Australia to Raise Debt Ceiling as Mining Slowdown Bites

Australia to Raise Debt Ceiling

Move to Raise Debt Ceiling to $483 Billion as Mining Slowdown Bites

JAMES GLYNN and RACHEL PANNETT

Oct. 22, 2013 4:58 a.m. ET

SYDNEY—Australia’s new conservative government said it would seek to raise the ceiling on government borrowing to fund its policies and day-to-day operations, highlighting the dire state of the nation’s finances as a long mining boom cools. In doing so, the center-right Liberal-National coalition risks a rift with voters who identified rising government debt as a key concern in the lead-up to the Sept. 7 election.An unfulfilled commitment by the previous Labor administration to return the budget to surplus by mid-2013 badly dented the left’s credibility in running the economy and helped push them from office after six years.

Treasurer Joe Hockey said Tuesday the government would seek parliamentary approval to raise the cap on government debt to 500 billion Australian dollars (US$483 billion) from A$300 billion currently. The rise was needed to provide certainty for financial markets, he said, with the current cap likely to be reached before the end of the year.

“We need not look any further than the recent events in the United States to realize how imperative stability and certainty is for confidence,” Mr. Hockey said.

The U.S. Congress passed legislation last week that ended a 16-day shutdown and reopened government through Jan. 15. But the fight over fiscal spending—the second in as many years—has knocked Washington’s global standing and raised concerns about the dollar and Treasurys, the world’s safe-haven investments.

Australia’s net government debt has risen to about 10% of national output, from close to zero, since the onset of the financial crisis in 2008 after the previous Labor government rolled out a hefty stimulus package to offset the global economic downturn.

That is relatively low by global standards—it compares with an average net debt of about 90% across the world’s major developed economies. But it still roils some Australians, who feel taxpayer dollars were misspent during the crisis on stimulus projects like new school halls and libraries.

After taking office last month, Mr. Hockey said he had been advised by the country’s Treasury department that government debt would soon exceed A$400 billion, well above estimates issued just months earlier.

The outgoing Labor government in August warned economic growth this year would be slower, unemployment higher, and tax revenues sharply lower than previously expected after falling commodity prices prompted mining companies to shed staff and shutter mines in recent times.

The economy expanded by 2.6% on-year in the second quarter, much slower than quarterly growth rates as high as 4% last year. In June, Goldman Sachs forecast a one-in-five chance that Australia’s economy could tip into recession within a year. The mining slowdown has also hurt government tax revenues, with corporate profits tumbling steeply.

The conservative coalition, led by Prime Minister Tony Abbott, was elected to office last month on a pledge to cut taxes and improve the nation’s creaky infrastructure without going further into debt. During the campaign, Mr. Abbott pledged A$40 billion in budget cuts over the next four years to help pay for spending promises, including reductions in foreign aid and thousands of government layoffs.

The Liberal-Nationals had previously promised to restore the budget to surplus within a year of winning office, but have pared that back to achieving modest surpluses within a decade.

Australia to raise debt limit to A$500 billion, target wasteful spending

10:58am IST

SYDNEY (Reuters) – Australia’s new conservative government plans to raise its debt ceiling by two-thirds to A$500 billion ($483 billion), Treasurer Joe Hockey said on Tuesday, heading off concerns the country could reach its limit before Christmas.

“The debt limit needs to be set so as to provide sufficient headroom to ensure there is stability and certainty for the financial markets about the government’s capacity to finance its operations for the foreseeable future,” Hockey said.

“We need not look any further than the recent events in the United States to realize how imperative for stability and certainty is for confidence.”

Brinkmanship over raising the U.S. debt ceiling earlier this month partially shut down the federal government and roiled financial markets before a 11th hour deal was hammered out.

In a budget update before September’s election, Australia’s Treasury forecast the face value of outstanding Australian government securities would reach its A$300 billion limit by December 2013 before falling back to around A$290 billion by June 30, 2014.

The hike in the Australian debt ceiling had little impact in Australian financial markets, which were expecting the increase.

Demand for Australia’s AAA-rated government bonds is strong and with net government debt forecast to peak at 13 percent of gross domestic product (GDP), investors are mostly sanguine about an increase in borrowings.

Parliament is expected to hold its first sittings under conservative Prime Minister Tony Abbott in late October, giving the new government up to six weeks to pass the new debt limit.

Hockey also announced plans for a Commission of Audit on the scope, efficiency and functions of the government.

The Commission would be tasked with identifying savings to deliver a surplus of 1 percent of GDP by 2023-24 by eliminating wasteful spending, identifying unnecessary duplication and improving the efficiency of government services.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: