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Federal Treasurer: Budget to distinguish good and bad debt

Michelle Grattan writes in The Conversation (27.4.17) that Malcolm Turnbull and Scott Morrison are preparing the ground for a boost in infrastructure spending in the May budget, with the Treasurer to unveil budget changes that will enable him to borrow for worthwhile projects (‘good’ debt) without endangering a return to surplus.

‘The government will highlight in its May 9 budget a distinction between “good” debt, incurred to boost growth, and “bad” debt, used to finance welfare and other recurrent spending.

‘Treasurer Scott Morrison will say in a speech to business economists on Thursday that while previously all debt, whether for capital or recurrent purposes, has been lumped together, in this budget it will be linked to spending.

‘This “will make clearer the share of expenditure that is contributing to investment that increases productive capacity and produces future income and the debt that is being incurred to deal with everyday expenditure”.

‘… On the latest figures net federal government debt in this financial year is estimated at A$317 billion. Net debt is projected to peak at 19% of GDP in 2018-19 and then decline over the medium term.

‘The government remains committed to budget repair and its first priority for that remains controlling growth in spending, Morrison says.’

Scott Morrison has killed off the debt bogeyman – let’s hope it doesn’t rise again

TJ Ryan Foundation Board member, John Quiggin, writes in The Guardian (1.5.17) that the Coalition has finally run up against the reality that debt is a central and essential tool of economic management.

‘Scott Morrison’s recognition that debt can be either good or bad has so many positive aspects that it would be churlish to dwell too much on the inevitable quibbles. So let’s start with the positive.

‘First, the treasurer’s statement marks an end to the idea, pushed relentlessly for the past 20 years or more, that debt of any kind is an indication of fiscal mismanagement. This message, plastered over literal and metaphorical “debt trucks” by every conservative leader since John Howard has finally run up against the reality that debt is a central and essential tool of economic management for households, corporations and governments alike. No doubt there will be attempts to revive debt paranoia in the future but they will be much harder to sell.

‘Second, Morrison has undermined the core of the case for privatisation and private infrastructure investment, which has always rested on the supposed need to finance new public investments without reliance on public debt. At least for the foreseeable future, governments can borrow at interest rates far below the rates of return.’

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