By Chris Berg Posted Tue 10 Dec 2013

Photo: Abolishing the debt ceiling has given the Coalition room to breathe on the budget. (AAP: Alan Porritt)

The debt ceiling might have been raised repeatedly with reckless abandon, but at least it was an awkward reminder that we are living beyond our means, writes Chris Berg.

Sometimes great things happen by accident. The debt ceiling was one of those things.

Back in June 2008, then-assistant treasurer Chris Bowen pushed through Parliament the obscurely named Commonwealth Securities and Investment Legislation Amendment Bill.

The worry at the time was that the demand for Australian government debt was out-stripping the supply. (The past is another country, as they say.)

There were only $50 billion worth of Treasury bonds on issue, and the financial sector wanted more. So the government complied. But, as this was the era in which Kevin Rudd was an economic conservative, the government put an economically conservative cap on the increase: $75 billion.

Thus was born the debt ceiling. It had a short and unhappy life.

The ceiling was bumped up to $200 billion to accommodate the big stimulus package in February 2009, and bumped up again in 2012 to $300 billion.

Yesterday, the Coalition government and the Greens abolished it entirely.

This makes sense from the Greens, for whom fiscal prudence is not one of the higher political virtues. But the Coalition has spent the past half decade banging on about debt and deficit. And now they have eliminated one of the few tools to get the budget under control in the long term.

The debt ceiling was a rare example of a fiscal rule in Australia, an explicit constraint imposed on the government's financial power.

The purpose of a debt ceiling is to fight the natural proclivities of government to run persistent deficits. There's every incentive in politics to spend money but very little to save it. I explained this dynamic in the Drum during the election campaign. Because spending is popular and taxing is not, deficits are the inevitable result.

Yes, the debt ceiling wasn't much of a ceiling. It didn't stop government spending more than it earned. Labor raised it twice, and - if the Greens had not pushed for its abolition - the Coalition would have raised it again.

But that's not the point. A debt ceiling is an assurance that going further into debt has at least some political cost. It helps at the margin.

And in that sense, Australia's debt ceiling was very effective. From the opposition benches, Joe Hockey and Tony Abbott tore strips off the hapless Wayne Swan when he raised the limit in 2012. It confirmed everything the Coalition had been saying about the irresponsible Labor government. Swan would not have enjoyed asking Parliament for his increase. The debt ceiling helped keep his budget troubles in the news.

Australian politicians like to say Parliament should be supreme and sovereign. It has been claimed in recent weeks that a debt ceiling is somehow anti-democratic - Parliament has an absolute right to spend as it sees fit without any roadblocks being placed in its way.

Well, they would say that.

But that this argument has been seriously entertained across the political spectrum goes to show how poorly the commentariat understand - or are even aware of - elemental political theory.

For one, such an argument gives the legislature a moral authority it does not deserve. Governments need rules which govern their operation. A government without rules is an autocracy.

That's what constitutions are for. The Commonwealth Constitution is really just a long list of things the government can and cannot do.

Some fully democratic constitutions place even stricter limits on what democratically elected politicians may do. The Bill of Rights in the United States constitution violates the sovereignty of the legislature by preventing politicians from interfering with the liberties of its citizens. That's no bad thing.

A bill of rights and a debt ceiling are both imposed to keep a government from doing things that governments tend to do: restricting liberties and spending more than they tax.

No wonder governments are reluctant to adopt such rules.

The US debt ceiling has been raised more than a dozen times since 2001.  It has been a constant focus of intense partisan wrangling and brinkmanship. Every time the ceiling is approached, the Congress and White House go into crisis mode.

This is how it should be. The periodic battles over whether to raise the debt ceiling are the only time in which the Congress and White House seriously come to terms with how badly they have ravaged US government finances over the past decade.

The debt ceiling isn't to blame for this chaos. No, the real crisis is that caused by the Bush and Obama administrations' financial gluttony.

Abolishing the American debt ceiling would only allow US politicians to pretend the debt problem doesn't exist. Just as abolishing the Australian debt ceiling has released some of the pressure on the Coalition to get the budget back into line.

And if there isn't enough pressure, it simply won't happen.

Chris Berg is a Research Fellow with the Institute of Public Affairs. His most recent book is In Defence of Freedom of Speech: from Ancient Greece to Andrew Bolt.View his full profile here.

Scrapping the debt ceiling is no victory - The Drum (Australian Broadcasting Corporation)