The Coalition's campaign against government debt has been unfortunate on many levels. Now its figures are wrong:
Australia's government debt is set to top out at just $108 billion rather than $200 billion and more used the Coalition to justify its claim that the Rudd government plans to "lump every Australian with $9500 in debt".
The updated estimate from Westpac - a near halving - reflects a much stronger than expected economy and comes as an official Reserve Bank survey finds that Australian banks ramped up their interest earnings 22 per cent during the global crisis and that Australian businesses succeeded in raising more money from the share market than at any time since the 1980s.
The Reserve Bank's Financial Stability Review finds conditions have "improved significantly" and that its time for banks to wean themselves off $142 billion in government borrowing guarantees.
Westpac finds that this year's underlying cash budget deficit is likely to be $49 billion rather than the $58 billion forecast at budget time and that next year's should be $35 billion, far less than the budget forecast of $57 billion...
As well the government is likely to have banked an extra $5 billion at the end of the last financial year as a result of higher than expected tax receipts and also lower than expected grant payments. Grant payments alone have been running $6.5 billion below forecasts, causing Westpac to caution that its estimates may prove pessimistic.
"The effect on government debt will be cumulative," said Westpac senior economist Andrew Hanlan. "We're forecasting a peak of $108 billion in 2012/13 rather than the $188 billion forecast in the budget. The $80 billion improvement is simply the sum of the improved budget positions over those years."
The Coalition used a bigger figure of $200 billion in its advertising in May and in July boosted it to $315 billion on its so-called debt truck, a figure Opposition Leader Malcolm Turnbull said was "over 13,000 of debt for every man, every woman and every child in Australia".
The government will officially update the budget forecasts in December. Mr Hanlan said Westpac's projections were prepared on the basis of "no policy changes" over the next three years, meaning that any new spending promised during the next election would add to the debt estimate.
The revised Westpac forecast takes some of the heat out of Monday's Senate hearing set up to quiz Reserve Bank Governor Glenn Stevens and Treasury Secretary Ken Henry on the "efficacy and anticipated costs and benefits" of their stimulus measures.
Other figures released yesterday point to an avalanche of new home sales in August ahead of the phasing out of the $21,000 First Home Owners Boost for new buyers buying newly built homes. National new home sales jumped 11 per cent in August as did NSW sales - the biggest jump in three years - with Victorian sales up a staggering 22 per cent, believed to be the biggest jump on record.
In an indication of the potency of the boost the Reserve Bank report found that first home buyers have been paying more for their homes than other buyers; "an unusual outcome by historical standards".
The Bank found that private banks managed to widen their interest margins during the financial crisis, driving up their net interest income 22 per cnet over the year. Businesses raised double the usual amount of equity in the first half of this year and households enjoyed a 4 per cent lift in disposable income despite working fewer hours, as a result of tax cuts and stimulus payments.
Published in today's Age
UPDATE: The Coalition has told me where its $200 billion, later replaced with $315 billion debt figure came from.
They were both mentioned by Swan in Hansard on 25 May, the first for net debt, the second for Gross debt. The Coalition used the $200 billion net figure in its advertising at first, and then switched to using the $315 billion gross figure. Mmmm...
Westpac Budget Update