Australian government debt

Throughout this article, the unqualified term "dollar" and the $ symbol refers to the Australian dollar.
Date
(30 June)
Gross debt
(A$ billion)
Debt ceiling
(A$ billion)
2004 59.628 n/a
2005 60.103 n/a
2006 59.078 n/a
2007 58.273 75
2008 60.451 75
2009 101.136 200
2010 147.123 200
2011 191.283 250
2012 233.968 300
2013 257.370 300
2014 319.479 n/a
2015 368.730 n/a
2016 420.412 n/a
2017 500.979 n/a
2018 531.937 n/a
Source: Commonwealth of Australia[1]

The Australian government debt is the amount owed by the Australian federal government. The Australian Office of Financial Management, which is part of the Treasury Portfolio, is the agency which manages the government debt and does all the borrowing on behalf of the Australian government.[2] Australian government borrowings are subject to limits and regulation by the Loan Council, unless the borrowing is for defence purposes or is a 'temporary' borrowing. Government debt and borrowings (and repayments) have national macroeconomic implications, and are also used as one of the tools available to the national government in the macroeconomic management of the national economy, enabling the government to create or dampen liquidity in financial markets, with flow on effects on the wider economy.

The net government debt is gross government debt less its financial assets, which is often expressed as a percentage of Gross Domestic Product (GDP) or debt-to-GDP ratio.

As of 11 April 2017, the gross Australian government debt was $551.75 billion.[1] The government debt fluctuates from week to week depending on government receipts, general outlays and large-sum outlays. Australian government debt does not take into account government funds held in reserve within statutory authorities such as the Australian Government Future Fund, which at 30 September 2016 was valued at $122.8 billion,[3] and the Reserve Bank of Australia. Nor is the net income of these statutory authorities taken into account. For example, the Future Fund net income in 2014–15 was $15.61 billion, which went directly into the fund's reserves. Also, guarantees offered by the government do not figure in the government debt level. For example, on 12 October 2008, in response to the Economic crisis of 2008, the government offered to guarantee 100% of all bank deposits. This was subsequently reduced to a maximum of $1 million per customer per institution. From 1 February 2012, the guarantee was reduced to $250,000,[4] and is ongoing.

Australia's net international investment liability position (government debt and private debt) was $1,028.5 billion at 31 December 2016, an increase of $5.4 billion (0.5%) on the liability position at 31 December 2016, according to the Australian Bureau of Statistics.[5]

Australia's bond credit rating was rated AAA by all three major credit rating agencies as at May 2017.[6] Around two-thirds of Australian government debt is held by non-resident investors – a share that has risen since 2009 and remains historically high.[7]

History

Before 1979, the government borrowed using individual cash loans and a mechanism known as the TAP system. Under this system, the government would set a fixed yield, and the private market would finance as much public debt at this yield as it saw fit. In the event that the market did not finance all the debt on offer, the treasury was able to borrow the outstanding amount from the Reserve Bank of Australia at a concessionary rate of 1%. This allowed the government to finance its debt without limitation.[8] In 2000, the then Deputy Chief Executive Officer of the AOFM, Peter McCray, remarked that this system was "breaching what is today regarded as a central tenet of government financing - that the government fully fund itself in the market." He also remarked that this form of funding implied "reduced fiscal discipline" on the government's side, leading to likely inflationary consequences, as well as adverse implications to the private bond market.[9]

The government retired the TAP system and introduced a tender system for short-term Treasury Notes in December 1979 and for Treasury Bonds in August 1982. Under this system, bonds are issued in an auction where primary dealers[10] bid against each other.[8] Macroeconomist Bill Mitchell notes that there is still no risk of the government being unable to finance itself because when demand for bonds falls the auction system will naturally increase the yields.[11]

Net government debt

Government debt gdp
Total (gross) government debt as a percent of GDP by IMF

Net government debt is defined by the International Monetary Fund as "gross debt minus financial assets corresponding to debt instruments".[12] Financial assets corresponding to debt instruments include currency and deposits, debt securities and loans. In the context of the budget, general government sector net debt is equal to the sum of deposits held, government securities (at market value), loans and other borrowing, minus the sum of cash and deposits, advances paid and investments, loans and placements.[13][14] The net debt to GDP ratio over time is influenced by a government surplus/deficit or due to growth of GDP and inflation, as well as movements in the market value of government securities which may in turn be influenced by movements in general interest rates and currency values.

Australia's net government debt as percentage of GDP in the 2016–17 budget was estimated at 18.9% ($326.0 billion); much lower than most developed countries.[15] The budget forecasted that net government debt would increase to $346.8 and $356.4 billion in 2017–18 and 2018–19 respectively. However, despite continuing to rise in aggregate terms, growth in the economy means the government expects the proportion of debt to GDP to peak at 19.2% in 2017–18 before starting to fall thereafter.

