There are some immutable laws that govern our world. No doubt you are familiar with many of them but today I want to focus on only one, and it has to do with money.
You have most likely heard the phrase that every dollar borrowed has to be repaid. Leaving aside the option of default (where the lender ends up paying), this is true for every borrower, including governments.
I have written before that debt is the cause of the current global financial crisis and that more debt is not a long-term solution. History shows that too much debt has destroyed the economic capacity of individuals, families, businesses and entire nations. This time is no different.
The enormous monetary stimulus recently injected into national economies has dulled the immediate ache but threatens to stoke the spectre of inflation which will bring its own painful symptoms.
Inflation will punish savers and reward debtors but will increase the price of physical assets like real estate, commodities and food. Interest rates will most likely rise, hurting both businesses and consumers.
But that is in the future. Let’s return to the present and deal with some of the figures that will affect you right now.
Firstly, the Rudd Government has a program of borrowing over $200 billion and repaying it by 2022. However fanciful their economic modelling in achieving this aim, I did a few basic calculations of my own to detail what this means for every man, woman and child in Australia.
Assuming the entire debt can be financed at the current ten year bond rate of 5.7 per cent, we’ll need to pay over $1.8 billion per month in principal and interest repayments. That’s nearly $22 billion per year.
Our interest bill alone will top a whopping $83.6 billion over the next 13 years. It’s a serious amount of money – probably too big for many people to actually get their head around.
So let’s break it down a bit further.
To pay off Rudd’s three year borrowing binge, every man, woman and child in Australia will have to pay over $1000 per year. But that’s hardly a fair assessment because not everyone in the country pays tax.
If we confined the debt responsibility only to taxpayers, then we are all required to stump up an extra $1569 every year so that Kevin Rudd can fulfil his spendthrift ways.
That’s more than $30 a week in extra tax for the next 13 years!
Frankly, that doesn’t seem like a good deal to me, even less so when you think that this is a government that had no debt just 18 months ago.
Cory Bernardi is the author of seven books and has been a member of the Australian rowing team, a publican, an investment portfolio manager and spent nearly 14 years as an Australian Senator.
