You can not draw a simple comparison between the economic performance of the current Labor Government and that of the Howard years. You need to consider external factors, writes Emma Alberici.

Drawing a simple comparison between the economic performance of the current Labor Government and that of the Howard government is like making direct comparisons between Libby Trickett's 100m freestyle time with that of Sally Pearson in the 100m hurdles.

Assessing sporting scores, like debts and deficits, needs context. Peter Costello gloats about his debt-defying years as treasurer, knowing that among his biggest challenges in office during the pre-GFC world was deciding how to spend the tide of (mainly resources) company tax revenues that swamped his 12 budgets.

Specifically not wanting to run mammoth surpluses drove Australia's longest-serving treasurer to set up the Future Fund which finally allocated money to the previously unfunded superannuation entitlements of public servants. For the Coalition to claim that Labor has been "spending like a drunken sailor" doesn't tell the full story.

As a proportion of GDP, between 1996 and 2007, government spending averaged 24.2 per cent. The stimulus spending of 2009/2010 pushed spending up to 26 per cent of GDP but since then it's been contained at 24 per cent. All things being equal, if Wayne Swan had the revenue today that Peter Costello had in the 2000s, the 2012/13 budget would be in surplus.

By 2007, the $96 billion in debt the Howard government had inherited in 1996 was entirely paid down and the budget was in surplus to the tune of $20 billion. Mr Costello managed this impressive turn around despite a cash splash on families, pensioners, new babies and first-home buyers as well as income tax cuts over eight successive years. In all the noise about who can claim the record as the most generous treasurer, the IMF shows the prize must indeed go to Peter Costello.

In a recent study of 55 leading economies around the world, The International Monetary Fund identified four periods in Australian history when governments were engaged in "fiscal profligacy": they were in 1940, 1960 and between 2003 and 2007.

That's not to excuse the spending patterns of the Labor Government. Five and a half years since Howard and Costello were voted out, Labor has spent all of the $20 billion surplus it was gifted plus another $20 billion or so. On a strict dollar-for-dollar measure, Labor's economic management credentials could hardly be described as world class. But so much of what's been affecting the revenue side of the ledger has been outside the control of prime ministers and treasurers on both the upside and the downside.

Property and share prices rose almost continuously throughout the Howard-Costello years (with the exception of share prices immediately after the tech bubble burst and property between 2004-2006). This not only fed positive consumer and investor sentiment but generated multiple millions in capital gains tax revenue. There have also been global influences at play. Between 1998-99 and 2008-09, the mining boom delivered an unprecedented 75 per cent rise in Australia's terms of trade (prices we receive for our exports relative to what we pay for imports).

Within the space of four years, the effects of the financial crisis, a sharp fall in global commodity prices and the high Australian dollar have conspired to send the terms of trade in to reverse. Official interest rates have plunged to 0 per cent in the US and to 0.5 per cent in Europe. This has encouraged American, European and Chinese investors, chasing guaranteed investment returns, to pile in to our dollar to take advantage of Australia's AAA-rated government bonds. The Australian dollar averaged 68 US cents during the Howard years and 93 US cents during the Rudd-Gillard years. Bank of America Merrill Lynch chief economist Saul Eslake puts it like this: the Australian dollar was below its post-float average (of 75.6 US cents) 71 per cent of the time, whereas between 2007-2013, the Australian dollar has been above its post float average 91 per cent of the time. And it's not just showing up in lower mining and manufacturing profits. Education is now Australia's third biggest export behind coal and iron ore so the strong currency is also making it harder to attract foreign students to study in Australia.

Back to that $96 billion "Labor debt" inherited by the Howard government in 1996 - which actually comprised $40 billion of Fraser government debt that carried through the Hawke-Keating years taking the true level of Labor debt in 1996 to $56 billion. Bringing down that debt wasn't all about constrained spending and higher taxes, in fact neither of those things were characteristics of the Howard-Costello years. Government asset sales between 1996 and 2007 worth $72 billion wiped the net debt out entirely with $16 billion to spare. With Joe Hockey as Coalition treasurer after September 14, Medibank Private could be the next to go for what was estimated during the 2010 election campaign would reap $4.5 billion.

In politics, myth, when repeated often enough, has a way of becoming gospel. This has been on display in the debt and deficit debate which, until these past weeks, had threatened to engulf all sensible economic discourse. Now that Treasurer Wayne Swan has confessed the true state of the Canberra coffers, the conversation has moved along. Economists across the globe are now keen to understand when debt undermines a country's growth. A theory had been built around debt to GDP of 70-90 per cent until errors emerged in the econometrics of Harvard Professors Carmen Reinhart and Ken Rogoff killing that consensus. Australia's net government debt is at least seven times less than that.

Contrary to Tony Abbott's claims otherwise, Australia's AAA credit rating is not "under threat". Just last month, Steven Hess of international ratings agency, Moody's reported "we consider the risk of a negative rating action to be relatively low despite the Commonwealth budget remaining in deficit for longer than targeted." He added that the Government's net debt remained low by world standards (10 per cent of GDP versus 90 per cent in the US and 140 per cent in Greece, 100 per cent in Italy, 117 per cent in Japan and 30 per cent in Canada).

Australia is one of just eight countries to have a AAA rating from the three major global ratings agencies. Fitch upgraded its Australian rating to AAA for the first time in 2011 and has reiterated its confidence in the Australian economy since Wayne Swan rolled back from his rolled gold promise to deliver a surplus in 2012/13. To the extent that Standard and Poors are concerned about Australia, it's about household not Government debt. Here is where the Howard-Costello legacy might come back to haunt future Coalition Governments. In 1986, household debts amounted to 46 per cent of disposable incomes (income after tax). Twenty years later, that ratio had climbed to 152 per cent - the highest figure in the world. When Australians talk about cost of living pressures, it's the debt servicing costs that are hurting most. While unemployment is relatively low and the Reserve Bank continues to lower interest rates, this doesn't present a real concern. It's been a while since we've heard Tony Abbott promise that "only a Coalition Govenrment can keen interest rates low." The independent RBA has dropped official rates six times since 2011 to a record low of 3% with odds firming that another cut isn't far away. After all, monetary policy setting is the central bank's job, not the government's. The jury is still out on exactly where the nexus lies with debt, deficits and the economic health of a nation. The US (with net debt of 90 per cent of GDP) will grow at around 2 per cent in 2013 while Australia will do only marginally better (with net debt of 10 per cent of GDP). Yet, for no convincing macroeconomic reason, Julia Gillard and Wayne Swan set themselves up to fail by asking the Australian public to judge their financial management skills on how quickly they could bring the budget to black.

Emma Alberici hosts ABC's Lateline program. View her full profile here.