Election FactCheck is checking key claims in political advertisements. Here we look at the “Rudd’s record” ad from the Liberal Party.
Kevin Rudd was borrowing $100 million every day. Now we have a $254 billion debt.
Debt figures may vary from source to source. But for this fact check, I will use the “general government sector net debt” data published in the Mid-Year Economic and Fiscal Outlook (MYEFO) 2012-13. Net debt is defined as the sum of deposits held, government securities, loans and other borrowing, minus the sum of cash and deposits, advances paid and investments, loans and placements.
To calculate a daily figure, we need to look at the difference in the debt in fiscal year 2007-08 and the debt in fiscal year 2009-10 – the time of the first Rudd government, which lasted around 912 days. As the Rudd government started in the middle of the fiscal year 2007-08 fiscal year, I also re-do my computations using 2006-07 as the first observation.
I’ve also included the same calculations for the entire period of Labor governments under the Rudd and Gillard prime ministerships until the end of the fiscal year 2012-13 (a total of 2007.5 days).
The results are in the table below:
So, is the statement from the Liberal Party correct?
The part of the statement concerning the daily accumulation of debt is correct. In fact, the actual increase in debt per day is somewhat smaller than $100 million, but we should factor in a possible upward revision of actual debt levels for 2012-13.
However, the part of the statement concerning the current level of debt seems to be incorrect. The Mid-Year Economic and Fiscal Outlook figures indicate that current debt level is substantially lower than what the Liberals claim.
I also checked the Pre-Election Economic and Fiscal Outlook and the World Economic Outlook Database of the IMF and they both report net debt levels significantly lower than $254 billion. The estimates in the pre-election outlook show net debt will be $184 billion in 2013-14 and $212.1 billion in 2014-15.
To find something that is even close to the $254 billion figure, we have to look to Australia’s current gross (as opposed to net) debt, which is $269 billion according to the Australian Office for Financial Management.
Finally, one should also observe that this increase in debt has been matched by an increase in Gross Domestic Product (of a magnitude of approximately $200 million per day). Consequently, the debt-to-GDP ratio, while increasing, has remained among the lowest worldwide. Moreover, an increase in debt in a time of global economic downturn is expected and many economists would argue even desirable as it reflects a counter-cyclical use of fiscal policy.
The Liberal Party’s daily debt figure is broadly right, but the current debt level is much lower than $254 billion - Fabrizio Carmignani.
Rudd did a backflip on the carbon emissions trading scheme and supported the world’s biggest carbon tax.
In his first term as Prime Minister, Kevin Rudd certainly did stop short of introducing a carbon price via an emissions trading scheme (ETS). He judged that it was going to be too difficult to get the legislation through the Senate where the Coalition and Greens stood in the way. Whether that move constitutes a “backflip” requires the intervention of the judges.
After the 2010 election, Prime Minister Gillard moved to introduce an emissions trading scheme from 1 July 2012. For the first three years, the price of emissions permits would be fixed, and the price would be set by the market after 1 July 2015.
Since a fixed price ETS has some common features with a tax on carbon, the Opposition was able to label it as such. However, we do not have a carbon tax in Australia. This may be a semantic point, but the political price associated with introducing new taxes in Australia is high, and therefore the point is important.
The second half of this claim is about “the world’s biggest carbon tax”. We do have an emissions trading scheme with a fixed price and Rudd, in his second stint as Prime Minister, wants to shift that to a floating price a year earlier.
As for Australia having the “world’s biggest carbon price”, certainly in terms of its current price at $24.15 per tonne, it is probably up there on the more expensive end (California is currently at around $14 and Europe less than $10). But if Rudd’s plan to link with Europe from 1 July 2014 was to go through, then it would definitely be back with the pack.
If you were to consider this claim in terms of the volume of emissions reduction, then both the Coalition’s and the government’s policies are aiming for the same 5% reduction target of 2000 levels by 2020. This is certainly not the world’s highest target.
Due to political circumstances, Rudd did change his policy position but he has not supported a carbon “tax” as such. The price under the current scheme is high by world standards - Tony Wood.
With five budget deficits and the carbon tax, Kevin Rudd and Labor has driven up the cost of living.
This short sentence actually contains several ideas that are worthy of a fact check. Let’s try to unpack it.
First, we need to understand how we should understand the term “cost of living”. (This topic was recently discussed in depth by Greg Jericho, so I’ll keep the discussion brief here.)
