One of the negative consequences of the two decades of economic reform that lasted from 1983 to 2005 was the demonisation of budget deficits. At first it was necessary to purge Australian political life of the fiscal laxity that had marked the last years of the Fraser government, and particularly John Howard’s disastrous stint as Treasurer. Paul Keating did that with aplomb, turning budget surpluses into a key marker of economic hairy-chestedness.

In time, Keating’s own laxity, and a painfully slow jobless recovery from the early 1990s recession, required action. That was duly provided by Peter Costello. Like Labor had before him, Costello deliberately played up the size of the deficit left by Labor, to the extent of loading in spending that had never been agreed to by the Keating government. Deficits were portrayed as a sign of failure, even though Costello produced his own deficit in 2001, justified by the US economic downturn that slowed global growth. Fiscal policy in effect became a bloke’s locker room, in which the size of your surplus was an indicator of economic manliness.

It filtered down to state government level, where premiers like Bob Carr and Steve Bracks made a virtue of strict fiscal responsibility, mainly by slashing capital spending. It wasn’t until years later the consequences of this strategy became apparent. As Carr has said in his own defence, there were few media commentators during his premiership complaining about his lack of spending.

What was lost was a distinction between fiscal laxity and effective use of debt. Surplus fetishists insisted all government borrowing was evil. This was exacerbated at the federal level by the flood of revenue from the mining boom, which was directed into tax cuts, making our fiscal base more vulnerable to dips in company tax revenue, and middle-class welfare, giving us a structural budget deficit.

Meantime the infrastructure deficit at state level grew rapidly. It wasn’t just mass transit, or economic infrastructure like ports and rail lines, it was the most basic infrastructure of all: water and electricity, and the provision of basic services for new housing development.

Back in power, Labor wanted to walk and chew gum — restraining spending growth (although much less than its rhetoric suggested) while increasing investment in big-ticket economic infrastructure and ending the weird tradition of the Commonwealth not investing in urban infrastructure. It was a strategy for a boom economy that couldn’t survive the GFC.

Labor’s problem is that it bought into the demonisation of deficits right from the outset. Remember Kevin Rudd refusing to utter the deficit number? That was an implicit acceptance of the stigmatisation of budget deficits. It ceded the economic argument to the Coalition, which based its entire economic strategy on the idea that any budget deficit, no matter what the circumstances, was evidence of economic incompetence.

The only one talking about infrastructure on the Coalition side is Warren Truss, and his goal seems to be to spend billions on infrastructure out in the bush were it will sit unused for most of the time.

Better yet, Labor also bought into the Coalition’s anti-immigration argument, ceding that territory as well, in effect making a virtue of the infrastructure deficit by using it to justify xenophobia.

We thus have a bipartisan policy to direct revenue to middle-class welfare, starve infrastructure of funding and ignore the benefits the use of even minuscule levels of debt could provide.

We apparently also have a bipartisan policy of keeping the Big Banks as a critical choke-point in business lending. Another mining boom might enable more Commonwealth investment in infrastructure, but it will be much longer before we have sufficient competition from non-bank and smaller-bank lenders to drive a significant increase in lending to business and property development.

This is why you could have an entire debate between Wayne Swan and Joe Hockey on housing, where the infrastructure deficit collides with the ongoing credit squeeze for property developers and, along with poor approval processes from state and local governments, to give us an ongoing crisis in the supply of new housing. It’s a policy disaster neither party seems to capable of understanding.