Australia on world's worst debt trajectory

SpacePete

SpacePete

Well-Known Member
Silver Stacker
So who do you believe here? The IMF warning, or the government telling us we are on a path to surplus?

Australia has world's worst debt trajectory, IMF says

Australia will suffer the developed world's most dramatic surge in debt by 2020, according to an International Monetary Fund report that slams governments for failing to save enough during boom times.

In a damning assessment of budget policy over the past three decades in advanced economies including Australia's the fund berates politicians for overspending during good times rather that preserving their ability to spur growth when inevitable downturns hit.

Prime Minister Tony Abbott insisted on Wednesday the government's budget strategy would not involve major spending cuts or increased taxes, despite collapsing iron ore prices wiping $30 billion from the forwards since last May.

"Each year will bring us closer to a surplus a surplus that means that debt will actually start to reduce rather than simply grow at a slower pace," Mr Abbott said.

"A surplus that means the interest bill will start to reduce rather than grow every year."

However, the IMF's data shows Australia's net debt to gross domestic product will deteriorate rapidly over the next five years.

Debt will grow 32 per cent to 22.4 per cent of GDP in 2020 from 17 per cent at the end of 2014, the IMF estimates.

Only Lithuania comes close to facing such a deterioration, with debt expected to jump 26 per cent.

OTHERS REDUCE DEBT BURDEN

Australia's increase will also be more than 10 times the 3 per cent rise expected in the United States, while the bulk of the world's advanced economies have rearranged their budgets to produce declines in debt burdens. Germany's debt-to-GDP will fall 25 per cent to 37.1 per cent.

Most striking is New Zealand's net debt currently 52 per cent greater than Australia's and now tipped to fall below Australia's level by 2018, according to the IMF calculations.

Strife-torn Greece will reduce its debt level by a similar proportion to Australia's projected rise.

The figures come amid fresh signs of budget anxiety, with Westpac's monthly sentiment index of households falling 3.2 per cent this month into negative territory again.

"This is a disappointing result," said Westpac chief economist Bill Evans, who said he would have preferred to see further gains in the lead up to next month's budget.

Criticism by the IMF of how governments have handled boom-and-busts over the past three decades coincides with renewed attacks on the legacy of the Howard and Costello era, when the commodity price boom allowed the Coalition to deliver massive tax cuts and drive up spending.

In its latest Fiscal Monitor, the IMF lambasts governments for failing since the mid-1990s for a lopsided approach to the use of so-called "automatic fiscal stabilisers".

During downturns, governments allow budget deficits to widen as a way of supporting economic growth by avoiding new taxes or spending cuts. Conversely, during good times of unexpected revenue booms something Australia experienced between 2003 and 2011 governments should save the funds by rebuilding surpluses and restoring their ability to weather future economic storms, the IMF argues.

"Automatic stabilisers have played an important role in fiscal stabilisation," the fund's economists write in the report. "However, they have generally not been allowed to play fully in good times, because spending a portion of the revenue windfalls is tempting."

The resulting "asymmetry" in the way governments respond to either positive or negative economic shocks prevents budget buffers being restored when growth is strong, they said. This can "contribute to significant accumulation of public debt over time".

Former treasurer Peter Costello has been attacked this week for squandering the unexpected windfalls of the first-leg of the commodity-price boom, particularly in the 2006 budget which delivered massive tax cuts and entrenched overly generous superannuation concessions.

The IMF says improving the way governments manage budgets could reduce the impact of mistakes on economic growth by as much a 20 per cent.

"Reduced volatility and uncertainty could in turn foster medium-term growth," the fund says.

http://www.afr.com/news/policy/budg...orst-debt-trajectory-imf-says-20150415-1mlmwj
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Clawhammer said:
But... but... Wall Street says we're on the right path!?
http://www.theaustralian.com.au/nat...-path-joe-hockey/story-fn59nsif-1227305547003
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Link was behind a paywall, but this one seems to be the same story: http://www.businessspectator.com.au...ian-news/wall-street-backs-budget-path-hockey

It sounds like Hockey is saying Wall Street is backing the budget path? Or maybe it's because a ratings agency gave Australia a good score, like they did to banks before the GFC.
 
I can't decide between a Mack truck or a bus as the best way to go under.

Everyone's busy rearranging deck chairs while the band plays on.

As most economies are stuffed, I believe you need to take a gnostic view, ignore the chatter, go into your shell, and make your own contingency plans.
 
Debt will grow 32 per cent to 22.4 per cent of GDP in 2020 from 17 per cent at the end of 2014, the IMF estimates.
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That's government debt. What about personal and business debt in Australia? Personal debt is already the highest in relation to GDP.

Keen-Aust-debt-to-GDP1.png


Australia-private-debt-to-GDP.png
 
SilverPete said:
So who do you believe here? The IMF warning, or the government telling us we are on a path to surplus?
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Even the government isn't optimistic about getting a surplus anytime soon.

Joe Hockey has significantly wound back his expectations of getting the Budget back in the black as falling commodity prices deny the Government vital tax dollars.
The Treasurer used a special briefing to the National and Liberal parties to effectively dump the Federal Government's Budget surplus rhetoric.

Highlighting the collapse in iron ore prices, Mr Hockey said he hoped to have the Budget back in surplus "as soon as possible".

His parliamentary slide show also revealed the depth of revenue troubles now facing the Government.
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https://au.news.yahoo.com/thewest/business/a/26790439/hockey-puts-surplus-hopes-on-ice/
 
willrocks said:
SilverPete said:
So who do you believe here? The IMF warning, or the government telling us we are on a path to surplus?
Click to expand...

