I’m sure a lot of Cat crowd also run with this rule: if it sounds [looks] wrong, it is wrong.
I was listening to the Treasurer the other night at the dinner of the Economic and Social Outlook Conference [held at the Melbourne Aquarium - there is a certain je ne sais quoi to watching a speaker with the backdrop of exotic fish, eels and sharks floating by.]
Anyway, when he said the following, I thought: que? (Yes, que? is one of my favs too.)
These structural saves put us in a better position to deal with any future volatility in commodity prices and the terms of trade, like we’ve seen in recent times. And there’ll be more to come as we make the necessary room for bold new investments in disability insurance and schools. The story to now is an impressive one. Without some of our long-term savings, the underlying cash balance would be around $14 billion lower in 2012-13. This would grow over time, reaching around $51.4 billion or 2.0 per cent of GDP in a decade – a truly massive difference. These savings also have a profound impact on Australia’s financial position in years to come. Without these savings, net debt would not return to zero in 2020‑21, instead it would be over $250 billion in that year. These are the facts and they tell an exceptional story. To put them in perspective, net government debt in the US is expected to reach more than $13 trillion, or over 80 per cent of GDP this year – and gross federal government debt is expected to reach its highest level since a brief period following World War Two.
I thought, wow, did I hear that net debt is returning to zero in 2020-21? Really?
The funny thing was that earlier in the day we had heard from Nigel Ray, acting Treasury secretary, and on his figures, there is absolutely no way that net debt is heading to zero in 2020-21.
It is worth looking at his speech (see Treasury Website) , in particular the chart which shows the underlying cash balances out to 2022-23. There is no way that the net debt will be paid off on the basis of these figures. (Fellow Cat contributors, I am having trouble loading up the chart. Any help?)
But Australia’s fiscal frameworks are facing another test: the emerging gap between the demands placed on government and the financial resources the community is willing to provide to government.
As you can see from the chart, while nominal GDP has largely recovered since the global financial crisis, government revenue at both the Commonwealth and state level has not yet recovered to expected pre-crisis levels. And, based on the changes in the relationship between the size of the economy and the amount of tax we collect, we do not expect revenue to return to the levels of the previous decade for some time.
On the payments side, recent policy debates point to growing pressure for new government services, such as the National Disability Insurance Scheme, and substantial reforms to existing services that might involve more spending, such as school funding.
The bottom line seems to be that we have racked up real debt and given the prospects of extremely slim surpluses going forward for years into the future, it is hard to see how net debt can be paid off within a decade. I guess there are few things to sell such as Medibank Private and the analogue spectrum, but let’s face it, most Commonwealth assets have already been flogged.