INTHEBLACK April/May 2024 - Magazine - Page 43
RIDING THE DEBT WAVE
Australia currently has almost A$900 billion
of outstanding government securities on issue.
The 2023–24 Federal Budget forecasts
further increases in Australia’s gross debt to
A$1.067 trillion (36.5 per cent of GDP) by
the end of the 2026–27 financial year.
As part of this, the AOFM is planning to
issue A$75 billion in new Treasury bonds
for the financial year ending 30 June 2024,
with the money raised likely to be used to
continue funding government infrastructure
as well as incentives for households.
The Australian Government has also
committed to introducing a “green bond”
program to enable investors to back public
projects that will drive Australia’s net zero
transformation and support environmental
objectives.
The first issue of green bonds is
scheduled for mid-2024, following the
release of a green bond framework being
developed by the Treasury and the AOFM
in consultation with investors.
“We’ve seen a whole lot of issuances
globally by major sovereigns and indeed
by Australian states,” says Simon O’Connor,
chief executive officer of the Responsible
Investment Association Australasia.
“Australia has been quite slow at a federal
or sovereign level to start a program
of issuances.
“We’re certainly pleased to see this
moving forward, because we see it as
a really effective means of raising additional
capital to accelerate investments in the low
carbon transition. I think also we see that
from an investor side, where we sit with our
membership, there’s a huge appetite to find
issuances or securities to invest in that are
directly targeting low carbon assets.”
O’Connor says the high investment
attraction for government-backed green
bond programs compares with the lower
demand, at this stage, for so-called impact
investments, such as government-backed
affordable housing projects.
“When we talk specifically in the
Australian context, they are relatively small
amounts of capital that are flowing to
impact investments. It is something in the
order of A$30 billion
in the last year of assets
under management compared
to a responsible investment
market of A$1.4 trillion.”
HOW MUCH GOVERNMENT DEBT
IS TOO MUCH?
How much governments borrow comes
down to individual fiscal policies, which
generally determine the proportion
of recurrent spending that should be
funded by borrowings, complemented
by other major sources of government
cash flow, such as from tax receipts.
Economist Saul Eslake says that
Australia’s current government debt, as
a percentage of GDP at above 30 per cent,
could be considered high. However, he points
out that government debt in the UK
and the US is over 100 per cent of GDP,
and in Japan, it is over 200 per cent.
“So, yes, we have a problem, and interest
on public debt – along with spending
on health and aged care, defence,
and the NDIS – is one of the fastest
growing areas of government spending,”
Eslake says. “However, it is a more
manageable problem than the one that
is confronting most of the countries we
compare ourselves with.
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