This article first appeared on The Guardian web site at this address: https://www.theguardian.com/business/2016/oct/03/credit-downgrade-assured-if-coalition-keeps-hiding-from-its-debt-and-deficit-disaster
Credit downgrade assured if Coalition keeps hiding from its debt and deficit disaster
The treasurer, Scott Morrison, and the finance minister, Mathias Cormann, “took out the garbage” last Friday afternoon, dumping the final budget outcome for 2015-16 on the Treasury website under the cover of the football grand finals, a long weekend and the start of school holidays around much of the country.
Morrison and Cormann came close to breaching the Charter of Budget Honesty, which requires the release of each budget outcome for the prior financial year by 30 September each year. They made it with a few hours to spare.
They also released it without a press conference or detailed media release, making sure there was miniscule coverage of something that would normally be a key area of economic and fiscal management. This is especially the case with “budget repair”, the “return to surplus”, “paying off debt” and dealing with the “budget emergency” being the basis that saw the Coalition elected to power in both September 2013 and July 2016.
Looking at the budget outcome document, it is clear why it was released in the shadows of the Friday night without any fanfare.
The 2015-16 budget deficit was $39.6bn or 2.4% of gross domestic product. When the former treasurer Joe Hockey delivered the first budget of the Coalition government in May 2014, the budget deficit for 2015-16 was forecast to be $17.1bn.
Much of the blowout was due to decisions of the Coalition government. Foregoing revenue from the carbon price, gifting $8.8bn to the RBA and ramping up spending on border protection without any offsets were vital. The Coalition, contrary to all perceptions, has been spending at an alarming rate. In 2012-13, the last full year of the previous Labor government, the ratio of government spending to GDP was 24.1%. In 2014-15, this had risen to 25.6% and, in 2015-16, it rose to 25.7% of GDP. The 1.6% of GDP blowout in spending between 2012-13 and 2015-16 is about $26bn and accounts for more than the blowout in the deficit from the time of the 2014 budget.
The deficit blowout fed into the level of government debt as it had to ramp up its borrowing to cover the ever growing shortfall.
Net government debt rose to $296.4bn at June 2016, up from $153bn in June 2013 just before the Coalition took power. As a share of GDP, net government debt has risen from 10% to 18%, just off the all-time high in the wake of the second world war. When the 2016 Myefo is released before year end, net government debt will be at a 60-year high and rising.
Gross government debt, according to the final budget outcome documents, rose to $420.4bn, or 25.5% of GDP, in June 2016. This is at the highest since 1971-72 when the Vietnam war effort was being funded.
Government debt is growing at a pace that will no doubt be the focus of the credit ratings agencies. Unless there is some miracle in terms of a growth spurt that fuels an unexpected windfall revenue gain to the government, further large budget deficits are likely in the near term, as are further increases in government debt.
It is little wonder Morrison and Cormann were nowhere to be seen when the budget outcome document popped up in the Treasury website on Friday afternoon. Interestingly Morrison did some media interviews that day – but only to talk about the Cronulla Sharks being in the football grand final. There were none on the budget.
Unfortunately, this is economic management 2016 style, under the watch of Scott Morrison. It is not a good look when the deficit continues to grow and government debt is rising at a rapid pace. The credit ratings agencies are no doubt circling, looking to downgrade Australia’s credit rating. If the policy approach to the budget deficit is to bury important news on a Friday afternoon and not talk about it, the downgrade seems assured.