The Greek debt crisis is absent from the minds of many Australians, and perhaps for good reason – a distance of more than thirteen thousand kilometres separates the two countries. However, we are in a situation where the debt woes of another country of half our population, and with a debt level smaller than ours, are playing a role in our financial markets. The Greek financial crisis is a perfect opportunity for Australians to learn how to avoid a similar, and equally detrimental, fate.
Those who have ever had a loan from the bank can attest that every dollar borrowed ends up being more interest owed – this is simple mathematics.When the country coffers are in the red, interest accrues in a similar way. When the government owes debt, the money owed accumulates interest. In previous years, the government was borrowing a billion dollars a month to service their loan. That means borrowing more money to pay interest, adding to the several hundred billion dollar principal principle already owed.
Financial modelling by PricewaterhouseCoopers suggests that if not reined in; Australian debt will be a trillion dollar crisis by 2037, a two trillion dollar crisis by 2042 and seven trillion by 2050. So why do we rest on our laurels, believing our country to be in a good place financially? Perhaps it is easier to think in a short-term fashion, or consider the idea that we should not pay for the crimes of a former government doing what they thought was right.The politics of the Global Financial Crisis (GFC) aside, we are in a situation where Australia has to recover from a dire circumstance. Without some drastic measures, we could face the same issue as Greece. Not now, and not in the next ten years, but the decisions we make today will affect tomorrow’s generation.
Standard & Poor’s threatened to strip Australia of their AAA credit rating if the government does not make a pledge to cut deficit. That was over two years ago, and at some point they may make good on their claim, unless Australia experiences a trajectory back to surplus. Goldman Sachs reiterated this in April of this year. A credit rating is an indicator of an economy’s ability to repay debt. If we lost our AAA rating, our government would experience an interest rate increase, making it even more difficult to repay the increasing debts.
“If not reigned in; Australian Debt will be a trillion dollar crises by 2037″
So, whilst many are desperate for increased expenditure in social justice – health, education and the likes – it’s worth considering the alternative before judgment is cast. We may live good lives, unaffected by government debt, but it is not us we should think about. Our pensions, health care, zero dollar upfront degrees and many other luxuries we take for granted could be stripped away from our children and grandchildren if we fail to correct the debt crisis before it worsens. The wrong decisions now will affect future generations, and those people should not be expected to shoulder the woes from our financial mismanagement.