Australia’s debt ceiling, we barely knew you | FT Alphaville

Australia’s debt ceiling, we barely knew you

From “noted” to gone in less than 2 months…

From Nomura’s Martin Whetton:

With just over a week before Australia was expected to hit its borrowing limit, the government reached a deal with the Green party in the Senate to abolish the Commonwealth debt ceiling, which is expected to pass Parliament sometime this week. While the details have yet to be finalised, it is understood that future budgets will extend the forward estimates from four to ten years, the government will be required to justify to parliament every increase in debt of more than AUD50bn and debt reporting will split out the gross and net debt at both a nominal level and the market value. The government will also be required to detail infrastructure borrowings and borrowings to fill revenue holes, described as “good” and “bad” debt.

This move precludes arguments for a debt ceiling increase to AUD400bn or AUD500bn. In terms of markets, the move alleviates any concerns over the government‟s ability to borrow. However, it does not change our view that issuance will continue to rise over the coming years, which could pressure bonds on an asset swap basis.

We’ll leave you with the, even-handed and sure to insipre no anger, words of Greens leader Christine Milne:

“This, I think, will return some maturity to the debate around debt and get rid of what has become a phony debate every time the government has wanted to raise the debt ceiling,” Ms Milne said on Wednesday.

“We have had the imported Tea Party-style debate here in Australia where the focus has been actually on the figure rather than on what the debt is being used to do.”

(In case you’re wondering, debt as a percentage of GDP was at 29.3 per cent at the end of 2012)