The net government debt was negative (i.e. The Australian government had net positive bond holdings) in the 2006–07-year for the first time in three decades, from an original peak of 18.5% of GDP ($96 billion) in 1995–96.[16] The reduction in net debt is attributable to the consistent budget surpluses in the mid-2000s.

Latest budget forecasts

The federal budget is the main mechanism that determines the government's net debt position from one period to the next. A surplus (revenue is greater than expenses) allows the government to pay down its debt while a deficit (expenses are greater than revenue) requires the government to issue more debt to cover the shortfall. The 2017 federal budget forecast a deficit of $29.3 billion, or 1.6% of GDP.[17] The 2018 budget forecast a deficit of $18.2 billion. This would be Australia's eleventh consecutive budget deficit.[18]

The 2017 budget forecast government spending to be in surplus in the 2020/21 fiscal year, while the 2018 budget forecast a surplus of $2.2 billion in 2019/20. The government's debt level is forecast to be $629 billion in 2019/20.[19]

Debt ceiling

A debt ceiling on how much the Australian government could borrow existed between 2007 and 2013.

The statutory limit was created in 2007 by the Rudd Government and set at $75 billion. It was increased in 2009 to $200 billion,[20] $250 billion in 2011 and $300 billion in May 2012. In November 2013, Treasurer Joe Hockey requested Parliament's approval for an increase in the debt limit from $300 billion to $500 billion, saying that the limit will be exhausted by mid-December 2013.[21] With the support of the Australian Greens, the Abbott Government repealed the debt ceiling over the opposition of the Australian Labor Party.

The debt ceiling was contained in section 5 of the Commonwealth Inscribed Stock Act 1911[22] until its repeal in December 2013.

See also

References

  1. ^ a b "Australian Government Securities on Issue 2017–18". Commonwealth of Australia. Retrieved 5 April 2019.
  2. ^ "Role and Function". Commonwealth of Australia. Retrieved 2 February 2013.
  3. ^ "2015/16 Future Fund Annual Report" (PDF). Future Fund – Australia's Sovereign Wealth Fund. 27 September 2016.
  4. ^ "Questions & Answers about the Guarantee on Deposits". guaranteescheme.gov.au.
  5. ^ "5302.0 – Balance of Payments and International Investment Position, Australia, March 2017". abs.gov.au. 4 December 2018.
  6. ^ "Federal budget 2017: Standard & Poor's reaffirms Australia's AAA credit rating". Australian Broadcasting Corporation. 17 May 2017. Retrieved 8 August 2017.
  7. ^ The Age, 29 January 2016, Treasury secretary John Fraser: Australia has a spending and a revenue problem.
  8. ^ a b "A history of Treasury Bond tenders and performance". Australian Office of Financial Management. Retrieved 7 April 2019.
  9. ^ "Paper presented to the Asian Development Bank Conference on Government Bond Markets and Financial Sector Development in Developing Asian Economies". Australian Office of Financial Management. Retrieved 7 April 2019.
  10. ^ "How to Buy AGS | AOFM". Retrieved 4 April 2019.
  11. ^ Bill Mitchell. "Will we really pay higher interest rates?". Retrieved 7 April 2019.
  12. ^ International Monetary Fund, Government Finance Statistics Manual 2014
  13. ^ Parliament of Australia, The Australian Government’s current debt position – April 2015 update
  14. ^ MYEFO 2014–15, p.94.
  15. ^ "Budget Paper No.1 2016–17". budget.gov.au. Retrieved 8 August 2017.
  16. ^ Budget 2006–07, Australian Government is now debt free
  17. ^ "Budget Overview 2017–18" (PDF). budget.gov.au. 9 May 2017. Retrieved 8 August 2017.
  18. ^ Australian Federal Budget analysis 2018/19
  19. ^ Australian Federal Budget analysis 2018/19
  20. ^ The Age, 24 October 2013 – Debt ceiling – all because of West Wing?
  21. ^ The Age, 14 November 2013.
  22. ^ Commonwealth Inscribed Stock Act 1911, s.5

External links

2013 Australian federal budget

The 2013 Australian federal budget for the Australian financial year ended 30 June 2014 was presented on 14 May 2013 by the Treasurer of Australia, Wayne Swan, the sixth federal budget presented by Swan. The 2013 budget estimated total revenue of A$387.7 billion and spending of A$398.3 billion, a deficit of A$18 billion, with a return to surplus expected in the 2015 Australian federal budget (FY 2015/16). Some of the measures in the budget had been announced by various Ministers before the budget.

