It's now $61.15 billion of gross borrowing by the Abbott government

Fri, 21 Mar 2014  |  

The week ends with the Abbott government borrowing a further $700 million today, which brings the total of gross borrowing since 9 September 2013 to $61.15 billion.

$61.15 billion of bond and T-Notes that have been issued in just over six months as the government funds the budget deficit, covers maturing bonds and T-Notes and prepares to fund a range of its policy expenditure items.

As I have noted at nausium on the issue of government debt over recent years, the Australian government's debt level remains trivial, chicken feed, small beer and the campaign of the Coalition Parties to suggest otherwise was factually flawed and it still is.

Even in government, the Coalition bemoan the level of debt and pretend it is a major factor threatening to undermine Australian sovereign risk or some similar nonsense.

The credit ratings agencies, all which rank Australia triple-A with a stable outlook and have since 2011, suggest the level of government is low. So do foreign investors who own close to three-quarters of the government bond market and a huge proportion of the stocks listed on the ASX as well as an increasingly large holding of property. They do so comfortable in the knowledge that a government debt problem that would hurt the Australian dollar or bond yields is very unlikely.

The cumulative effect of the new borrowing means that gross government debt now stands at $310.1 billion, some $36 billion higher than when Mr Abbott convincingly won the 2013 election.

It was always obvious the promise to stop the borrowing and repay Labor's debt were false. The facts confirm this.

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Housing affordability should include interest rates

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This article first appeared in the Adelaide Review at this link: http://adelaidereview.com.au/features/business-finance/flawed-analysis/#.VdKzB6-Z0jh.twitter 

 

Any analysis that does not take account of the level of interest rates in the measurement of housing affordability is flawed.

In a very simple stylised example, is a $500,000 house with a $400,000 mortgage more affordable if the mortgage interest rate is five percent or eight percent?

The answer is, of course, rather straightforward. The annual interest cost with a five percent mortgage interest rate is $20,000 while an eight percent interest rate sees the annual interest payments jump to $32,000. That $12,000 a year difference is substantial and is clearly a factor when potential borrowers are looking to take out a loan. Blind Freddie can see that a decision to borrow money and buy a house is hugely enhanced in a low interest rate climate versus one where interest rates are high.