Senate debates

Thursday, 14 November 2013

Bills

Commonwealth Inscribed Stock Amendment Bill 2013; Second Reading

11:40 am

Photo of Mitch FifieldMitch Fifield (Victoria, Liberal Party, Assistant Minister for Social Services) Share this | Hansard source

I move:

That this bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows—

This Bill seeks to amend the Commonwealth Inscribed Stock Act 1911 to increase the legislative debt limit from $300 billion to $500 billion.

The legislative limit has been lifted three times since it was introduced in 2008. It was effectively increased from $75 billion to $200 billion in 2009, increased to $250 billion in 2011 and then increased to $300 billion in 2012.

The face value of Commonwealth Government Securities on issue that are subject to the limit has increased from around $50 billion when the limit was introduced in 2008 to over $285 billion today. CGS on issue is projected to increase further.

We do not want a repeat of this situation. By setting a limit of $500 billion, we've signalled that it is not our intention to return to Parliament seeking further increases to the limit.

Both the former Government's Economic Statement in August and the 2013 Pre-Election Economic and Fiscal Outlook, reported that the face value of Commonwealth Government Securities on issue subject to the legislative limit were projected to reach $300 billion in December 2013.

These budget documents also showed that the face value of CGS on issue was projected to continue to increase over the forward estimates and reach around $370 billion by 2015-16.

In addition to $370 billion, the Australian Office of Financial Management (AOFM) has previously advised that it is prudent to maintain a buffer of $40 to $60 billion above peak debt projected in any year.

This advice from the AOFM isn't a new development. This advice was provided to and tabled by Treasurer Swan on 10 May last year. It was based on this advice, that the limit was last raised to $300 billion.

So even on Labor's own numbers and advice, a $400 billion limit would be inadequate.

The Opposition has never understood this and always treated the debt limit as a target.

But as the Treasurer has said clearly before, the budget has deteriorated since PEFO.

The Treasurer has been advised that on current trends peak debt will now exceed $400 billion.

The debt limit needs to be increased to $500 billion to provide sufficient headroom to ensure there is stability and certainty for the financial markets. There must be confidence that the Government has the capacity to finance its operations for the foreseeable future.

The debt limit is a ceiling, it is not a debt target.

An effective debt limit needs to allow for unanticipated events with an impact on the budget position and on the required amount of debt on issue to manage the business of government.

This allows the government to respond quickly to unexpected changes in economic activity.

It is absolutely crucial that we instil confidence in financial markets that the government can finance its operations, both now and into the future.

We need not look any further than the recent events in the United States to realise how essential stability and certainty is for confidence.

The increase in the legislative limit to $500 billion provides this safety buffer. It sends a clear signal to financial and capital markets.

I also stress the urgency of the situation.

The current limit of $300 billion is expected to be reached in December 2013.

In just a few short weeks, the Australian Office of Financial Management may not be in a position to raise additional financing through debt that is subject to the limit.

This is a totally unacceptable situation and one that can be easily averted.

This legislation must be passed urgently to ensure the government has access to financing to manage its ordinary operations.

Let me remind the Parliament, we are only here today debating this Bill because of Labor's excessive spending and mismanagement.

And this attitude continues today.

On the one hand, the Opposition is saying we only need a debt limit of $400 billion, a figure which would not provide sufficient headroom to finance the budget in coming years. Then on the other hand the Opposition is flagging that they will seek to prevent the Government from legislating for $13.4 billion in savings related to the mining tax.

We are a Government of fiscal responsibility. The key way to avoid having to continually raise the debt limit is through prudent management of the nation's finances.

We are committed to bringing the budget to a surplus of 1 per cent of GDP within a decade. This will help reduce debt to sustainable levels.

The Coalition Government has put in place a Commission of Audit to ensure that we have made the necessary reforms to effectively manage the budget and debt.

The debt limit needs to be increased today as a result of actions in the past. This Government is acting now, to ensure this situation does not occur again in the future.

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