Last week I wrote about the freebie phenomenon, the handing out of free or highly subsidised stuff to eager voters. It’s been on the rise for some time and shows no signs of waning, even with conservative governments.

Of course, Speccie readers have good memories and none of us has forgotten the excesses of the federal Coalition government during the Covid period. Top of the pops was JobKeeper in which the youth of Australia were paid more than they had previously been receiving to nestle under the doona all day. Gosh, they were being told they were saving the country.

The fact is that the criteria for this program were so slack that a toddler could shoot holes through the list. Many firms that did not actually see their sales decline – in some cases, they even rose significantly – received many millions of dollars in taxpayer handouts.

It is estimated that $10 billion-odd of the monies paid out under this scheme were what economists call ‘deadweight loss’. In other words, a complete bloody waste.

Handing out freebies is of course part of a larger problem: the complete lack of interest on the part of governments and oppositions in avoiding budget deficits and reducing government debt. The pollsters tell a similar story that the voters show no interest in the topics of deficits and debt.

The point could be made here that, absent any messaging from politicians that deficits and debt matter, the mums and dads of this world are hardly likely to pay much attention to what is, in reality, a serious emerging problem in many countries, including Australia.

I was reminded of troubling economic times ahead by a series of announcements coming out of the USA. While the US economy is still the powerhouse of the world, its fiscal settings are extremely disconcerting. US government debt is now over $36 trillion, around 120 per cent of GDP. This makes its proportionate government debt considerably higher than at the end of the second world war.

The ratings agency Moody’s stripped the US of its AAA credit rating in May, with the other major ratings agency having done so a long time ago.

There was a tepid response to a recent bond raising of US Treasuries – the name for US government bonds – which led to yields jumping by 25 basis points. Higher yields make servicing government debt more expensive.

The value of the US dollar has also fallen noticeably in recent months, pointing to the money market fears about the country’s fiscal position.

The Big, Beautiful Bill (is this name a joke?) that is making its way through Congress will further add to budget deficits, estimated at an additional $2.7 trillion over the course of a decade. The hope is that the size of the economy will expand, in part in response to some of the measures contained in the Bill, so the proportionate burden of the debt won’t increase. It’s an optimistic view.

I also had been reading about the strike of taxi drivers in France and was reminded of the dire fiscal position in that country. In fact, France has not recorded a budget surplus since I was an undergraduate – and believe me, that was a long time ago. The current budget deficit in France is running at around 6 per cent of GDP – about the same as the US – and government debt is 110 per cent of GDP.

The saga of the taxi drivers is a metaphor for many of the problems in that country. It started with the government’s decision to offer ‘free of charge’ taxi rides to patients attending hospital and medical appointments who find it hard to do so under their own steam. There is no downside for medical practitioners signing a letter giving a patient this right and the whole scheme has ballooned out of control. The cost per trip is also clearly exorbitant.

One of the effects has been to make French taxi drivers the best paid in the world and they are very keen to defend their wicket. (OK, they don’t play cricket in France, but you get my meaning.) So, when the government announced its intention to reduce the remuneration rate per trip, all hell broke loose. Protesting is one of the strongest suits of the French.

We have seen this story repeated many times in La République. Every time there is a suggestion to make a modest change to the retirement age of French workers – the retirement age is among the lowest in the world – there are strikes, boycotts, crowds on the street and fires being lit. The government then backs down and everything returns to ‘normal’, with government debt rising each year.

Across the Channel, the situation is not much better. Government debt is around 100 per cent of GDP and the current budget deficit is over two per cent. In fact, prior to the global financial crisis, the UK’s fiscal position was largely under control. In 2005, for instance, a small budget deficit was recorded. Everything went to hell in a hand-basket with the GFC and then again with Covid.

We saw a live experiment of the limits of government initiatives with the short-lived tenure of Liz Truss as prime minister. Her plans were devised in league with Kwasi Kwarteng, short-term chancellor – what’s become of him, I wonder – and involved substantial cuts to income tax rates, particularly for those on the highest incomes.

The bond markets were not having a bar of the argument that economic growth would be boosted as a result – it would have been, but with a lag – and yields on government bonds spiked. The pound crashed, and the Truss experiment was quickly over.

Now with the Starmer government in a world of pain, we are also seeing the clash between fiscal repair and voter expectations. One of the first initiatives of the UK Chancellor, Rachel Reeves, was to cut the winter fuel allowance, limiting receipt to those on the lowest incomes. It had been a universal program. The change was going to save the budget 1.5 billion pounds annually.

The ballyhoo about this decision has now eaten up a great deal of Starmer’s substantial initial supply of political capital. Nigel Farage’s Reform party pledged to restore it.  After many weeks of controversy, Starmer has now backed down, leaving Reeves in the lurch to find other budget savings.

The big picture is this: many advanced countries are in a world of pain, fiscally speaking. They are unable to achieve balanced budgets, let alone run surpluses.  Government debt is rising inexorably in most places and bond markets are becoming twitchy. Generous government programs, including those available across the board, are very hard to wind back, let alone eliminate because of the hostile reaction of voters.

While it is certainly the case that government debt in Australia – and this includes the states as well – is not at the same proportionate magnitude of many countries’, the direction of the trend as well as its speed give rise to real concerns. Our small, open economy is more vulnerable than most.

But when voters demonstrate complete insouciance to deficits and debts, goaded on by irresponsible politicians, it’s no real surprise. It will probably take a bond market meltdown as well as an even lower Australian dollar for voters to take notice.