An increase in the cost of living means that, by some measure, there is a positive inflation rate. All inflation measures tell us how the cost of a specified “bundle of goods and services” has changed over time. The most familiar measure of inflation is the consumer price index (CPI); in this case, the bundle is supposed to represent the purchases of a typical household.
But different individuals purchase different things, so we all experience inflation differently. Cost-of-living indices are constructed for different sectors of the population, which means they show us how different groups are affected by rising prices. They also do a better job of capturing housing costs because they include mortgage interest payments.
During the period that the Labor government has been in power, the CPI has averaged 2.7% inflation per year. The cost-of-living index for employee households has risen at 2.8% per year. Pensioners and recipients of government transfers have seen slightly higher inflation, averaging about 3.1% per year. So though there has been a slight difference between CPI inflation and cost-of-living inflation, the CPI clearly provides a reasonable measure of inflation as it is experienced by most households.
So do we expect an effect on the cost of living - however measured - from the carbon price and from government deficits?
For affected firms, the carbon price is an additional cost of doing business. As with any increase in cost, it is likely to be passed on, in part or in full, to consumers. So we would certainly expect to see some prices – most notably energy prices – increase as a result of Australia’s carbon pricing. This is a feature, not a bug: the whole point of putting a price on carbon is to raise the price of carbon-intensive goods and services relative to the price of goods and services that generate less carbon.
But it does not follow that the end result is an increase in the overall cost of living. We would expect the price of energy-intensive goods to go up and, as a result, to see a shift in production and consumption away from those more expensive goods. Some other goods will exhibit lower price increases as a result of the carbon tax. The overall effect on the cost of living is then unclear.
There are two ways in which government deficits might put upward pressure on prices. The first is that deficit-financed spending increases the level of demand in the economy. In a booming economy, this increased demand can lead to higher prices. But the deficits of the Gillard and Rudd governments had the goal of stimulating the economy during the global financial crisis and its aftermath, when the risk was recession, not inflation. The inflationary impact of additional demand is minimal in such circumstances.
Second, deficits can in principle raise interest rates in the economy; those higher interest rates might translate into increased mortgage costs, as well as higher borrowing costs for firms. The first directly increases the cost of living, while the second would have indirect effects. But of course, the last few years have been a period of unusually low interest rates, so this effect has not been present either.
Perhaps the most critical point is that the Reserve Bank sets monetary policy with the goal of keeping the CPI inflation rate at 2-3% on average. And it is pretty successful at doing this. So if government policies do put upward pressure on prices, the Reserve Bank responds in a way that ensures that there is at most a temporary increase in CPI inflation. Since CPI inflation and cost-of-living indices track each other pretty well, Reserve Bank policies also control the cost of living.
So what’s the bottom line? The carbon price certainly increases some components of the cost of living, but the overall effect is less clear. Deficits can, in some circumstances, generate inflationary pressure, but not in the macroeconomic climate of the past few years. The data do not reveal an unusually high rate of increase in the cost of living; if anything, the opposite is probably true. And the most important reason is that, in the end, it is the Reserve Bank that controls the overall rate of inflation in the economy.
The Liberal Party’s statement is unlikely to be true - Andrew John.
Rudd has divided the Labor party again, with one-third of cabinet ministers refusing to work with him.
The claim that one-third of cabinet ministers refused to work with Rudd appears to be a potent line – the implication is that if they can’t govern themselves, then they can’t govern the country.
But is this claim right?
The last Gillard cabinet had 20 ministers. When Kevin Rudd returned to the top job in June, seven of those ministers resigned, including Prime Minister Gillard and Treasurer Wayne Swan. This equates to 35% of Cabinet. So, on this score, we can accept the claim that a third of the cabinet ministers refused to work with Rudd as they fell on their swords.
Rudd has also faced critics on the backbench. He defeated Gillard to become prime minister again by 57 votes to 45 in June, suggesting that a sizeable chunk of caucus had deep reservations about his leadership.
The election of leaders, however, is a touchy issue for parties as it is very rare for any leader to enjoy absolute support within their party. Indeed, as Tony Abbott has shown, a leader doesn’t necessarily have to command total acceptance by their party room in order to be an effective force. After all, Abbott defeated Malcolm Turnbull to become Liberal leader by just one vote in 2009.
The statement that one-third of cabinet ministers refused to work with Rudd when he was elected Labor leader in June is correct - Zareh Ghazarian.