The Australian economy is the 12th largest in the world and was the only developed economy not to go into recession during the Global Financial Crisis. It was the first major economy to raise interest rates after the worst of the storm was over and has used the tool to encourage growth and rein-in inflation by judicious rate hikes or cuts.
Estimates suggest that Australia will pass through its debt ceiling of A$ 300 billion in December (about £180 billion or 27% of GDP) – exactly the same challenge that faced American lawmakers earlier this month and brought the world to the edge of a financial abyss.
The Australians are expected to give themselves all the wiggle room they might need by increasing their borrowing authority to A$ 500 billion. "The debt limit needs to be set so as to provide sufficient headroom to ensure there is stability and certainty for the financial markets about the government's capacity to finance its operations for the foreseeable future. We need not look any further than the recent events in the United States to realise how imperative for stability and certainty is for confidence”, Australian Treasurer Joe Hockey pointed out.
Australia enjoys a AAA credit rating, meaning that its bonds are regarded as the safest of investments and consequently, its borrowing costs are low. Australia is in a healthy comparative situation to other major economies with respect to its public debt. Aussie public debt is expected to hit 30% of GDP by the end of the year. This compares very favourably to the situation in the UK and USA where debt stands at 92 and 106% of GDP respectively.
Mr Hockey stressed that the Australian government of Ton Abbott is keen to keep a tight rein on debt which, of course, was the trigger for the European sovereign debt crisis. "We are not going to allow ourselves to get into the position that the United States is in where there's tremendous uncertainty about the capacity of a country to live within its means," he said in an interview with the Australian Broadcasting Corporation. The government will have six weeks to get the legislation through when parliament resumes later this month. It is unlikely to face opposition since the move is designed to increase the borrowing capacity, rather than being an increase needed to meet financial obligations as was the US situation.