Debt in the MYEFO

I captured data for Net debt and the Face value of outstanding Commonwealth securities (Gross debt) i.e. the amount of money that actually has to be paid back.

MYEFO 2016-17 debt

Looks ugly – especially how the gap between net debt and gross debt opens up over the next couple of years.

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29 Responses to Debt in the MYEFO

  1. Baldrick

    All three ratings agencies have said there will be no change to Australia’s AAA credit rating, just yet.

    In a statement, S&P said the latest budget forecasts would have “no immediate impact” on Australia’s credit rating, but added a strong warning about the nation’s worsening forecast fiscal position placing further pressure on the rating.
    Moody’s, predicted future budget deficits would actually be “somewhat wider and longer than currently projected” and that legislating budget savings remained “challenging”, but ticked off on the AAA rating, as did Fitch.

    I give the Turnbull Coalition Team a B- for making it look like they give a toss.

  2. Harald

    Silly question perhaps, but what actually accounts for the widening gap between the gross and net debt. Assuming here that net debt = gross debt minus assets: A widening gap, then means the total government assets must be growing to produce this graph, right?

    The only candidate of a government asset I can think of here, is the assumed value increase of the NBN… Is it that causing this growing gap?

  3. WolfmanOz

    Excellent graph which gives truth to the saying a picture tells a thousand words.

    The current Coalition Govt. is very much the B team compared to Howard/Costello but you can see some minor reduction in the rate of growth in the Net Debt.

    As for the Labor Party, words fail me in their complete denial to what they have bequeathed to the country with their inept fiscal management.

  4. Old School Conservative

    Duuuuuhhhhhhhhhh

    …mmm and dummer.

  5. Cannibal

    I captured data for Net debt…

    Did it put up much of a fight?

  6. Infidel Tiger

    A little more spending and those lines will surely fix themselves.

    Full power!

  7. Bruce of Newcastle

    As interest rates rise that net debt is going to explode since the additional interest payments will eat out budgetary lunch.

    The $37 billion deficit this year alone will require about $1.8 billion a year coupon rate as 10 year bonds. That $1.8 billion a year is forever until the original $37 billion loan is paid off.

    Then there’s the other $300 billion already racked up.

    Compound interest is wonderful, unless you are a deficit-running government. And we have plastic currency which will be useless when the time comes.

  8. Cannibal

    …but you can see some minor reduction in the rate of growth in the Net Debt.

    Do you mean in the forward estimates?
    Yeah sure – everything’s just peachy.

  9. Andrew

    Our debt isn’t large enough! It must be made larger, to compete with other countries! How else can we generate the windmill investments employ the wukkaz made redundant from mines, Hazelwood, Portland, the car industry or (very soon) construction?

    (You may be expecting a /sarc off but this is LITERALLY what Parliament believes and this is LITERALLY the policy plan for the CFMEU govt due whenever St Malcolm throws in the towel. Have a look at the trajectory when A666ott was elected. It was nearly $100bn in a year!)

  10. DB

    This is a collective indictment on Abbott, Turnbull, Hockey, Morrison and Cormann.
    They have completely failed to get control of Government spending, let alone reduce it.
    The opportunity to do this in an orderly fashion has probably passed.
    A crisis will now be required to resolve this, with perhaps a decade of economic pain for Australians.

  11. The Vengeful Ghost of Fiona Watson's Moggie

    And no plan to do anything about it, beyond praying that ‘something’ good comes along.

    So much for the Liberal Party’s ownership of ‘economic management’.

    By heavens, I detest them utterly.

  12. struth

    The current Coalition Govt. is very much the B team compared to Howard/Costello but you can see some minor reduction in the rate of growth in the Net Debt.

    That’s a forward estimate!

  13. Andrew

    The current Coalition Govt. is very much the B team compared to Howard/Costello but you can see some minor reduction in the rate of growth in the Net Debt.

    That’s a forward estimate!

    No, there’s some live data in there. It’s not like they haven’t actually made semi-trivial trims to the exponential increase legislated by TLS. It’s just that any savings have been swamped by the vast fraudulent misforecasting of both revenue and spending by Treasury under TLS. That grub Bowen forecast a $33bn deficit and arrogantly proclaimed that the LNP “owns” anything above that.

