World Economy

Australia to Reduce Debt Pile

Australia to Reduce Debt PileAustralia to Reduce Debt Pile

Australia’s debt pile will stop growing within the next five or six years and then begin to shrink as the government works to balance the budget, according to Treasurer Scott Morrison.

The federal government, which is due to outline its annual spending blueprint on Tuesday, expects the fiscal deficit to narrow over its four-year forecast horizon, Morrison said in a Channel Nine television interview on Sunday, Bloomberg reported.

“To start reducing the debt you’ve got to get the deficit down. To get the deficit down you’ve got to get your spending down,” Morrison said in Canberra. “The deficit will decrease over the budget and forward estimates and we will see both gross and net debt peak over about the next five or six years, and then it will start to fall.”

The Australian budget was last in surplus in 2007-08 and attempts to rein in the deficit have been stymied by a slump in revenue as commodity prices fell. Morrison’s challenge is to maintain Australia’s public finances on a sound footing without increasing risks to the economy as it reduces its reliance on mining. He must also contend with the prospect of an upcoming election, which Prime Minister Malcolm Turnbull is expected to call for July 2.

  $27b Cash Deficit  

Total outstanding federal debt is now more than seven times larger than it was before the 2008 global crisis and net debt is predicted to increase to 18.5% of gross domestic product in 2016-17, according to the median forecast in a Bloomberg survey of economists. The underlying cash deficit is expected to reach A$35 billion ($27 billion) next fiscal year, A$1.3 billion more than the government had forecast in its December fiscal update, according to the survey.

While the government confirmed on Sunday it would provide an additional A$1.2 billion of funding for schools over the forward estimates period, Morrison said that it was not a time to be throwing money around. He declined to confirm media reports of a possible reduction in income tax through changes to tax brackets. Any additional spending measures in the budget will be offset by reductions elsewhere and the tax burden on the economy won’t be increased, according to the treasurer.

“You don’t get a sustainable path back to budget balance by increasing the tax burden on the Australian economy,” Morrison said. “That just retards growth over the longer term and it punishes the economy at a time when we need it to perform at its best.”