Tuesday, March 12, 2013

Swanny's budget just got $1 billion worse

Shane Wright has the details:

Treasurer Wayne Swan’s troubles bringing the Budget back into the black are getting worse as he faces a blowout in interest costs on the Government’s mounting debt.

The interest bill on the nation’s $267 billion gross debt, to be revealed when the Budget is handed down on May 14, is expected to be at least $1 billion worse and could be pushed out even further.

The Government’s interest bill this year was forecast to reach $12 billion in the mid-year update.

It was predicated on near-record interest rates and a Budget surplus that would drag down the Government’s overall debt.

The mid-year update was done when the interest on long term Government debt was at 3.1 per cent.

Since then interest on Government debt has increased in line with the improving outlook for both the global and Australian economies.

It now stands around 3.6 per cent

Over the forward estimates that 0.4 percentage point difference on a larger than expected debt that will peak close to $270 billion will cost Mr Swan’s Budget bottom line...

Falling interest rates on Government debt have saved Mr Swan billions of dollars over recent Budgets.

In the 2011-12 Budget the Government forecast it would be paying $12.9 billion on its outstanding debt for the 2013-14 financial year.

That forecast was sliced to $11.7 billion in the most recent mid-year update. Billions more have been sliced from the forward estimates because of those lower interest rates.

The lift in global interest rates has been driven by the improvement in the economies of the United States and China. It was the faltering state of the global economy that originally brought down those rates.

The higher interest rate will not only hit the May Budget bottom line but ripple through future budgets.

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