Australia’s state and federal governments have been among the world’s biggest sovereign borrowers of the past five years, even as most other countries started cutting their debt piles.
A report in The Australian, based on the OECD’s annual review of borrowing by countries, said Australian governments had taken on debt worth 12 per cent of gross domestic product (GDP) since 2012. The newspaper pointed out at that at the same time, New Zealand cut its debt by 9 per cent of GDP, according to the Organisation for Economic Cooperation and Development data.
In fact, the only countries that borrowed more in that period than Australia were Spain, Slovenia and Latvia, The Australian said.
But in Australia’s defence, it’s been pointed out in the past that the country has has a somewhat different economic trajectory to that of the rest of the developed world. While most countries were fighting their way out of the Global Financial Crisis by issuing huge amounts of debt, Australia was relatively economically healthy. But Australia then hit the end of the mining boom, just as other countries were recovering their economic footing.
Former treasurer Scott Morrison has previously defended Australia’s borrowing record, differentiating between taking on “good debt” – that used to fund infrastructure in transport and energy, for example – and “bad debt” used to fund expenses such as welfare. But the budget Morrison unveiled as treasurer in 2017 was criticised by fellow Liberals for being too generous on the spending front.
Despite this, the federal government’s budget bottom line improved by $4.4 billion in 2017 due to higher employment figures and a decline in welfare and disability payments, and in September Morrison said that the $37.6 billion budget deficit – announced in May – had been revised to $33.2 billion. (The budget deficit and national debt are linked in that if a government runs a deficit – the difference between its incomings and outgoings in a single year – and doesn’t have assets to sell, it may have to increase its debt by borrowing to cover expenses.)
The government forecast in its mid-year financial outlook that the 2017-18 budget deficit would come in at $23.6 billion, and that net debt (which doesn’t count debt that government departments owe each other) at $343.8 billion, or 18.9 per cent of GDP. It reckons the budget will be in surplus by 2020-21, but that net debt won’t decline to 7.7 per cent of GDP or $228 billion until 2027-28.
But while the government may remain confident, international bodies are nervous more generally about Australia’s indebtedness.
In October, the International Monetary Fund’s Global Financial Stability Report showed Australia had one of the highest levels of household debt in the world, leading the IMF to warn that this debt could leave Australia exposed if a new GFC was to occur. And high levels of household debt is linked to the likelihood of a financial crisis, the IMF added.
“New empirical studies — as well as recent experience from the global financial crisis — have shown that increases in private sector credit, including household debt, may raise the likelihood of a financial crisis and could lead to lower growth,” its report said.
The OECD’s also had a go at Aussie house prices, saying last March that prices and household debt had reached unprecedented levels. “A continued rise of the market, fuelled by both investor and owner-occupier demand, may end in a significant downward correction that spreads to the rest of the economy,” the body warned.
The government’s 2018-19 budget is scheduled for release on May 8 .
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