Barefoot Investor reveals why the Albanese government is addicted to spending
Pape, best known as the Barefoot Investor, noted record-low interest rates during Covid had encouraged governments around the world to go on a spending binge.
Under the heading - Why Governments Are Addicted to Debt - he noted in his column that bond markets ultimately decided how much politicians could borrow.
These are the investors who lend governments money.
'For decades, cheap borrowing has allowed politicians to dodge making hard decisions,' he said.
'Yet with inflation back and interest rates rising, the bond market's getting twitchy again. And no politician wants to actually admit that everything's fine… until it isn't.'
When interest rates rise, so do bond yields - or the annual interest payments governments borrowing money have to pay back to those lending it money.
While yields have fallen since the Reserve Bank started cutting interest rates again, higher government spending means more government interest payments.
Treasurer Jim Chalmers last week became touchy when asked at the National Press Club about government spending being at the highest level since 1986 outside of the Covid pandemic.
'It's not the highest spending since the 80s. I know that you mean absent Covid, but I think it's unusual that we absent Covid,' he said.
'Quite frequently I'll hear we've got the weakest growth in 40 years, or we've got the highest spending. That's not true.'
Under Labor, government payments are set to make up 27 per cent of gross domestic product in 2025-26.
This is lower than the 32.1 per cent level of 2020-21 during the height of Covid, when the federal government effectively paid workers to stay home during lockdowns with JobKeeper payments and a temporary doubling of JobSeeker unemployment benefits.
'Let's not forget that we had spending as a share of the economy almost a third,' Chalmers said.
Chalmers argued Labor had been economically responsible by ending the former Coalition government's low and middle-income tax offset after coming to power in 2022.
'And some of those things that we didn't extend when we came to office, they were difficult at the time, some of that spending,' he said.
'We had a lot of people calling for us to extend the fuel excise change, the LMITO was ended by our predecessors but we got called on to extend it.
'And so that spending that was almost a third of the economy during Covid, we got it down to less than a quarter of the economy in 2022–23.'
Labor trimmed government payments to 24.8 per cent of the economy in 2022-23, and 25.2 per cent of GDP in 2023-24, when it also managed to deliver two consecutive surpluses.
These were the first surpluses since 2007 and the first for a federal Labor government since 1989, thanks to higher iron ore prices.
But gross government debt is set to surpass the $1trillion mark during the next financial year, and make up more than a third of the economy, with Treasury forecasting no return to surplus in coming years.
Chalmers did his PhD thesis on Paul Keating as prime minister.
Under Bob Hawke, Keating was also the treasurer who cut government spending so its proportion of GDP would fall from 27 per cent in 1986-87 to 22.9 per cent of GDP in 1989-90.
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