Mr Hockey's plans for $1.6 trillion of government debt

Sun, 29 Mar 2015  |  

The Abbott government has no intention of ever repaying government debt. None. It has, quite quietly, announced that it plans to keep borrowing so that government debt remains at 13 per cent of GDP right out to at least 2054-55 which means government debt will be $1.6 trillion. Yes $1.6 trillion of government debt.

The decision to keep government debt at this level was buried in the recent Intergenerational Report. The IGR announced that the Abbott government intends to keep borrowing for at least the next 40 years and therefore maintain government debt "at a level equivalent to 13 per cent of GDP... where it will remain over the projection period [to 2054-55]" (See page 83 of the IGR).

Based on the assumption that Australia's GDP will be around $12.5 trillion in 2054-55, at 13 per cent of GDP, the Abbott government is aiming to have government debt at over $1.6 trillion by 2054-55. It currently is around $365 billion. (This is the level of GDP is implied in the IGR based on the assumption of nominal GDP growth of 5.25 per cent per annum.)

Whatever happened to the promise to cut or eliminate government debt?

Mr Abbott and Mr Hockey reckoned the previous Labor government left a "debt time bomb" with its assertion that government debt was on track to "rise to $667 billion". The $1.6 trillion it is now specifically aiming for swamps that. Mr Abbott described debt "skyrocketing towards $667 billion" and the government was "paying out too much dead money on interest alone".

On an interest rate assumption of 5 per cent, the government will be paying $80 billion a year of "dead money" on interest in 2054-55. That will be over $6.5 billion a month, up from around $1 billion a month at the moment.

Treasurer Hockey has said that the trajectory of government debt under Labor was "like someone with a credit card who is out of control". Mr Hockey even claimed, just two years ago, that "We are ready to pay back the debt".

Well that plan to pay off debt is no longer in the mix, it seems.

Coalition members commonly suggest that Australia's fiscal position risks becoming like Greece or other such melodrama. PM Abbott made that claim just last week.

Of course, all of these references are to gross government debt, including those from Mr Abbott and Mr Hockey.

The reason for keeping government debt is something I have written about ad nauseam for years (one example here: – government debt is an essential element of financial markets, it provides a so-called risk free yield curve as a benchmark for pricing State government and private sector debt. Government debt is needed to underpin the futures market and to provide a source of capital for the banks as they move towards meeting their Basel III obligations. It is an essential element of any good fiscal management.

The issue here is the hypocrisy of Mr Abbott and Mr Hockey with their deceitful use of government debt to make political points. It will be interesting indeed to see how they deal with questions relating to their new-found appetite for government debt and their plan to increase government debt to $1.6 trillion in 2054-55.

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The real reason young Aussies are struggling to get on the property ladder

Fri, 21 Oct 2016

This article first appeared on the Yahoo 7 website at this link: 


The real reason young Aussies are struggling to get on the property ladder

I thought kids stopped screaming and being blindingly selfish when they turned 3 or maybe 4. I was wrong. It could be that 30 is the new 3.

Having witnessed, first hand, some of the froth and bubble surrounding the issue of consumption patterns of millennials, that they prefer spending money on lattes and smashed avocado on toast rather than a dwelling, there is an irrational, self centered discussion that blames anyone and everyone for their inability to get into the housing market.

If Twitter and some of media articles are anything to go by, a bevvy of millennials have explicitly expressed their overwhelming desire to spend their money on avocado, ubers, the latest phones and travel rather than saving to buy a house. I have noted, ad nauseam, that this is fair enough – it’s their money, spending it whichever way floats your boat is a fundamental tenet of economics. It is all part of that basic choice we all have about where we wish to spend our money.

Rather than leaving it there, the millennial group then unrelentingly complain about their perceived in ability to tap into the housing market. This is incongruous given they have just said they are no longer looking to buy a house. Why would anyone care about the price of a Brett Whitely painting, for example, when you aren’t looking to buy one? But the millennials are vocal about their insistence of unapologetically wanting to spend their money on lattes, pulled pork and a mascarpone pancake stack whilst still moaning about their inability to buy a house.

It’s this juxtaposition that leaves me wondering what the fuss is about.

Why poor Aussie financial literacy is to blame for banks overselling their financial products

Mon, 10 Oct 2016

This article first appeared on the Yahoo7 website at this link: 


Why poor Aussie financial literacy is to blame for banks overselling their financial products

Watching the parliamentary appearances of the Big Four Bank CEO’s this week revealed many things, but one that was most striking was the implied weakness in financial literacy of the general population who it seems often sign up to expensive services they don’t understand, didn’t ask for and don’t need.

It is all very well to criticise the banks for urging their staff to be overly aggressive when cross-selling different products to their customers, but it is another for the customer to succumb to this pressure and sign up for the new products. Rather the customers offered new products should give a friendly “thanks, but no thanks” reply when the sales pitch from the bank teller comes along.