Treasurer Joe Hockey has responded to Australia’s ballooning credit card bill by almost doubling the borrowing limit to half a trillion dollars.
In an extraordinary move at odds with repeated Coalition warnings of a debt crisis spiralling out of control under the previous Labor government, Mr Hockey has announced the debt ceiling of $300 billion would be increased in a single leap, to $500 billion.
Cabinet approved the new limit on Tuesday and it will be legislated when Parliament returns next month.
Cabinet also approved the terms of reference and personnel for its long-promised commission of audit of government spending, with Mr Hockey arguing it would do the work of winding back the debt.
In a decision certain to raise concerns over its level of influence over government policy, the audit will be headed by Tony Shepherd, the president of the most influential lobby group for the big end of town, the Business Council of Australia.
Also on the board will be former Howard government minister Amanda Vanstone, former top public servant Peter Boxall, former Treasury secretary Tony Cole and former West Australian bureaucrat Robert Fisher.
The composition of the audit and tight timelines of less than six months have fuelled concerns of a sharp contraction of some programs. Mr Shepherd’s organisation has previously advocated radical business-friendly policies such as increases to the GST.
Economists say the debt limit is not, of itself expected to affect Australia’s AAA credit rating but simply reflects the reality that during a global downturn government spending has necessarily exceeded revenues.
However, the scope of the new borrowing limit has prompted speculation that the government may be planning extra borrowings to fund large ”off-budget” infrastructure projects, mirroring the way the national broadband network has been financed.
Labor finance spokesman Tony Burke slammed the government for proposing to increase the limit before providing the Mid-Year Economic and Fiscal Outlook report. ”The party that said they were all about turning around debt has now asked for permission for it to go to half a trillion dollars,” he said.
Mr Hockey blamed the radical increase on ”the legacy of a bad Labor government”. He said it had been made necessary because the present debt limit would have been reached by December 12 on the way to an overall debt of about $400 billion over the four-year budget period.
By its own admission, the government wants to jack up the limit once only, thereby removing the need to bring another debt ceiling rise to the Parliament closer to the next election.
Insiders said the prospect of trying to convince ”economically illiterate” independent senators of the need for the increase might have been a consideration.
In an unusually brief news conference, Mr Hockey offered no detailed explanation of the debt increase. ”We are increasing it to that level because I’ve been advised that on 12 December the current debt limit of $300 billion will be hit,” he said.
”We need to move quickly to deal with this, particularly in the wake of what’s been revealed in the United States in recent times.
”We need to put it beyond any doubt and we do not want to have to revisit this issue again. We’ve been advised it will now exceed $400 billion on current trends.”
The last debt ceiling increase was just a quarter of the new increase, at $50 billion.
Mr Hockey said it was important to have what he called ”a buffer of $40 [billion] to $60 billion to provide stability to the issuer, the AOFM [Australian Office of Financial Management]”.
”We have decided to go to $500 billion. This is the legacy of a bad Labor government and this is part of the job that we have to fix.”
Market Economics managing director Stephen Koukoulas said the decision was valid because contrary to the bellicose rhetoric of the Coalition before the election, Australia ”did not have a debt crisis then, and does not have one now”.
Mr Hockey brushed off concerns that the government’s promised commission of audit would be overly influenced by the BCA.
Finance Minister Mathias Cormann said the audit would report quickly, with phase 1 (examining efficiency and effectiveness of spending) delivered to the government by January and phase 2 (looking at public sector performance) reporting by March.
Mr Burke said the announcements were a breach of promise. ”What Joe Hockey is now doing on both the commission of cuts and on the issue of the debt ceiling is a million miles away from the expectations he gave the Australian people before the election.”