    Does anyone doubt that the real outcome by now would be $30bn more based on actual iron ore prices, actual tax receipts, actual NDIS ramp-up costs, actual “unforeseen” blowouts in the handling of their 50,000 illegals – and that’s even before their uncosted plans for a greater NBN contribution for FTTH, more renewbulls, greater PS headcount, and the general malfeasance?

    What would they do at this point faced with negative GDP (mostly from SA and WA)? The Goose is indicating he would currently be launching a stimulus package big enough to aim for “full employment” – we could be seeing an $80bn deficit for FY17! (And a MYEFO full of “credible path to surplus” through “structural saves” like escalating taxes on everything.)

  14. john constantine

    The unfunded liabilities of the countries crumbling transport infrastructure would be an interesting additional line.

    The days of continual development and sealing of roads, the building and strengthening of bridges and the laying down of rail are over,

    In yarragrad, the rail system shuts down in the grainbelt when the temperature hits 30 odd degrees.

    Local councils are running the numbers on returning crumbling bitumen roads to gravel.

    The Westgate bridge has had the most efficient and heaviest trucks banned.

    Every decade a million/ million and half people are imported into melbournibad and the raw reality is that the system will respond with rolling blackouts and rationed access to infrastructure.

    Maybe self driving cars and centrally commanded and controlled traffic flows will work, but at the cost of ending forever the concept of hopping in your car for a cruise to just have a look around.

  15. John

    Just an observation from an old corporate finance type, but the gap in gross to net debt is good. It means there are more assets offsetting the debt. This presumes of course that the asset valuations are reasonable. But a growing gap wouldnt be ugly so long as the assets were robust.

    Also I note the sarcasm of comments regarding the Government not reining in spending. The problem is ….whats the incentive? The LNP reduces spending and then lose power as the people regard them as too mean spirited. Labor/Greens win a pee it up against the wall. This cycle repeats ad infinitum everywhere in the world. I recall Kennett reducing spending and privatising the utilities. He got booted leaving labor with a mountain of cash to spend. The ideological /moral problem collides with the reality that you need to retain/obtain power first and foremost. Even a trusted careful PMs like Howard will be given short shrift if the voters think they want more spent on the NDIS or the NBN or whatever.

  16. stackja

    And the ALP will do what?

  17. The Hunted Mind

    Also I note the sarcasm of comments regarding the Government not reining in spending. The problem is ….whats the incentive? The LNP reduces spending and then lose power as the people regard them as too mean spirited. Labor/Greens win a pee it up against the wall.

    Exactly! The LNP should have left the inherited debt exactly where it was and repeatedly referred to it as Labor’s debt. They should then say that Labor can pay it off when they’re next in. If Labor put the debt up again next time they’re in then fine, leave it there again. Let the stupid voters learn.

  18. Ross B

    Malcolm Turnbull, September 14, 2015; “Remember this, the only way, the only way we can ensure that we remain a high wage, generous social welfare net, first world society is if we have outstanding economic leadership…”

    Within two months of making this point Turnbull had a net satisfaction rating of +38 to Bill Shorten’s -31. The Coalition were polling 6 percentage points ahead of the ALP in 2PP. And what did Turnbull do with all of this political capital?

    Nothing.

    Zilch.

    Nada…

  19. Neil

    There is a reason why gross debt hovers around the $50B mark from 02-07 while net debt went below zero.

    http://www.austrade.gov.au/news/economic-analysis/a-quick-look-at-foreign-holdings-of-australian-government-debt

    had seen the federal government’s outstanding borrowings fall to the point whereby during 2001-02 there was actually a policy debate over whether the Commonwealth bond market could be shut down altogether, with all outstanding government bonds either bought back or not replaced on maturity. In the end, the decision was taken to keep the market operating on the basis of maintaining an outstanding stock of bonds of about $50 – $55 billion, meaning that, although there was no longer any requirement to borrow in financial markets to fund budget deficits, the AOFM nevertheless continued to issue Treasury Bonds. Even so, the stock of total outstanding AGS on issue had fallen to less than five per cent of GDP by 30 June 2007.

