Hockey blows the roof off the house
So long, debt ceiling, we hardly got to know you. The case for killing it off was summarised on Thursday by Australian Industry Group chief executive Innes Willox. It was an artificial device that imposed unnecessary inflexibility and created openings for political opportunism, he said.
A case for retaining it but raising it was made earlier in the week by Peter Costello, before Treasurer Joe Hockey announced that the government and the Greens would combine to repeal it.
As the former treasurer noted, there was no need for a limit before it was introduced by the Labor government in 2008, because the Howard government was in the business of paying down debt: it inherited a debt load of $107 billion, and declared that net debt had been cut to zero in 2006.
Costello added, however, that, if debt was rising, a ceiling helped focus "the minds of the public and their elected representatives on how the debt is growing, and forces them to consider alternatives - like cutting spending or increasing taxes".
Despite their regular brawling over the US debt ceiling, politicians on both sides of the fence in Washington agreed that America's debt load needed to be reduced, he said, "and they are doing it. They are cutting spending. The process is working [and] it is working because the public started to get alarmed about the debt situation and the Congress began to feel the heat over the issue."
A ceiling could also strengthen the arm of economic ministers inside cabinet, Costello said. Colleagues would always come up with ways to spend money, but a debt ceiling at least ring-fenced the debate.
The danger of a ceiling to create potentially damaging political gridlock was, however, demonstrated here before the government's compromise deal with the Greens. Labor fought Hockey's push to boost the ceiling from $300 billion to $500 billion, even though its argument that a $100 billion increase was enough was undermined in committee hearings last month by Treasury secretary Martin Parkinson.
The pre-election economic and fiscal outlook forecast that debt would rise to $370 billion in 2015-16 was already looking optimistic, Parkinson said. The ceiling needed to have a buffer of between $40 billion and $60 billion, and an increase to $500 billion was prudent "if we place a premium on ensuring market confidence".
We don't get to find out whether the markets would have reacted badly if the $300 billion limit had been reached next week without a deal being done.
In 2011, however, a Congressional deadlock over raising America's debt limit created market mayhem and the first-ever downgrade of US government debt below a AAA rating. There is potential for more market instability in the new year, when debt ceiling talks that were deferred in October resume.
Australia's debt ceiling has also arguably been a less effective debt reduction lightning-rod than America's.
The Australian Parliament and the US Congress must both approve appropriation bills, but in Washington the legislature - Congress, and the executive, the White House - are separate, and separately elected. Here, the executive exists within the Parliament, with the government of the day being formed by the party that controls the House of Representatives. Even with its slim command of the numbers, the Labor government was able to borrow and progressively lift the debt ceiling to accommodate the debt, in 2009 from $75 billion to $200 billion, to $250 billion in the 2011-12 budget, and to $300 billion in the 2011-12 budget.
It was harder for Hockey. The government did not have the numbers in the Senate. Scrapping the ceiling was preferable to breaking the debt limit, and the bottom line here is unchanged: ceilings don't get debt down - governments do.
No grain of logic
Joe Hockey produced a curious defence of his decision to block Archer Daniels Midland's takeover of GrainCorp when he was doing the radio rounds on Thursday.
Asked about the GrainCorp bid, he said a bid for a US company by Australian pharmaceuticals group CSL had also been blocked, over concerns that CSL would have "a monopoly in the United States". Critics of the GrainCorp decision should move on, he said.
CSL was, however, already the No.2 player in the US blood plasma market in 2009 when it proposed a $3 billion takeover of the No.3 player, Talecris.
The deal was blocked by the Federal Trade Commission, America's equivalent of the Australian Competition and Consumer Commission, on the grounds that the takeover would create duopoly power for CSL and the No.1 player, Baxter.
ADM on the other hand was trying to buy into Australia's grain-handling business.
Ownership of GrainCorp would have changed, but GrainCorp's grain-handling market share would not have. The ACCC was not concerned.