Wednesday, October 23, 2013

Well done Joe Hockey. The $500 billion debt limit

"The debt ceiling is like a personal credit card limit, only sillier"

It’s called “clearing the decks” and there isn’t a chief executive who hasn’t at least thought about doing it.

If you are appointed when things look dodgy, you act as if they are even more dodgy: you write off losses (in this case lift the debt ceiling) by more than you need to knowing you can blame it on your predecessor. If things turn out to be not that bad, you end up looking good. If things do turn that out bad, you won’t look that bad.

The government’s debt ceiling is like a personal credit card limit, only sillier. Unlike a credit card limit it need not take account of ability to repay. It is a political limit imposed at by the parliament rather than an outside constraint imposed by the lender. As such it is is vulnerable to politics as the United States discovered to its cost this month in a standoff which threatened to prevent the government borrowing the money it that it needed to function. Labor’s Wayne Swan had to lift the ceiling four times - to $75 billion, then to $200 billion, then $250 billion and finally to $300 billion. On some of those occasions his opposite number Joe Hockey made things difficult for him. “Enough is enough,” he said in May.

Hockey is treasurer himself now, and he doesn’t want to go through the torture of having to going back to parliament each time he needs a bigger limit...

So he has asked for a very big one - $500 billion, the need for which he can blame on his predecessor. Hockey made the point that he is not proposing to lift the debt, merely the debt limit to give himself headroom free of political sniping should he need it.

His Commission of Audit is looking like a partly-owned subsidiary of the Business Council of Australia. It’ll be chaired by the Council’s president Tony Shepherd and its secretariat will be run by the Council’s director of policy Peter Crone. It’s an enviable double for the big business lobby group. It’ll be examining what fields the Commonwealth should abandon, what it should contract out and what it should privatise. They are topics the Council already has views.

In The Sydney Morning Herald and The Age

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