    Apparently the borrowed money was reinvested and we were earning $1B/year in interest in 2007. All destroyed by Rudd/Gillard

  20. NewChum

    Remember when we thought Keating had racked up unplayable debts? Good times. Keating was a rank amateur compared to Rudd and Gillard. Abbott and Turnbull haven’t even trimmed he sails
    On the growth.

    Next election will again be a vote buying auction with goodies for all and sundry, higher taxes, more regulations to make it fair.

    All this and a couple of the most overvalued property markets in the world. Coupled with a suicidal energy and industry policy – ie, stop making energy and close down industry being the tri-partisan policy setting for the parliament.

    What could possibly go wrong? I suppose we will just apply a bit more Keynes to the situation iin get things going again. Any day now all that stimulus is going to work and those lines will swing south again.

  21. Herodotus

    You don’t need a very long memory to recall when Labor were mortally wounded post 2001, and murmurings were about that the relationship with the unions might need looking at. They were unelectable, and only the Iraq war gave them a chance in 2004.
    But then there was a miraculous recovery, spurred on by unions spending up big to demonise Work Choices, aided as always by a complient majority of the media, and with added hubris on the part of Howard, who like Hawke before him just couldn’t see the wisdom in an orderly succession.
    By 2007 the voters were assured that the new leader Rudd was a fiscal conservative, but one with numerous brilliant initiatives ranging from Fuelwatch and Grocerywatch all the way through NBN, computers for schoolies and, of course, fighting climate change. What could possibly go wrong?
    So, you can see the results in that graph. Will it ensure that Labor are not elected again? Probably not.
    What bull story will the media make up next time? Will they be selling Shorten or Plibersek?

  22. Herodotus

    Have the Libs reached the conclusion that there’s no point doing the hard yards, making themselves unpopular by da austerity, fixing the budget and debt, only to have Labor & Greens swan back in and stuff it all up again?

  23. Petros

    I agree with The Hunted Mind at 08:51pm. Whilst the Libs are in power, marking time on the debt, they should slowly remove the socialists from the institutions. This should not be done Campbell Newman style but slowly and carefully. It’s more important than paying back the debt in the grand scheme of things as Labor will just play Santa Claus again when they get back in.

  24. Tel

    Exactly! The LNP should have left the inherited debt exactly where it was and repeatedly referred to it as Labor’s debt. They should then say that Labor can pay it off when they’re next in. If Labor put the debt up again next time they’re in then fine, leave it there again. Let the stupid voters learn.

    Thing is, the LNP haven’t even been able to bring the DEFICIT under control. That is to say, we continue to get deeper into debt.

    Actually paying off the debt is totally out of the picture, ain’t gonna happen any time soon.

    Greece I tell you!!

  25. .

    Where’s Tom? He said anyone that called the “ratings agencies” whores who wouldn’t downgrade was a “wrongologist”.

    Tom? Bueller?

  26. Squirrel

    If the net debt figure takes account of assets which have been valued with the same Micawberesque rigour as was brought to bear in dreaming up estimates for wages growth (and hence revenue from “progressive” taxation of incomes) in the out years, then this is not a pretty picture, at all.

    Anyway, who cares about such details – we now live in a world where Government initiatives are claimed to be “paid for” simply because they will not (supposedly) add to already high debt and deficits.

  27. John Carpenter

    This of course does not include the $50 billion borrowed by the NBN which sooner or later will return to the Government balance sheet.Net debt has also been netted out for the full value of the Future Fund ,about $75 billion,which the government bean counters assume can be used to pay off the debt on a moments notice when in reality it is earmarked to fund the unfunded,defined benefit pensions of the APS.And how about the risk from the cowboys in the banking system who have borrowed about $600 billion in currencies where they have no lender of the last resort backup and are relying on currency swaps and the counterparts (like AIG) behind them.In 2008 the Australian banks couldn’t get a single bid on their foreign currency bonds,paper until they were guaranteed by the commonwealth.The AAA matters.

  28. Tator

    John Carpenter,
    The way the Future Fund is set up is that the funds are invested and the capital being used is to remain. I remember seeing some figures on their website stating that when the fund reaches a certain figure of over $110 billion, the investment income will more than cover the ongoing liabilities of the fund, so the fund itself can be considered an asset to offset gross debt if they manage to preserve the capital on an ongoing basis.

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