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Category: Government and Politics / Federal Government / Scott Morrison / Business, Economics and Finance

Morrison draws good and bad debt distinction

Wednesday, 14 Dec 2016 10:43:34 | Henry Belot

Scott Morrison said it was "patently obvious" there were good and bad uses of public debt. (ABC News: Naomi Woodley)

Treasurer Scott Morrison has sought to distinguish between good and bad public debt, one week before the mid-year economic update and after concerns from global rating agencies.

Key points:

  • Treasurer willing to take on additional debt to invest in infrastructure once recurrent spending under control
  • Scott Morrison says Australia has comparatively low levels of public debt
  • Mr Morrison says the Government could no longer use bad debt to continue supporting the welfare system

Economic analysts have warned Australia faces a one-in-two chance of having its AAA credit rating downgraded next week, with the Government's budget update tipped to see an increase in borrowing costs.

In a speech to a banking and finance conference in Sydney, the Treasurer indicated he was willing to take on additional debt to invest in infrastructure once recurrent spending was under control.

Mr Morrison said it was "patently obvious" there were good and bad uses of public debt.

"Bad debt is debt used for current spending purposes, no different than in a household," he said.

"Borrowing for this type of recurrent expenditure at the Commonwealth level is not sustainable and it is vital that we reduce our borrowing for day-to-day government spending."

Mr Morrison said Australia had comparatively low levels of public debt compared to other AAA rated economies, although they were high by historical standards.

"We already have borrowing to support infrastructure programs now," he said.

"You have got to get your bad debt under control and the way you get your bad debt under control is getting your spending under control."

Earlier today, Revenue Minister Kelly O'Dwyer announced a crackdown on the cash economy in a bid to reclaim billions of dollars in lost revenue and reduce welfare fraud.

Mr Morrison said the Government could no longer use bad debt to continue supporting the welfare system.

"All debt has to be repaid and there has to be a return on any investment," he said.

"There still needs to be a vigorous process to identify the best projects that will be most beneficial to productivity and economic growth."

Former prime minister Tony Abbott praised the Government's crackdown on the Disability Support Pension, saying it was far too easy for people with "a bad back and a bit of depression" to access benefits.

AAA credit rating at risk

Earlier this week, Angus Coote — the co-founder of Jamieson Coote Bonds — said there was "a reasonably high" of Australia's credit rating being downgraded next week.

Should the Federal Government be downgraded to a AA+ rating, it is likely that Australian banks will also be downgraded and that may result in increased funding costs.

Global credit ratings agency Standard & Poor's has threatened to downgrade Australia's investment ranking if the budget does not return to surplus by 2020-2021.

In November, the Parliamentary Budget Office predicted a $137.1 billion deficit by 2018-19, rather than a $122.3 billion deficit as initially predicted.

The International Monetary Fund has called on the Government to borrow more money to boost its infrastructure spending to protect against a global economic downturn.

AustraliaPlus


 

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