Is Australia’s economy a European “disaster”? > Check the facts

Is Australia’s economy a European “disaster”? > Check the facts

Who: “[Australia’s Triple A credit rating] owes everything to the reforms of previous governments… and almost nothing to the spending spree of the current government. Yes, Mr Rudd can stand up and show us his chart and demonstrate that by comparison with some other countries, Australia’s debt and deficit position is not so bad. But it’s not what we’ve done, it’s where we’ve started that makes the difference and this is where Mr Rudd’s deterioration in the fiscal position has been on a scale to match the disasters of Europe.” Tony Abbott.

The claim: Australia’s Triple A credit rating is the result of reforms by previous governments while the current Rudd government has pushed Australia’s fiscal position to be on a scale to match the “disasters” of Europe.

The facts: Of the 30 OECD countries that the IMF has data on, Australia had the 5th lowest net government debt to GDP in 2007 when the previous government left office. Today Australia has the 7th lowest net debt to GDP. This is total government debt and includes all 3 levels of government (federal, state and local).

The OECD reports data for federal government debt alone, however, this data only goes up to 2010. If we look at just federal debt from the OECD, then in 2007 Australia had the 4th lowest debt to GDP. By 2010 (most recent data) Australia had the 3rd lowest debt to GDP in the OECD.

The finding: Compared to other OECD countries Australia is in a sound economic position with a low public debt and high economic growth rate and is seen internationally as a safe place to invest.

Discussion of evidence: Mr Abbott is correct to say that Australia’s starting fiscal position was important in maintaining its Triple A credit rating. Australia had the 5th lowest net debt to GDP of the OECD nations. But he was incorrect to suggest our fiscal position had deteriorated on a scale to match the “disasters” of Europe. Australia’s fiscal position is now the 7th lowest in the OECD. It is almost unchanged relative to other OECD nations.

If Australia’s fiscal position had deteriorated on a scale to match the “disasters” of Europe then it is unlikely that Australia would have maintained its Triple A credit rating. It is important to put Mr Abbott’s claims in context. The table below shows the increase in Australia’s net debt to GDP from 2007 to 2013 compared with a selection of European “disaster” nations.

Country Debt to GDP in 2007 Debt to GDP in 2013 Increase from 2007 to 2013
Australia

-7%

13%

20%

Ireland

11%

106%

95%

Greece

107%

176%

69%

Spain

27%

79%

52%

Iceland

11%

62%

51%

Portugal

64%

115%

51%

The Australian increase in this context is relatively small compared to the European nations.

To see how Australia compares to other countries have a look at The Australia Institute’s new infographic.

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