There was a bit of confusion about the path of debt subject to the legislative ceiling of AUD300bn following the publication of the 2013-14 budget.
This has now been settled, with the Australian Treasury supplying the facts to Senate Estimates: on budget numbers, debt subject to the AUD300bn limit is expected to first exceed the legislative cap in the 2014-15 financial year, and will hit ~340bn in 2015-16.
In the above chart I’ve used financial years on the x-axis, however the tabled documents show the dates of the peaks (May’13 in 2012-13, Jun’14 in 2013-14, Apr-15 in 2014-15, and Dec-15 in 2015-16).
The documents also show year ended CGS subject to the limit — which extends for an additional year. Apparently the daily cash sheet has not been made for 2016-17, so they cannot figure the peak as they do not know the likely timing of their borrowing.
In any case, the bottom line is the debt subject to the limit rises by a further AUD10bn to AUD330bn in FY16-17.
That may seem confusing as there’s a surplus booked for 2015-16 and 2016-17, however it’s due to the fact that borrowing to fund the NBN and Clean Energy Finance Corporation has been moved ‘below the line’ (it is oddly treated as a ‘financial investment’ that is valued at whatever is paid for it — which holds down ‘net debt’ but is a good way to guarantee waste).
This is mostly a political issue. The concept of debt subject to the limit is mostly beside the point. The correct measure of debt is market value, as that’s the ‘replacement cost’ of borrowing. This measure was available in the budget, and is shown below.
To understand why the debt ceiling measure (face of nominals and base-face of linkers) is flawed, you need to understand a bit of bond mathematics.
Say a government borrows $100 in perpetuity at 10% interest rate ($10/yr cash cost). Now suppose that the market interest rate falls, such that on the same terms (except the rate) finance is available at a 5% rate. Now the Government could borrow $200 for a $10/yr cash flow cost. Because the market sets the interest rate, if a Government continues to borrow on the old high interest rate terms, they will take in more cash up front (but pay more interest later on).
It was basically this that confused the translation from the market value numbers (which we all knew from the 2013-14 budget) to the debt ceiling numbers. There was room for disagreement about how many high coupon bonds and linkers would be issued (as it’s only face that counts).
I have believed the sub $300bn estimates. It always seemed unlikely that the AOFM would issue enough high coupon bonds and linkers to stay under the limit … and anyhow, why would they? It’s better for taxpayers to issue low coupon debt and hand the interest rate risk to the private sector.
Which raises the question: if you budget to exceed the bedt limit, shouldn’t you make plans to raise it?
I guess maybe not if it’s certain that you’re not going to be in power to implement any of the other parts of your budget …