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The IMF has unwittingly exposed the inconvenient truth for Labor - the Gillard/Swan government is wasting this mining boom.
The IMF has urged the Gillard government to put some mining boom money aside for a rainy day – to save more of the proceeds to help cover the costs of the ageing population.
Yet, the IMF report arrived the day Wayne Swan leaked that the budget deficit is again likely to be of the order of $50 billion.
This means that every dollar of the mining boom is being spent on recurrent spending. Not one mining dollar has gone to pay down debt.
In fact, it means that the ‘never mentioned’ Federal Government debt continues to grow – at $100 million or more a day.
It means that the government debt is now looking to exceed one-hundred-thousand-million-dollars ($100 billion).
It means that every dollar spent on school halls and pink batts is borrowed money, and not one cent has been repaid.
It means that if the government hadn’t spent and wasted much of the $85 billion in stimulus money – as the Coalition certainly would not have – the budget would be in surplus now.
It means that Australians are now paying $6 billion a year in interest repayments to service the Federal Government debt – that is equivalent to six new world-class hospitals a year.
It means that the IMF’s call to establish a sovereign wealth fund is futile until Australia pays off this mountain of debt, which continues to grow by close to $1 billion a week.
In any event, Australia already has a sovereign wealth fund – the Future Fund, established by Peter Costello – which is reportedly the 10th biggest sovereign wealth fund in the world now worth nearly $75 billion.
The Chairman of the Future Fund, David Murray, is in fact currently the Chairman of the International Forum of Sovereign Wealth Funds.
The Future Fund was fundamental to Australia weathering the worst of the Global Financial crisis. The fund provided vital liquidity to Australian banks during the initial fortnight of panic on world capital markets after the collapse of Lehman Brothers.
As such, the Future Fund has already provided a major stabilising role. As to the future, all the functions of a sovereign wealth fund can be incorporated within the Future Fund, if considered desirable.
But much of this is academic until the likely $100 billion-plus net government debt is repaid.
Getting into surplus is only the starting point of repaying debt. And then you must stay in surplus.
Yet Treasury predicts that any so-called surplus manufactured in 2012-13, ignores the spending commitments made during the boom times which still need to be met once the boom tapers off and revenues fall, commitments that will very quickly see the budget dive back into serious deficit.
This budget must outline a clear mid-term strategy for repaying debt. It is the dead cat on the table.
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