Originally Posted by
Rare White Ape
There's an ongoing debate in a lot of countries about national debt, including Australia. In fact, one of the key points that the conservatives (Liberal Party) pushed at the last federal election was that their opponents (Labor) would drive up the debt and cause untold damage to the economy. The truth is that Australia's debt went from $250Bn accumulated since federation to $500Bn in only a decade under the stewardship of the "more fiscally responsible" Liberals. Next year it will be $700Bn and they predict it will be $960Bn in 2024.
For us, a $960Bn debt represents just over 40% of our GDP. It seems quite scary. However, consider this:
A strong dollar might be good news for us. It means the stuff we make using materials sourced from overseas is cheaper because we have more buying power, and thus we can make more profit when it is sold. It also means people can buy stuff off Amazon and eBay and pay a good price for it. Woo Hoo!
But it also means that the stuff we sell overseas is more expensive for other countries to purchase. It restricts the flow of money coming into our economy. Therefore, it is important to ensure the dollar is trading at a price that balances well with the trade that our country is engaged in.
Australia used to be a strong manufacturing economy as well as an exporter, but that has shifted dramatically over the last ten years and we are now an exporter of raw materials, with manufacturing dwindling quite significantly. Our economy focuses strongly on digging up coal, gas, aluminium and iron ore and shipping it to China, where it then gets turned into cheap goods and sold around the world (plus if you're wondering where everyone's manufacturing industries went, there's your answer).
In order to ensure the price of the dollar stays low enough to promote purchasing of our exports, the government continues to borrow money, which purposefully reduces the value of our dollar. Debt goes up, dollar goes down, more raw materials are sold.
There's a catch, however. There has been little focus on where mining and export profits actually go. Due to the conservative policy of avoiding taxation of 'job creators' there has actually been very little flow of mining proceeds going to our country. Instead the money goes to mining company shareholders and the rich get richer. We don't have a nationalised mining industry like the oil economies in the Middle East do, nor do we put a high tax on exports like we should be doing. We are basically being taken for a ride by the companies digging it out of the ground.
All this is trying to say that national debt is not a bad thing, as long as it is manageable. It is actually a key part of responsible fiscal management, but in order to compete against the rest of the world, you need to keep pushing that value lower while your competitors do the same thing.
So don't focus too much on the amount of debt that your country is falling into. Instead worry about the measures taken (or not taken) to ensure that money is flowing into the hands of the people, i.e. taxation and subsequent government spending on infrastructure, education, welfare, science and tech, etc. THAT is what will drive the economy.