The Dreyfus Files - The Age
On a Tuesday afternoon last month, clouds of teargas wafted over the streets of Athens after a group of youths threw Molotov cocktails at police. It was the biggest protest yet against the Greek government's handling of the economy, and a further outbreak of violence in the series of mass demonstrations that have taken place across the country.
Greece's crippling debt burden, brought about by years of living beyond their means and widespread tax evasion, is so severe that it has sparked fears that the country will default on their loans. That ''sovereign risk'' is why the European Union has stepped in, why it offered to bail the country out, and why the Greek government has imposed severe austerity measures, which in turn have made Greeks so furious at the government that so badly let them down.
Given the scale of this crisis, you wouldn't expect to see Australia's Liberal opposition or certain figures in Australia's mining industry seeking to import the fears of ''sovereign risk'' to our financial situation. But in a growing chorus of repetition, the sovereign risk label is being increasingly recruited to the Liberal's own political cause - their opposition to the government's Minerals Resource Rent Tax (MRRT).
Last weekend, the opposition's energy and resources spokesman, Ian Macfarlane, said on ABC TV's Insiders that the MRRT is ''a hit on Australia's sovereign risk profile overseas''. Opposition treasury spokesman Joe Hockey has invoked the ''sovereign risk'' label several times in his criticism of the tax, and West Australia's Liberal Premier Colin Barnett explained this fortnight that - while his own increases to state mining royalties made good sense - the MRRT posed a ''sovereign risk''.
But before we allow the Liberals to lob these accusations at our economy unchecked, it's worth unpicking what the term actually means.
Sovereign risk involves debt growing beyond the ability of a nation to repay the interest, let alone the capital. In Greece, these fears have been raised because their debt level has hit 340 billion euros or 160 per cent of GDP.
A hemisphere away, Australia's economy is the envy of the developed world. Our economy is growing, with low unemployment, strong trade links to rapidly growing Asian economies, a strong pipeline of business investment, a healthy financial system and very low government debt.
That's not to suggest that we're immune from the debt drama unfolding in Greece, across Europe and in the US. But, as the International Monetary Fund said just last month, our successful response to the global financial crisis and strong fundamentals mean that we're much better placed to deal with global instability.
So at a time when we should be promoting our economic strengths overseas, leading figures in the Liberal Party are invoking the bogeyman of ''sovereign risk'' in our own country. And in so doing they are sending a wildly inaccurate message about Australia's economy to international investors.
It is a cheap shot with potentially expensive consequences.
Far from posing a threat to our sovereign risk profile, the Minerals Resource Rent Tax, which passed the House of Representatives this week, is part of the government's plan to build on Australia's economic strength into the future, and ensure we get a fair return from the mineral wealth in Australian soil. It's an economic reform that will deliver the benefits of the mining boom to all Australians - a Labor reform that means tax cuts for small businesses and an increase in the retirement savings for every working Australian.
Far from drawing into question our ability to pay back any government borrowings, it sets a solid foundation for future economic stability.
Mining companies might not like the tax, but it has not stopped them continuing to invest in Australia - in fact investment has accelerated since we announced the tax.
Australia last year achieved record levels of capital investment in resources and energy projects. New capital expenditure on minerals and energy projects in the last financial year was the highest on record and nearly four times the average annual expenditure of the past 30 years.
And since the government announced the MRRT last year, investment has not only continued, but has accelerated in coal and iron with multibillion-dollar coal investments across the country and major expansions of iron ore production in the Pilbara in WA.
Opposition Leader Tony Abbott and the Liberals have made it clear that they will oppose every government policy - lobbing everything they've got at us by way of attack. In the Parliament this week, they made clear that they prefer lower taxes for large miners - who are posting billions of dollars of profits every year - rather than support the MRRT, which will deliver tax cuts to Australia's 2.7 million small businesses and increased superannuation to 8 million workers.
But as with the government's clean energy future package and carbon price legislation, the MRRT passed the lower house this week despite their opposition, and Australians are now on track to see the benefits of this reform.
Let's hope that this puts an end to the inaccurate use of the term ''sovereign risk'', and attempts to liken Australia's economic position to countries like Greece. Because the problem with lobbing inaccurate accusations, just like Molotov cocktails, is that they have a tendency to blow up.
