A Gaelic debt lesson for Mr Hockey

“Invest in Australia, where things are quite likely not to go pear-shaped!”

That’s the message being sent loud and clear to global markets by opposition-Treasury-spokesman-cum-Treasurer Joe Hockey. He still doesn’t seem sure which of those two jobs he’s doing. 

Hockey’s campaign to whack $200 billion on top of the debt ceiling left by Labor – from $300 billion to $500 billion – has been predicated on fears that Australia will need a large buffer to deal with international market turmoil. 

Sounds reasonable, doesn’t it? During the GFC, Labor discovered very quickly that it needed to raise the $50 billion ‘ceiling’ left by Peter Costello to $75 billion, and then to $200 billion in the space of seven months. (As The Age’s Tim Colebatch has pointed out, the ‘ceiling’ under Costello was actually a reluctant ‘floor’ used to keep the government bond market alive.)

So whereas Treasury forecasts a peak gross debt of $370 billion in 2016, Hockey is relying on Australian Office of Financial Management advice that a $40-$60 billion buffer is a good idea. So at the outside (i.e. in a crisis), Hockey would need $430 billion, all things being equal. 

Labor and the Greens blocked this move in the Senate – they will accept a $400 billion ceiling, but not the extra $100 billion – but Hockey hopes to win over the socialist Greens when the Senate sits again on December 2. How times change. 

Actually, they haven't changed very much at all, though the rhetoric has. 

Hockey knew full well during the sound and fury of his ‘debt and deficit’ attacks on then-Treasurer Wayne Swan, and then Kevin Rudd’s Treasurer Chris Bowen, that the $20 billion or so of revenue write-downs towards the end of Swan’s watch were not as predictable as the Coalition argued. 

Hockey and Abbott thundered repeatedly in parliament that Swan and Treasury knew exactly what was coming, and that deterioration in the federal budget was due to Labor profligacy or deceitfulness. 

But independent commentators did not agree. As Deloitte Access Economics' Chris Richardson said at the time: “While everyone is beating up Treasury, there are so many variables today. It’s much different than 10 years ago ... Today a butterfly lands in China and suddenly you’re down $10 billion or up $10 billion."

Hockey seems to be afraid of a bloody big butterfly landing in China. 

The problem with this campaign is that Hockey is still playing to a domestic voting audience, when as Treasurer he should be spending more time showing the world that “Australia is open for business” (as Prime Minister Abbott keeps insisting). 

The real motivator for Hockey’s argument is political. He does not wish to return to parliament in 2014 for a second serve of debt if something goes wrong with his budgeting – particularly on the revenue side. 

The national interest, however, would be better served by Hockey getting out of campaign mode and into governing mode. Asking for more debt next year would be a minor political embarrassment (and let’s not forget that it most likely won’t be needed), but in the meantime we would look less that the scared kid of Asia hiding under the stairs. 

For a role model, Hockey could do worse than study the approach of Ireland, which is pulling itself out of the morass of public debt and bailout humilation with as much vim and vigour as it can muster. 

Hockey has nominated December 12 as the day the government will run out of cash without lifting the debt ceiling. But just three days after that, Ireland will send a much more positive signal to global markets by being the first eurozone country to exit the bail-out package that, during the GFC, required it to hand its financial sovereignty to Brussels bureaucrats. 

Those feisty Gaels don’t like continental types standing at the bar with a clipboard counting how many pints of Guinness they’ve had, so they will exit their €85 billion ($A122.6 billion) bailout package in style – kicking the Brussels economists out into the street, and refusing the offer of a “precautionary credit facility”, just in case trouble flares again. 

Ireland’s Department of Finance said in a statement: "The market and sovereign conditions are favourable towards Ireland with the country returning to the markets in 2012, holding over €20 billion in cash reserves at year end which we can use to ensure that we can meet our maturing commitments and funding costs till early 2015 and with Irish sovereign bond yields at historically low levels ... The public finances are under control in Ireland."

But they’re not under control in Australia. 

That’s the clear message Hockey is sending to the world. And it simply must stop.