Australia seeks to raise debt ceiling

PanARMENIAN.Net - 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, the Wall Street Journal reports.

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, according to the Journal.

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.