In a speech to the Australian Business Economists in Sydney last week, Treasurer Scott Morrison revealed changes to the way the government will report its debt in the budget.
“The way we have done budgets in the past at the Commonwealth level does not currently make the distinction between good and bad debt. All debt is lumped in together, whether it is for capital or recurrent purposes,” Mr Morrison said.
“In this budget, we will be making changes to the way we report government debt and link it to government spending, by increasing the visibility on good and bad debt.”
Pitcher Partners client director Graeme Cuxson has voiced his support for the changes.
“This will not only provide a more accurate picture of the federal budget, it will create the headroom for ‘good debt’ to fund infrastructure projects that pay long-term dividends,” Mr Cuxson said.
“However, it’s vital that this is only available for ‘good’ capital investments: infrastructure projects that have been independently approved with a transparent cost-benefit analysis.”
However, Mr Cuxson emphasised that for it to work an independent arbiter would need to give a seal of approval.
“For governments keen on getting re-elected, at the moment there is little short-term fiscal incentive to choose ‘good’ projects – the positive growth and revenue impacts of investing in better projects will take years to materialise,” he said.
“But treating quality infrastructure projects as capital investment instead of recurrent spending will create the headroom for ‘good debt’ to fund infrastructure projects – stimulating economic demand and boost supply side capacity. And, by creating a strong incentive for more transparent cost-benefit analysis, it will help ensure our politicians select better projects.”
Overall, Mr Cuxson believes that the changes will be positive.
“That will [not only] benefit the budget, but also the Australian economy as a whole. And that’s also good news for governments keen on looking economically responsible to voters.”
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