Scott Morrison is selling the benefits of debt as a vital source of capital in an attempt to justify Australia’s borrowings, in the lead-up to decisions by rating agencies that may see it lose its coveted triple-A credit rating.
The Turnbull government is prepared to take on “good debt” to invest in infrastructure once “bad debt” for recurrent spending is under control, the treasurer will tell the Australasian Finance and Banking Conference on Wednesday.
The pro-debt rhetoric contrasts with claims by the Abbott government that Australia faces a “debt and deficit disaster”, when the absolute level of debt and not its uses were the focus of the government’s economic case.
But Labor has used the threat that ratings agencies may downgrade Australia’s triple-A rating after the mid-year economic update next week to call for the government to ditch its proposed $48bn company tax cut package.
Morrison will tell the conference that Australia needs foreign borrowing to pay for a current account deficit that averages 4% a year, and to satisfy its high demand for capital.
“Australia’s current account deficit is because there are more investment opportunities than can be covered by domestic capital,” Morrison will say. Foreign capital is a “must have, not a nice to have” because it underpins economic growth and employment.
The treasurer claims Australia has low levels of public debt but accepts they are high “by historical and by Coalition government standards”.
Morrison will say attracting foreign debt is “vital for this country” but accept there are concerns its current levels threaten the triple-A rating.
“Once borrowing for recurrent expenditure is under control, we will have more headroom to take on and deploy so-called good debt.
“This is debt used for investment purposes that increases productivity and produced future income.”
The Parliamentary Budget Office estimates that national debt is projected to rise to $428.5bn (22.6% of gross domestic product) in 2018-19. And Deloitte Access Economics has warned the federal budget deficit is projected to expand by another $24.3bn over the next four years.
Before Monday’s mid year economic update, Morrison has admitted that the federal budget may not return to balance by 2020-21 as planned.
Several ratings agencies have warned the government if budget savings are stymied Australia could lose its triple A credit rating.
But Morrison will tell the conference on Wednesday the government has already “bested expectations” on fiscal consolidation set by the agencies.
“We have already cut the rate of spending growth from 4.2%, as it was under the former Labor government, to around 1.5%.”
Morrison will trumpet $21bn of budget savings over four years that had already passed the parliament and call for the opposition to pass further savings.
“You could be forgiven for thinking Labor are already sabotaging the budget, to undermine Australia’s AAA credit rating for their own political gain.”
Morrison will also claim Australia needs to have a more competitive company tax rate, lobbying for the government’s plan to reduce the rate to 25% over 10 years.
Labor’s finance spokesman, Jim Chalmers, has warned the government can’t keep both its $48bn tax cut plan and the triple A credit rating.
“This government is failing the three tests it set for itself: the economy is shrinking, full time jobs are disappearing, and the deficits are growing,” he said.
Chalmers said the government should also pursue Labor’s alternative revenue measures, including changes to negative gearing and capital gains tax.
“If they choose not to go down this path they are choosing to jeopardise the AAA rating and risk higher mortgage repayments for middle Australia.”
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