Two articles from the Financial Review, both warning about Australia’s debt levels.

The first about the National Australia Bank’s concern that further debt increases will risk Australia’s AAA credit rating – meaning higher interest rates, and a less attractive business and investment environment, which in turn means higher unemployment and lower tax revenues.

Treasurer Scott Morrison says the coming budget will ensure the government lives within its means: “It means you don’t make promises for which there is no money. It means that you keep your expenditure control tight”

All well and good, but the NAB is not convinced, and neither am I.

“However, NAB’s Mr Jolly expressed unease that the looming federal election and next month’s budget may see both sides of politics ease up on budget repair efforts to maximise votes.

He also pointed out that debt levels are well above the average of the past 36 years, hitting 15 per cent of GDP last year and on the way to 18 per cent over the next two years. That’s about three times greater than the last time S&P cut the credit rating to AA in 1989.

Mr Jolly said that keeping the ratings agencies happy would require demonstrating “ongoing restraint”, thereby continuing the likely drag on economic growth of recent years.

“With a general election at some point over the next six months, where the government and opposition will be releasing policy initiatives and making promises, a question for investors is whether fiscal restraint will continue.”

In January, S&P warned that Australia’s AAA rating was based on an expectation of ongoing budget restraint that would result in “consistently narrowing deficits over the forecast horizon, maintaining the general government debt near or below current levels”.

The agency cautioned that there was a need for “strong” government savings to offset the exposure caused the offshore borrowings of Australia’s banks.”

Then there are similar concerns expressed by Forbes Magazine, which says Australia is the second most likely country in the world to suffer a debt crisis within the next three years. The most likely is China. And of course, if China suffers a debt crisis, it won’t be buying our resources, which means we will be in trouble too. If China falters, so do we.

We just cannot afford generous welfare schemes or refugee resettlement programmes, or health and education systems to which those who benefit directly make no meaningful contribution, nor trendy but pointless projects like fast rail systems. We must return to a system where those most in need are cared for, and at the same time, every member of society is expected to make a contribution.