Even the government isn't optimistic about getting a surplus anytime soon.

Joe Hockey has significantly wound back his expectations of getting the Budget back in the black as falling commodity prices deny the Government vital tax dollars.
The Treasurer used a special briefing to the National and Liberal parties to effectively dump the Federal Government's Budget surplus rhetoric.

Highlighting the collapse in iron ore prices, Mr Hockey said he hoped to have the Budget back in surplus "as soon as possible".

His parliamentary slide show also revealed the depth of revenue troubles now facing the Government.
...
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https://au.news.yahoo.com/thewest/business/a/26790439/hockey-puts-surplus-hopes-on-ice/
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Seems Hockey and Abbott are each spinning it differently. While Hockey is out of the country, Abbott has come out and said this week: "Each year will bring us closer to a surplus a surplus that means that debt will actually start to reduce rather than simply grow at a slower pace"
 
SilverPete said:
Seems Hockey and Abbott are each spinning it differently. While Hockey is out of the country, Abbott has come out and said this week: "Each year will bring us closer to a surplus a surplus that means that debt will actually start to reduce rather than simply grow at a slower pace"
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Each year seems to be bringing Australia a bigger deficit.

Then again you can hardly believe anything a politician says.

Surprisingly close to the last election, Tony Abbott and Joe Hockey were still promising a golden age for Australia's finances. "Our commitment is emphatic. Based on the numbers published today, we will deliver a surplus in our first year and every year after that," Hockey told the ABC's AM program in January 2013, just eight months before the poll.
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http://www.theage.com.au/comment/ab...-a-political-train-wreck-20150319-1m2ti1.html
 
No budget surplus in 40 years on current settings, Treasury confirms

Treasury officials have confirmed the federal budget is unlikely to return to surplus at any time in the next 40 years on the basis of currently legislated measures.

Officials reaffirmed the long-term projections in the Intergenerational Report after Tony Abbott suggested the document showed "that we get back to broad balance in about five years".

The prime minister made the observation in a radio interview on Wednesday as he sought to assure voters not to expect a repeat of the government's poorly received first budget when the treasurer, Joe Hockey, hands down his next economic blueprint in two months.
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http://www.theguardian.com/australi...s-40-years-current-settings-treasury-confirms
 
So it's gone from "we will deliver a surplus in our first year and every year after that" to 40 years.

Might as well be saying never.
 
Naphthalene Man said:
Didn't we have a nice surplus but then Rudd and co spent it on insulation etc?
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Meh, should governments have a surplus? In my way of thinking it means they've usurped too much of our property.
 
mmm....shiney! said:
Naphthalene Man said:
Didn't we have a nice surplus but then Rudd and co spent it on insulation etc?
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Meh, should governments have a surplus? In my way of thinking it means they've usurped too much of our property.
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A government surplus means they've taken more than they need. In the presence of a surplus, Costello cut taxes. Quoting one recent article:

"Simply but profoundly, he was giving you back your money which was not needed to fund government, keeping it out of the greedy hands of all the taxpayer-teat sucking interest groups, and his own cabinet colleagues, all too willing to spend it."
http://www.heraldsun.com.au/busines...ficits-and-taxes/story-fni0d8gi-1227304007844

But then...

"His successor, Wayne Swan, had the double misfortune of seeing the revenue evaporate because of the GFC, while embarking on a Treasury-advised Keynesian-style spending surge. Costello's surpluses and any prospect of tax cuts disappeared, pretty much for the foreseeable future."

And the last few paragraphs:

So yes, spending is too high, and you have to say that Hockey and the Senate are now (almost) as much to blame as Swan. And "the (ageing) times".

But it is reasonable to say that taxes are too low. In Costello's (best of all possible) times, receipts were running at 25 per cent-plus (after big tax cuts). Swan saw them fall to below 22 per cent, and they have struggled to get back to 23 per cent.

Hockey's going to allow bracket creep to haul receipts back to 24 per cent and then "hopefully" (for him, not the taxpayer) up to 25 per cent.

So, fact: taxes are too low and spending is too high. But the "solution" is not to simplistically boost the one or cut the other, but to have better (lower?) taxes and more focused spending.
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Naphthalene Man said:
Didn't we have a nice surplus but then Rudd and co spent it on insulation etc?
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On advice to contain a recession you mean?

That would be the surplus that Howard didn't manage to spend buying votes.

How dare Rudd buy votes!
 
Naphthalene Man said:
Didn't we have a nice surplus but then Rudd and co spent it on insulation etc?
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yes indeed

the etc was absolutely massive

then Gillard added NDIS, Gonski and a few more etc's

we are now on the path the socialists wanted

when China slows, expect further gutting of the tax base

at some point the Asian (mostly mainland Chinese) driven RE booms in the major cities will slow

it could take substantial unemployment in our private sector to provide the coup de grace
 
millededge said:
it could take substantial unemployment in our private sector to provide the coup de grace
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Looks like investors are grasping at straws with the latest unemployment data.

SMH said:
Jobs data drives dollar to new April high

The Australian dollar on Thursday surged to its highest point in three weeks after surprisingly strong jobs data reduced the chance of another cut to the cash rate at the Reserve Bank of Australia's May meeting.

In early afternoon trade the Aussie was fetching around US77.70, a level not seen since the last week of March. The trigger was the latest Australian Bureau of Statistics labour force survey, which found that unemployment dropped to 6.1 per cent in March from 6.2 per cent in February, which itself had been revised down from 6.3 per cent.
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