I spoke with Pat Hession on ABC North Queensland radio yesterday afternoon on the removal of the Commonwealth Government’s debt ceiling, effectively its “credit card limit” as Pat described it. I made the following points:
- I’m disappointed the debt ceiling has been removed because it forced the Government to focus some attention on the medium and long-term consequences of its budgetary decisions.
- The new requirement for reporting to Parliament every time debt increases by another $50 billion (see Upper House votes to scrap debt ceiling) will worry the Government a lot less than introducing a bill seeking an increase in the debt ceiling would have.
- The risk is that we’ll end up tolerating perpetual deficits and an ever growing debt. This risk is even greater given the spending pressures arising from the ageing population and escalating health care costs.
- The Government has done the right thing in setting up the Commission of Audit to review the full range of Commonwealth expenditures and it will need to respond quickly to any recommendations.
- The Government will need to seriously cut into industry assistance (first, it should resist calls to assist Holden and Qantas) and middle class welfare.
- It should also consider broadening the GST base. On this and other possible measures, see Grattan’s excellent report Balancing Budgets.
- It will be difficult to turn the budget around in the short-term (1-2 years) because the expected deficits of several tens of billions of dollars are too large and cutting expenditure enough to get back to surplus would have adverse macroeconomic impacts. The budget repair task is a medium-term one and will take around 3-5 years at least.
My previous posts on the debt ceiling, the GST and industry assistance include: