David Murray, the former head of both the Future Fund and the Commonwealth Bank, appeared on the ABC’s “7.30” program on Wednesday to deliver a sharp warning that the global financial markets would not tolerate any hesitation to gut welfare spending: “We have a high fixed-cost in our budget, mostly in welfare, which is now up to 100 per cent of the personal tax take,” he stated. “So, with those problems and a persistent current account deficit, Australia is not a country that can afford very much public debt, yet the public debt’s been rising.”
Asked if the Australian economy would likely avoid the kind of sovereign debt crises seen in Europe, Murray replied: “No, because Australia’s far too dependent on the rest of the world, both for trade and capital.” The program’s presenter, Leigh Sales, incredulously asked how a Greek-style crisis could be possible—“Easily possible,” Murray answered. “If we keep doing what we’re doing, we’ll get there.”
Sales insisted that “we’ve got so many things that are different—Australians pay more tax than Greeks, our public sector’s more accountable, we have our individual currency”, but the former Future Fund chief gave this short shrift. “We’re not a highly productive economy, our net foreign liabilities as a percentage of GDP are very high in the world, they’re not low and we have this persistent current account deficit,” he explained. “In short, all the entitlements we want to have are not ours—they’re being funded at the pleasure of some people who save and live offshore. And there comes a time if you work that way that these people say, ‘No, I don’t want to finance that anymore,’ and that’s what’s happened to Greece and Spain and Italy.”
Prime Minister Gillard dismissed Murray’s warnings, declaring it “absurd” and “grossly irresponsible” to make any comparison between the Australian and European economies. But she failed to answer any of the issues raised by the corporate chief.
Murray’s central warning—of the enormous dangers posed by the domestic economy’s complete dependence on foreign capital inflows—is not based on conjecture. In 2008, at the height of the global credit crunch, the major Australian banks were unable to access the finance from the world markets required to sustain their day-to-day operations. A collapse of the Australian banking system, which would have triggered an unprecedented economic crisis, was only averted when the federal government pledged unlimited public money as a guarantee for the major banks’ assets and debts. The Labor government’s nervous reaction to Murray’s remarks reflects its unwillingness to engage in any public debate about the likely impact of the next financial crash.
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