Debt at $500bn and rising

In just a decade this nation’s gross debt situation has told a worrying story. In late 2007 the Rudd Labor government inherited a negative net debt; the federal government effectively had money in the bank. Seeking to create the impression this surplus might be made the new norm, Labor legislated a debt ceiling that was first set at $75 billion. Within a couple of years, prompted by the global financial crisis stimulus response, this limit was more than doubled to $200bn and then in 2012 it was raised again to $300bn.

When the Coalition came to office, partly on a promise to repair the deficit and debt problem, then treasurer Joe Hockey looked to increase the ceiling to $500bn but managed to scrap it altogether. This is worth noting now because just a couple of months ago that $500bn figure was breached; gross national debt is now more than $540bn, heading to $600bn.

The good news, as highlighted in this month’s Reserve Bank of Australia minutes as reported by economics editor David Uren, is that demand for Australian government debt is strong, with bond issues being oversubscribed fourfold. There is emerging confidence about our economic outlook. The RBA noted employment growth and improved labour market conditions around the country, suggesting adjustments were being made to the decline in mining investment. While manufacturing woes continue, jobs are picking up in the construction, infrastructure, training and education sectors. The cash rate remains at the emergency level of 1.5 per cent (lower than at the height of the GFC response) but analysts now predict rates will edge upwards by the middle of next year. If so, this will be a vote of confidence in economic recovery and an attempt to return to more normal settings.

These green shoots warrant a reminder to the government that fiscal repair and addressing the debt burden remain the top priority. Promises of more spending and higher taxes under Labor are unconscionable. Lowering energy costs must be part of this plan to underpin growth. The main game for Malcolm Turnbull after two years in the job remains the economic narrative.