This is depressing on three fronts…..
1. The sheer enormity of the problem,
2. The seemingly “she’ll be right attitude” and the playing with politics coming from Labor who caused the problem.
3. Although it’s on the front page, the average person will just go ho-hum and turn the page.
“….Australia’s debt could blow out by more than $100 billion if the budget is wrong in its prediction that the economy will return to pre-crisis growth and the Turnbull government is unable to win Senate support for all of its outstanding savings measures.
An analysis prepared by Deloitte Access Economics shows the vulnerability of the debt outlook to both the government’s failure to get budget savings passed through the parliament and to the reliability of Treasury’s economic forecasts.
“Consistently since 2011, Australia has budgeted that things wouldn’t get worse in China and that there would be enough bipartisanship to pass things in the Senate,” Deloitte Access partner Chris Richardson told The Australian.
“In practice, neither of those two things has come to pass and the risk is that it stays that way. China has disappointed and so has bipartisanship.”
The Turnbull government is putting pressure on Labor to approve long-blocked savings measures when parliament resumes, following warnings from ratings agency S & P Global that Australia’s AAA rating is in jeopardy.
Reserve Bank governor Glenn Stevens has also called for “a more hard-nosed conversation” about putting public finances onto a sustainable footing, or else they would be forced by a crisis.
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Asked by The Australian to model the debt trajectory if the Senate continued to resist savings measures and weak inflation and income growth proved long-lasting, Mr Richardson said the budget would remain in permanent deficit.
Whereas, under Treasury’s benign outlook, net debt would be falling within two years and would be down to roughly $335bn by 2020-21, a scenario with slow nominal growth of 3.5 per cent, combined with Senate obstruction, would push it to about $440bn — a blowout of more than $100bn over six years.
Recent reports on inflation and wage growth are not encouraging for the budget outlook with both well below Treasury’s expectations. Although commodity prices have been stronger than expected, particularly coal, this week’s massive $9bn loss from BHP Billiton and its forecast that commodity prices would remain low and volatile for the medium term suggest no early recovery in company profits.
Mr Richardson said one factor helping the budget was the fall in global interest rates. The budget expected interest costs would reach $14.4bn this year, which is only slightly less than is spent on schools. The budget assumed a long-term bond rate of 2.5 per cent, but 10-year bond-yields have since dropped to 1.9 per cent, bringing a significant savings.
The head of Treasury’s tax division, Roger Brake, highlighted the uncertainty of federal government revenue trends in a speech in Queensland yesterday, noting that globally the recovery from the global financial crisis has been much weaker than anticipated with forecasts consistently proving too optimistic. He said the amount of tax raised for every dollar of additional output had also been lower than before the crisis.
Treasury’s projections show that net debt will peak as a share of GDP at 19.2 per cent next year and then start to fall rapidly as economic growth picks up, bringing a boost to tax revenue. Deloitte Access estimates government debt would be down to just 13.6 per cent of GDP on the official trend by 2021-22.
The actual dollar figure for the debt will fall more slowly, with Deloitte Access estimating that the official forecasts anticipate net debt falling from a peak of $356bn to roughly $330bn by 2021-22.
Treasury forecasts gross debt will hit $499bn this financial year and rise to $584bn by 2019-20.
Many economists, including those at ratings agency S&P Global, have said they think Treasury’s forecasts of nominal GDP, or the value of all goods and services produced, are too high.
Nominal GDP is essentially a measure of national income and its growth dictates the pace at which the government’s tax revenue rises. The budget is counting on nominal growth doubling from 2.5 per cent in 2015-16 to 5 per cent by next year, while it predicts inflation will be back to its long-term average of 2.5 per cent by 2018-19.
Mr Richardson said growth in prices and incomes has been slow both in Australia and around the world for a number of years and this was making budget repair more difficult. Deloitte Access, like Treasury, expects these deflationary forces will abate, however it is more conservative, expecting nominal growth of 4.6 per cent next year and 4.4 per cent the year after that. “Our forecasts on the pace of growth of Australia’s income remain below Treasury’s in the next couple of years and we think that will continue to weigh on the tax take,” Mr Richardson said. “The additional fear is that Australia’s finely balanced parliament won’t be able to negotiate its way to budget repair to any significant extent.”
The firm’s modelling of its own economic forecasts shows it would bring a much slower fall in the government’s debt burden with it still holding above 19 per cent of GDP by 2021-22. If the Senate does not pass outstanding savings measures, even that slow fall in the government’s debt would not happen and the debt would remain stuck just above 20 per cent of GDP indefinitely. The dollar amount would creep higher along with growth of the economy to about $410bn by 2021-22. Although it is not Deloitte’s forecast, Mr Richardson’s analysis shows that if nominal growth remains 3.5 per cent, debt would keep rising, reaching 22.4 per cent of GDP by 2021-22, rather than the 13.6 per cent Treasury forecasts imply..” $100bn hit to deepen budget debt crisis