Figures released Friday night on Australia’s finances are grim reading for anyone seeking respite for the embattled Abbott government.
The Coalition that promised in 2012 to reduce Australia’s debt by $30 billion delivered in 2014 an increase of more than $60 billion. Clearly Prime Minister Tony Abbott and Treasurer Joe Hockey have failed spectacularly to reduce Labor’s “skyrocketing debt”.
Outcomes for the full calendar year 2014 are now online at the Finance Department’s website. Commonwealth monthly financial statements show year-to-date net debt and the projection for the full financial year. Hence it is simple to calculate the debt incurred — or repaid — each month.
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Australia’s net government debt — that is, money borrowed minus money loaned out — was $239.16 billion at the end of December. This was a hefty increase over the level a month earlier of $224.35 billion. In just one month, the debt rose almost $15 billion, or 6.6%. Compounded, that rate would double the debt in less than a year. Fortunately, the December rise was abnormal.
So what was the full-year increase through 2014?
That December 2013 actual figure is pretty close to the level that can reasonably be attributed to Labor. As Crikey explained last October, the best measure of Labor’s debt is the projection for the end of the full year 2013-14 at the September 2013 election. At that time, projected debt at year end was $178.1 billion, although actual debt then was marginally lower. That year-end projection of $178.1 billion was affirmed in Finance’s statements for October and November 2013. It did not shift until well after Joe Hockey had taken control of the levers.
So is it possible that debt has peaked and will soon tumble, as promised? No — Friday’s figures also show a higher estimate for total debt at year end, still six months away. This is now projected to be $244.84 billion.
If $178.1 billion is the debt level attributable to Labor, then it can be argued that by the end of this financial year the Coalition will have blown out Labor’s debt by $66.7 billion ($244.8 billion to $178.1 billion) or 37.5%. In one budget.
This gets extremely uncomfortable for Abbott, Hockey and their backers when pre-election promises are recalled. Abbott told the Victorian Employers Chamber of Commerce and Industry just a year before the election that the Coalition had “identified $50 billion of savings, for an $11 billion improvement in the budget bottom line and a reduction of $30 billion in net debt”.
Had that claim been realistic, the projection for this year would be $148.1 billion ($178.1 billion minus $30 billion), instead of $244.84 billion (assuming the debt reduction could be effected in the first full year, which might not have been the intention).
Of course, this debt increase is not of any immediate economic concern. A case can be made that Australia’s borrowings in recent years have been much too low given negative real interest rates and the need for investments in productive infrastructure.
Australia’s net debt is only about 15% of its gross domestic product, even with the recent surge under the Coalition. That is well below levels in Switzerland, Canada, Germany and the UK — all of which have triple-A credit ratings and no problem.
Where burgeoning borrowings will impact taxpayers is in the interest payable. Before the election, Abbott told the Economic and Social Outlook Conference in Melbourne that the Gillard government was “spending about $20 million a day just to pay the interest on what it has already borrowed”.
The bill now? Friday’s report shows interest paid in December was $1.217 billion for the month, which is $39.3 million per day.
How likely, then, are continuing debt blow-outs and further interest increases?
Friday’s Finance report reveals that the deficit in the underlying cash balance in December was $98 million worse than estimated in the Mid-Year Economic and Fiscal Outlook, released only last month. It attributes this to “higher than expected cash payments”.
The December fiscal balance was also worse than predicted just a month ago by $765 million. This, the report said, “is largely due to lower than expected revenue”.
If declining revenues and increasing outlays continue, greater debt must be the result. With the government now under unprecedented pressure, can Hockey effect the drastic measures needed to turn this around?
If he can, he deserves a knighthood.