During the Global Financial Crisis (GFC), the words 'government guarantee' were a source of great confidence to many Australians. In October 2008, the Federal Government guaranteed deposits and wholesale funding for banks and other financial institutions. That meant our banks would not crash, because we had the confidence to keep our funds with them and maintain borrowing arrangements. It was one of the factors that got us through the GFC.
It worked because Australians trust their politicians to honour government guarantees. The word 'guarantee' implies that what is being guaranteed is sacred. Government guarantees are not like election promises, which are playthings that voters regard with skepticism. Guarantees are fixtures.
Many may doubt the Government's competency in the day to day running of the country. Budgets blow out and cuts are needed. But a guarantee is something that sticks, whatever the circumstances. Having certainty around what we share in common is what binds us together into society.
The 120,000 NSW residents who signed up to the Solar Bonus Scheme of the previous Labor Government received a government guarantee. They would be paid 60 cents for every kilowatt hour of electricity generated by the solar panels on their rooftops, until the end of 2016. That is why so many signed up. They had absolute confidence that they would receive this amount, and relied upon it to pay for their panels during the course of the program.
But earlier this month, the new premier Barry O'Farrell announced that he needed to dishonour the 60 cent government guarantee. He would retrospectively legislate for the payment to be cut to 40 cents. Many more residents than expected had signed up, and honouring the 60 cent commitment would mean taking funds that would otherwise be used for things such as transport and health expenditure.
The premier maintained that using the money for these other priorities would represent a better use of public funds. But he does not appear to have factored in damage to the institution of the government guarantee, which is priceless.
While we cannot cost a government guarantee, we will have some idea of its monetary value — and the price of its dishonouring by the NSW Government — when there is another GFC and trust in the instrument of the government guarantee is discovered to have diminished. That moment could arrive sooner rather than later.
But more importantly there is the loss to the community of the spirit of