 billion — roughly double the debt inherited by the Coalition.
The latest budget outcome shows that, in dollar terms, net debt grew between June 2013 and June 2018 from $159.6 billion to $342.0 billion.
And, according to the 2018-19 budget, it is projected to reach $349.9 billion by June 2019.
That projection, if it holds, represents an increase of 119.2 per cent over six years. Notably, however, this attributes all of 2013-14 to the Coalition, despite Labor having delivered that year’s budget.
However, measured as a share of GDP, net debt has not grown to the same extent. The budget figures show net debt was projected to grow by 76.9 per cent over the six years to June 2019 — roughly two-thirds of the growth rate in simple dollar terms.
Who should take the blame?
Dr Leigh apportioned blame to the Liberals for the state of the federal budget, claiming they had “doubled net debt”.
However, both major parties in recent times have been happy to wield the stigma of debt against each other.
But Robert Breunig, a professor of economics and the head of ANU’s Tax and Transfer Policy Institute, told Fact Check that net debt wasn’t a function of domestic policies alone.
“Global economic trends, commodity price swings, and other factors completely out of government’s control are what drives the debt,” he said.
Dr Oliver said the economic environment had contributed to the growing debt, with revenues taking longer than expected to pick up — but this argument had weakened in the last year or two.
“This is why we’re shifting back towards a surplus, because the revenue side has improved,” he said.
On the other side of the ledger, the Government had been unable to control spending.
“It wasn’t for lack of trying,” Dr Oliver added, noting that some of the Coalition’s 2014 budget savings measures were blocked in the Senate.
Principal researcher: David Campbell
- Andrew Leigh, Interview, November 27, 2018
- Deloitte, Budget monitor, November 26, 2018
- Fact check: Has the Government doubled the budget deficit?, June 10, 2014
- Fact check: Tony Abbott’s claim Labor spent like ‘drunken sailors’ in office is spin, May 29, 2015
- Treasury, Debt, Debt the budget and the balance sheet, accessed December 2018
- 2018-19 Budget, Budget strategy and outlook (Paper No.1), May 2018
- 2017-18 Final budget outcome (Appendix B), September 2018
- Department of Finance, Monthly financial statements (2005 to 2018), November 23, 2018
- Fact check: Did the Government inherit the ‘worst set of accounts’ in history?, March 18, 2015
- Fact check: Was Labor responsible for a ‘record deficit’?, June 14, 2016
- Fact check: Did the Government triple the deficit and is debt $100b higher?, May 18, 2016
- Joe Hockey, Budget speech 2014-15