Hockey putting politics ahead of economic management

 

As Shadow Treasurer, Mr Hockey voted against the increase in the debt ceiling despite the fact that the global financial crisis was smashing the budget, crunching confidence in the banking sector and funding was needed to avoid Australia sliding into recession.

Fast forward to now where a small on-going budget deficit and some policy decisions from the new government require the debt ceiling to rise again.

A grown up Treasurer would have approached the looming breach of the current $300 billion debt ceiling with full knowledge that a $100 billion increase would easily cover the matter for 18 months or more.

Indeed, if there is some fiscal tightening in the budget next year or the economic parameters surprise on the upside, a $400 billion ceiling might suffice for many, many years to come.

A grown up Treasurer would have noted the risks of playing games with the debt ceiling from the debacle in the US over recent years. To avoid any chance of this mess occurring in Australia, they would have proposed an increase to $400 billion which the Parliament would have passed with out fuss, bother or any potential jolt to confidence and financial market stability.

But not Mr Hockey.

Always keen to put politics ahead of economic management as he showed when he voted against previous plans to raise the ceiling, Mr Hockey wanted to do two things in rummaging for a debt ceiling of $500 billion:

•  Try to sheet home the debt to the previous government and then
• make sure that the ceiling was so high it was unlikely to be reached until after the 2016 election, if ever.

To be sure, in another year or two, if the debt ceiling needs to rise to $500 billion or $600 billion for that matter, Mr Hockey can bring the new budget numbers to Parliament and it would undoubtedly pass the legislation needed to meet this new debt level.

Unless Mr Hockey comes out and quickly accepts that economic management wins out over politics and he advocates a more modest $400 billion ceiling, there is a real risk that he will undermine the post-election lift in confidence and global investor sentiment towards Australia.

It will be interesting to see which course Mr Hockey takes.