The Daily Telegraph's $1 trillion ineptitude

Fri, 13 Feb 2015  |  

The Daily Telegraph has maintained its standing as an inept and incompetent publication with the page one splash today –

Australia's debt crisis is a staggering $1 trillion nightmare.

It read: AUSTRALIA'S mounting federal government debt will be $1 trillion by 2037 if urgent action is not taken to rein in the federal budget.

The story has as its focus, a quote saying "without dramatic changes to government spending and a reversal in slumping revenues, they predict Australia's government debt ratio to GDP will surge above the 50 per cent mark within 10-15 years."

Ok, let's assume the headline point that net government debt will be $1 trillion in 2037 is correct (a big assumption I know given the track record of the Tele in policy matters and the economy).

Is sounds big and scary for government debt to reach such a big amount of money. It is like the nasty monster that lives in the bottom on most people's garden, or at least is imagined to by little children when they are unaware of worldly issues.

But why don't we have a look at how that $1 trillion will look in 22 years.

Let's start from a point where 2014 nominal GDP is $1.600 trillion, which is basically a given since we have three quarters of data for 2014 already in. If we work on the assumption that nominal GDP grows at its long run trend (the average over the past 20 years which is 6.3 per cent), GDP in 2037 will be around $6.52 trillion. The $1 trillion of net government debt will therefore be 15.3 per cent of GDP.

Mr Hockey's MYEFO document confirmed just a few weeks ago that net government debt in 2015-16 will be, wait for it, 16.7 per cent of GDP!

Debt as a proportion of the economy will be smaller in 2037 if it does rise to $1 trillion!

I need to use exclamation marks and use bold font because the story is exasperating, so dreadfully researched and prepared and suffers from the money illusion that a large number, $1 trillion, is scary. There is no context. I am going to be 150 years old in 2113 unless something happens in the interim. 

I, for one, reckon Australia will be doing really well in 2037 if net government debt is $1 trillion, because it will probably mean the budget has travelled on a sustainable path for two decades, the AAA credit rating will likely be intact and hopefully, the Daily Telegraph will be a in the archives for media studies students to ponder how such incompetence and ineptitude could have ever been published in a major daily newspaper.

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