The Government has today agreed to the Australian Greens’ proposal to repeal the statutory debt limit and enhance transparency around government debt reporting.
We have resolved this issue, after good faith and reasonable negotiations, and now can provide certainty to the markets about the Government’s capacity to finance the budget.
We have done this with no thanks to the Australian Labor Party, who created the debt and did nothing to find a solution as we approached the binding limit. Labor has said they will oppose their own savings – the hypocrisy is breathtaking.
The Labor Party created the debt target in 2008 of $75 billion; then they had to reset it over and over and over again to end up with the current $300 billion.
The former Labor Government’s own Budget documents confirmed that the debt limit would reach its $300 billion limit in December 2013.
In fact, former Treasurer Swan refused to take action, despite admitting that the debt limit would be reached.
Both the 2013 Economic Statement and 2013 Pre-Election Economic and Fiscal Outlook (PEFO), confirmed the Budget position had deteriorated from the Budget handed down in May, by more than $30 billion over the forward estimates period.
The Australian Office of Financial Management (AOFM) previously advised – and Treasurer Swan tabled their advice on May 10, 2012 – that any debt limit set by the Government, should accommodate a buffer of between $40 billion and $60 billion higher than the peak projected within-year-peak of Commonwealth Government Securities on issue.
Labor, now in Opposition, said it would not pass a debt limit of $500 billion, opting only for an increase of $400 billion. They refused Government and Treasury briefings.
Recent events in the United States should have served as a warning sign. In fact Treasury Secretary, Dr Martin Parkinson, confirmed this in evidence to Senate Estimates in November when he said:
“We previously anticipated the peak plus the within-year buffer are to exceed $430 billion. It is now highly likely the quantum required will significantly exceed that amount. As such, the choice of a $500 billion limit seems prudent, if we are to place a premium on ensuring financial market confidence”.
(Source: Secretary Parkinson, Senate Estimates, 20 November 2013)
“Were we to settle on a debt limit that was less than the anticipated prudent amount, it would be entirely reasonable for financial market participants here and overseas to wonder what might happen when what was clearly inevitable on current pathways came to occur.”
(Source: Secretary Parkinson, Senate Estimates, 20 November 2013)
Today we are removing the instrument for parliamentary brinkmanship introduced by Labor when they created a legislative limit.
The debt limit was an artificial construct that never constrained Labor’s spending. The absence of a limit does not mean that the Government will not be prudent and responsible.
We have a clear plan to fix the budget and return to surplus when possible. This is the mandate on which we were elected and are accountable to the Australian Parliament and people.
As part of the agreement with the Greens, we will implement measures to enhance transparency around government debt in the budget papers.
Parliamentary debates on government debt will occur at least twice a year, and more often if debt is increasing by $50 billion or more.
There will be a Debt Statement published in every Budget, every Mid-Year Economic and Fiscal Outlook and every PEFO.
These Debt Statements will include the following information about Commonwealth stock and securities on issue, at the time of the report, for the financial year to which the report relates and for the following three financial years:
- the value of Commonwealth stock and securities (including their market and face value, and their value as a proportion of gross domestic product);
- the total expected interest expenses relating to the stock and securities; and
- a breakdown, by maturity and interest payments, of the stock and securities on issue at the time of the report.
An Additional Debt Statement would also be published should debt increase by $50 billion or more since the last Debt Statement or Additional Statement was made.
These Additional Debt Statements would set out the reasons for the increase in debt including the extent to which the increase was caused by lower than expected revenue, higher than expected spending, capital purchases and/or grants to State and Territory governments for infrastructure.
We commend the Greens for coming to the table with sensible proposals to enhance transparency around government debt over time and working with the Government to provide the certainty to the financial markets that Labor failed to provide as they should have.