Frankly, I find LaTingle’s analysis in the Fin this morning pretty scary, if true.
Treasurer Joe Hockey is considering identifying government borrowings raised to fund infrastructure as separate from debt raised to cover the budget deficit as the Abbott government contemplates an infrastructure spending splurge.
Mr Hockey confirmed last week the government was “looking at ways that we can stimulate growth, particularly in the next 18 months and beyond”.
“There is a challenge that we recognised in opposition, and the government talked about, of sustaining growth and increasing economic growth,” he told reporters.
“From my perspective – and the Coalition’s perspective – infrastructure investment that is based on proper cost-benefit analysis is a good investment that helps to improve productivity growth and that is the sort of thing we need to drive.”
The Australian Financial Review revealed last month the government was preparing an about-face on the economy, looking to boost infrastructure spending to stave off a post-mining boom investment slowdown that could push up unemployment.
While the Coalition hopes it can lift private-sector investment in infrastructure, senior sources concede the government will have to boost its own spending if it is to get a rapid injection of funds into infrastructure projects.
Frankly, I find the idea of presenting the budget in a different way and separating out an infrastructure/capital account as incredibly naive. After all, money is completely fungible and just because a large item is logged in the capital account doesn’t make it a good idea.
But what worries me more is the idea that a Coalition government would consider issuing Infrastructure Bonds – a rumour going around the traps. Why? There is absolutely no evidence that the Australian government has had any trouble raising debt – some $300 billion in the past six years – all along the yield curve.
The real worry with Infrastructure Bonds is that there would be various concessional elements for the holders of these bonds. And these concessions would be limited to Australian residents – mirroring the distortion caused by dividend imputation.
Recall Keating’s infrastructure bonds and what a rort they turned into. I recall being offerred one of these bonds for an annual fee of $16K which would have allowed me to pay no income tax at all. (Of course, the $16k, which was an extortionate price being charged by the Commonwealth Bank was effectively a tax to me.)
My advice: forget it, Joe, and just move on.