Joe Hockey exaggerates difference between Labor, Coalition record on debt

Updated

Opposition Treasury spokesman Joe Hockey says the Labor Government has taken on large amounts of debt while the previous Coalition government left the nation with more assets than debt.

"We left the country with net assets of $70 billion, where if we are elected on the 7th of September we inherit debt going to $400 billion," Mr Hockey said on Radio National Breakfast on August 14.

ABC Fact Check consulted the budget papers for the year to June 2007, five months before the Howard government left office.

The final budget of 2006-07 showed net assets of $31 billion.

Sorry, this video has expired Video: Watch John Barron present the facts (ABC News)

ABC Fact Check contacted Mr Hockey's office to ask for the source for his claim of "net assets of $70 billion".

His office said the figure was net worth, not net assets. And it was for the year 2007-08, not for the year 2006-07.

ABC Fact Check considers Mr Hockey should be judged on the words he used - net assets - and on the period before the Coalition left office.

The net worth figure for 2006-07 was $3 billion.

The claim: Joe Hockey says the Coalition left the country with net assets of $70 billion, whereas if it wins the election he says it will inherit debt going to $400 billion.

Joe Hockey says the Coalition left the country with net assets of $70 billion, whereas if it wins the election he says it will inherit debt going to $400 billion. The verdict: Mr Hockey is making an exaggerated claim by conflating net and gross figures and ignoring the Coalition's contribution to gross debt.

'Debt going to $400 billion'

On Mr Hockey's claim that Labor's legacy will be debt "going to $400 billion", ABC Fact Check consulted the Treasury's Pre-Election Economic and Fiscal Outlook released on August 13.

It contains a figure almost that large, $370 billion, which represents Treasury's debt projection at the end of the four-year forward estimates period. That is, it is the projected debt for 2016-17.

The Treasury projection Mr Hockey chose to describe Labor's legacy was its figure for gross debt.

The $370 billion figure in this year's PEFO refers to Commonwealth Government Securities (CGS), or government bonds, on issue. This is what economists and governments refer to as gross debt.

In contrast, the figure Mr Hockey chose to describe the Coalition’s legacy was its figure for net assets – that is, assets less borrowings.

To make a comparison using like-for-like, Mr Hockey should have used Treasury’s projection for net debt – that is, borrowings less assets.

For the 2013-14 year, Treasury forecasts net debt of $184 billion. At the end of the forward estimates period in 2016-17, it projects net debt of $217 billion.

We left the country with net assets of $70 billion, where if we are elected on the 7th of September we inherit debt going to $400 billion. Joe Hockey

To make a correct claim, Mr Hockey could have said: We left the country with net assets of $31 billion where if we are elected on the 7th of September we inherit net debt of $184 billion going to $217 billion.

When the Coalition left office in 2007, gross debt was $59 billion (and was more than outweighed by government assets, resulting in net assets of $31 billion). Currently, gross debt is $268 billion.

Another correct claim Mr Hockey could have made is: We left the country with gross debt of $59 billion where if we are elected on the 7th of September we inherit gross debt of $268 billion going to $370 billion.

Either way, the change is less dramatic than Mr Hockey claims.

The verdict

Mr Hockey refers to net assets of $70 billion and debt going to $400 billion.

He uses an inaccurate net figure for the Coalition's legacy and a gross debt projection that's three years away to describe Labor's legacy.

By conflating net and gross figures and ignoring the Coalition's contribution to gross debt, Mr Hockey is making an exaggerated claim.

The ABC Fact Check panel of economists

Three eminent economists have agreed to advise ABC Fact Check on its work on economic issues.

The verdicts are solely determined by ABC Fact Check and do not necessarily reflect the views of the panel.

Meet the panel Professor Warwick McKibbin is from the Crawford School of Public Policy at the Australian National University. He is also a former Reserve Bank board member. Dr Chris Caton is chief economist of the BT Financial Group. He is also a former head of the Economic Division of the Department of the Prime Minister and Cabinet. Chris Richardson is a partner at an economic advisory services firm. He is an economist who has worked at Federal Treasury and the International Monetary Fund.

Topics: budget, federal-government, federal-elections, liberals, hockey-joe, business-economics-and-finance, australia

First posted