ABC comedian Luke McGregor has declared government debt isn’t a problem because he called up the Reserve Bank of Australia himself.
The RBA in February announced it would buy another $100billion worth of government bonds under a program known as quantitative easing, adding to the $100billion worth of debt it bought in November last year.
By next year, the federal government will owe more than $1trillion for the first time ever as a result of more than $300billion worth of emergency Covid spending.
Despite that, McGregor said he decided debt wasn’t an issue based on a phone call to the Reserve Bank.
‘I rang the Reserve Bank. You don’t have to take my word for it,’ he told the ABC’s Q&A program.
‘I said, “Listen, I’m trying to get my head around this.” I said, “You’re the government’s bank, right?”.’
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ABC comedian Luke McGregor has declared government debt isn’t a problem because he called up the Reserve Bank of Australia himself
McGregor, better known for his co-starring role in ABC comedy Rosehaven, told Q&A host Hamish Macdonald he dialled a hotline as he made a segment for Charlie Pickering’s The Weekly program.
Under Modern Monetary Theory, Budget debts and deficits don’t matter based on the idea the government can keep issuing bonds because there will always be a capital market for sovereign debt.
McGregor touched on this point suggesting an RBA economist told him it would not default on Australian government debt, with the central bank continuing to buy Commonwealth Government Securities.
In theory, this means the government can keep getting the Reserve Bank to keep buying its debt instead of putting up taxes to raise revenue.
‘I said, “Look, point blank, if the RBA is the one buying the government bonds and the RBA is the government’s bank, obviously the RBA, you can’t default on the debt to a currency you have sovereignty over, right?”,’ McGregor said.
‘And he said, “No, you can’t.” And I said, “Would you ever stop a government payment going through?
‘So, is there a point where you could put through so many Medicare payments the doctor goes, “Sorry, you’ve run out of…the government has just run out of cash’?” And he said, “No, we’d never deny a government payment”.’
But McGregor argued the government only avoided unrestrained spending because they were aware that giving everyone $50,000 ‘risks overheating the economy and inflation going through the roof’.
McGregor, better known for his co-starring role in ABC comedy Rosehaven, told Q&A host Hamish Macdonald he dialled a hotline as he made a segment for Charlie Pickering’s The Weekly program. He is pictured with Rosehaven co-star Celia Pacquola
He recalled how the Reserve Bank economist telling him governments were normally careful with debt because of convention.
‘And he said it’s more of a behavioural constraint than it is a debt constraint,’ he said.
As part of the Budget, the government has extended low and middle-income tax offsets for another year, at a cost of $7.8billion, giving tax relief to 10million Australians earning up to $126,000.
Almost half, or 4.6million, earning $48,000 to $90,000 are getting back $1,080 in a bid to boost spending.
The government also extended the instant asset write-off scheme so business owners could claim the cost of a new car against their income over one year instead of the usual eight.
Following the Covid shutdowns in March 2020, the government introduced JobKeeper wage subsidies, which in three stages ultimately cost taxpayers $90billion until it ended on March 28.
The RBA in February announced it would buy another $100billion worth of government bonds under a program known as quantitative easing. Pictured is the Sydney Martin Place head office
McGregor then disputed the link between government spending and inflation.
‘Inflation is not caused by printing money,’ he said.
Australia’s annual inflation rate of 1.1 per cent is well below the RBA’s 2 to 3 per cent target, despite the government spending more than $300billion on Covid stimulus and welfare measures since March 2020.
The deficit for 2021-21 of $161billion made up 7.8 per cent of GDP, the highest since World War II.
Economist Gabriela D’Souza, from the Committee for Economic Development of Australia, said Budget deficits were an issue.
‘That will have an impact on the economy and how much debt we have to pay in the long run,’ she said.
Historically, high government spending has been linked to high inflation.
By next year, the federal government will owe more than $trillion for the first time ever as a result of emergency Covid spending. Pictured is Treasurer Josh Frydenberg
The German Weimar Republic suffered hyperinflation during the 1920s as the government kept printing money to cope with punitive post-war reparation payments and an inability to easily borrow money on capital markets.
In late 1973, Australia’s inflation climbed into the double digits, in tandem with the big spending deficits of Gough Whitlam’s Labor government and the OPEC oil crisis.
In 2021, Treasury is expecting gross government debt to surpass the $1trillion mark for the first time ever by the middle of next year, with the sea of red ink to comprise 49 per cent of the Australian economy.
The federal government is practising an economic policy known as Keynesianism, where it runs deficits and pump primes the economy during a crisis with the longer-term aim of returning to surplus.