Australian debt may grow beyond $300 billion limit

Martin Parkinson

Australia’s debt could breach the government’s legislated $300 billion maximum limit this calendar year as the outlook for Australia’s resource sector deteriorates.

Treasury’s senior budget official, Nigel Ray, told the Senate economics committee last week that the debt was expected to rise no further than $290bn in 2013-14, based on the budget forecasts.

Although it was forecast to rise above the limit, reaching $330bn in 2014-15, Wayne Swan told parliament last week the government would deal with this when the time came.

“These matters are considered on a budget-to-budget basis,” the Treasurer said.

“We would review it in the usual way and amend it as required.”

But the testimony of Treasury secretary Martin Parkinson to the Senate committee, confirming the budget forecasts for export prices were too optimistic, and the latest downgrading of China’s growth outlook, raised the prospect of a further unanticipated blow-out in the budget deficit in the 2013-14 budget year.

Both the government and Treasury have blamed the $20bn blow-out in the 2012-13 budget bottom line on the weakness in “nominal GDP” — which is the value of the goods and services produced across the economy.

As falling commodity prices have cut growth in nominal GDP, the base for the federal government’s tax revenue has been eroded.

The latest falls in prices for Australia’s key commodities — with iron ore ending last week at $US110 a tonne, down from a February peak of $US158 — make it highly likely the measure of nominal GDP will suffer further weakness.

Dr Parkinson told parliament’s economics committee the terms of trade fall would be closer to 9 per cent this year than the budget’s 7.5 per cent, with a steeper fall in 2013-14 than the 0.75 per cent budgeted.

Even the latest 9 per cent forecast could prove optimistic, unless there is an unexpected revival in commodity prices in the next few weeks.

The budget papers acknowledged that volatility in commodity prices were a risk to the bottom line, however the government has refused to countenance the possibility it would have to raise the debt ceiling in the 2013-14 financial year.

Coalition assistant Treasury spokesman Mathias Cormann said the government should legislate over the next two-week parliamentary sitting session to raise the legislated debt cap.

“We have never opposed the lifting of the debt cap,” Senator Cormann said.

“The responsible course of action, given the blow out in debt and deficit, is to put beyond doubt the capacity of the government to keep funding its activities, bearing in mind there will be election period when the parliament will not be sitting.”

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