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Budget to spell out ‘good and bad’ debt

Treasurer Scott Morrison during Question Time in the House of Representatives at Parliament House in Canberra, Feb. 2017.

Treasurer Scott Morrison during Question Time in the House of Representatives at Parliament House in Canberra, Feb. 2017.

CANBERRA AM AAP

Treasurer Scott Morrison will make changes to the way government debt is reported in the May budget to better explain what is ‘good and bad’ debt.

He wants to make it clearer what government expenditure is contributing to investment and increasing productivity, and debt that is incurred in dealing with everyday spending.

‘We all need to understand what is driving the growth in our public debt and we need to budget in a way that creates accountability for increasing public debt and the interest rate payments that go with it,’ Mr Morrison will tell an Australian Business Economists lunch on Thursday.

Prime Minister Malcolm Turnbull likened it to a household that has taken on a loan to buy a home, undertaken renovations or bought into another investment, so the debt is matched by an asset.

But if you are running up debt to pay for a holiday, ‘you’re living beyond your means’.

‘When governments borrow to build assets … you know, generically, good debt. But if you’re borrowing money to fund an excess of spending over revenue, then that is debt that ultimately is living beyond your means,’ Mr Turnbull told ABC radio.

‘Now, that’s what we can’t afford to continue to do.’

In his final set-piece speech before the May 9 budget, Mr Morrison will say while the overall economic picture is improving, that does not mean the benefits are being felt by all.

Modest wages growth since the end of the mining investment boom remains a challenge, Mr Morrison will say.

He estimates the impact of Cyclone Debbie will detract 0.25 percentage points from growth in the June quarter because of the widespread damage and flooding in Queensland and northern NSW, which caused supply disruptions for coal and certain crops.

There are also risks in east coast housing markets with Australian households now the fourth most indebted in the OECD as a share of income, coming behind Denmark, the Netherlands and Norway.

But the treasurer believes there are already signs the heat in housing is coming off because of tougher foreign investment rules implemented by the government and capital outflow restrictions in China.

‘While care must be taken to temper excessive investor activity that can inflate the market and increase the risks, equally a policy overreaction could have very real negative impact,’ he will say.

The budget will address the many housing challenges that Australians face and reduce the rising costs of living wherever it can.


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