According to Swan the budget was being impacted by both global economic uncertainty and the high Australian dollar. It features significant spending on disability services and a school improvement program based on the Gonski Report. In an unusual step the election year budget contains 10-year forward estimates for the school and disability programs in an attempt to ensure funding is available. To pay for DisabilityCare Australia the Medicare levy was increased from 1.5 to 2% of taxable income from 1 July 2014.

The budget was described as big spending but low taxing. It lacked any big surprises or so-called election sweeteners.

2015 Australian federal budget

The 2015 Australian federal budget was the federal budget to fund government services and operations for the 2015/16 financial year. The 2015 budget is the second and last submitted by the Abbott Government, since the Coalition's victory in the 2013 Australian federal election. Treasurer Joe Hockey presented the budget to the House of Representatives on 12 May 2015.

The budget featured a $4.4 billion Families Package to reform child care in Australia and a $5.5 billion Jobs and Small Business Package to assist small business. The budget was passed by both the House of Representatives and the Senate and took effect at the start of the 2015/16 financial year, which began on 1 July 2015.

2018 Australian federal budget

The 2018 Australian federal budget is the federal budget to fund government services and operations for the 2018–19 financial year. The budget was presented to the House of Representatives by Treasurer Scott Morrison on 8 May 2018. It is the fifth budget to be handed down by the Liberal/National Coalition since their election to government at the 2013 federal election, and the third and final budget to be handed down by Morrison and the Turnbull Government.

Australian federal budget

An Australian federal budget is a document that sets out the estimated revenues and expenditures of the Australian Treasury in the following financial year, proposed conduct of Australian government operations in that period, and its fiscal policy for the forward years. Budgets are called by the year in which they are presented to Parliament and relate to a financial year that commences on the following 1 July and ends on 30 June of the following year, so that the 2018 budget brought down in May 2018 relates to the 2018/19 financial year (1 July 2018 – 30 June 2019, FY2019).

Revenue estimates detailed in the budget are raised through the Australian taxation system, with government spending (including transfers to the states) representing a sizeable proportion of the overall economy. Besides presenting the government's expected revenues and expenditures, the federal budget is also a political statement of the government's intentions and priorities, and has profound macroeconomic implications.

Australia follows, to a great extent, the conventions of the Westminster system. For example, the prime minister must have the support of a majority in the House of Representatives, and must in any case be able to ensure the existence of no absolute majority against the government. In relation to the budget, that requires that if the House fails to pass the government's budget, even by one dollar, then the government must either resign so that a different government can be appointed or seek a parliamentary dissolution so that new general elections may be held in order to re-confirm or deny the government's mandate.

Economy of Australia

The economy of Australia is a large mixed-market economy, with a GDP of A$1.69 trillion as of 2017. In 2018 Australia became the country with the largest median wealth per adult. Australia's total wealth was AUD$8.9 trillion as of June 2016. In 2016, Australia was the 14th-largest national economy by nominal GDP, 20th-largest by PPP-adjusted GDP, and was the 25th-largest goods exporter and 20th-largest goods importer. Australia took the record for the longest run of uninterrupted GDP growth in the developed world with the March 2017 financial quarter, the 103rd quarter and marked 26 years since the country had a technical recession (two consecutive quarters of negative growth).The Australian economy is dominated by its service sector, comprising 61.1% of the GDP and employing 79.2% of the labour force in 2016. East Asia (including ASEAN and Northeast Asia) is a top export destination, accounting for about 64% of exports in 2016. Australia has the eighth-highest total estimated value of natural resources, valued at US$19.9 trillion in 2016. At the height of the mining boom in 2009–10, the total value-added of the mining industry was 8.4% of GDP. Despite the recent decline in the mining sector, the Australian economy has remained resilient and stable and has not experienced a recession since July 1991.The Australian Securities Exchange in Sydney is the 16th-largest stock exchange in the world in terms of domestic market capitalisation and has the largest interest rate derivatives market in Asia. Some of Australia's large companies include but are not limited to: Wesfarmers, Woolworths, Rio Tinto Group, BHP Billiton, Commonwealth Bank, National Australia Bank, Westpac, ANZ, Macquarie Group, Telstra and Caltex Australia. The currency of Australia and its territories is the Australian dollar which it shares with several Pacific nation states.

Australia is a member of the APEC, G20, OECD and WTO. The country has also entered into free trade agreements with ASEAN, Canada, Chile, China, South Korea, Malaysia, New Zealand, Peru, Japan, Singapore, Thailand and the United States. The ANZCERTA agreement with New Zealand has greatly increased integration with the economy of New Zealand and in 2011 there was a plan to form an Australasian Single Economic Market by 2015.

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