Treasury secretary Martin Parkinson today mounted a strong case for the government’s proposed $500 million debt ceiling in a Senate committee hearing, where he got a hard time from his former boss Penny Wong.
But in vain: the Greens, who hold the key Senate votes on the legislation, immediately interpreted his evidence to insist that $400 billion would be perfectly adequate for the time being.
Parkinson argued that the $500 billion was “prudent if the Parliament places a premium on ensuring financial market confidence”.
With the legislation for increasing the ceiling at an impasse, Parkinson told a Senate estimates committee that at the time of the fiscal update during the election campaign (the PEFO), Treasury estimated debt would peak at $370 billion. When a safety “buffer” was included, a ceiling of $430 billion was needed.
But it was now “highly likely” that the amount required would “significantly exceed” that sum later in the forward estimates period.
Future nominal GDP growth was likely to be weaker than at the fiscal update, meaning larger deficits and “significantly higher peak debt”. A more precise forecast would be made when the September quarter national accounts were available.
Parkinson warned that “were we to settle on a debt limit that was less than the anticipated prudent amount, it would be entirely reasonable for financial market participants here and overseas to wonder what might happen when what was clearly inevitable on current pathways came to occur.
"It is up to the Parliament to decide whether this sort of risk is in the national interest,” he said.
A good deal was hanging on Parkinson’s evidence. Labor and the Greens have amended the legislation to raise the present $300 billion debt ceiling – which will be hit next month - to only $400 billion. The Greens had indicated, however, that they could be influenced by what Parkinson said.
The play at today’s hearing had plenty of ironies. Wong and Parkinson used to be bound at the hip when she was climate change minister and he the secretary of her (now abolished) department. Now here she was being snippy at him. Meanwhile he was buttressing the case of a government that is pushing him out of his Treasury job.
Wong, finance minister when Labor lost power, was clearly frustrated at having to ask for information rather being the one to give or withhold it. She was particularly irritated when the public servants indicated they’d have to take her request for an updated table about debt back to Treasurer Joe Hockey.
Wong argued the merits of approving a $400 billion ceiling with a clear signal that the government could get a later increase if needed.
Parkinson pointed out that if the amount sought was cut back this would be the first time a government had failed to get approval for what it had asked.
The ceiling was brought in by Labor in 2008 (set at $75 billion) and has been raised three times since.
Under questioning, Treasury said that in 2015-16 the debt level (excluding the buffer) would be close to $400 billion. It would not reach that level this financial year; the officials were not able to provide a figure for 2014-15.
Parkinson ran into heavy weather when he said that we’d seen in the US the politics getting in the way of good government.
Greens leader Christine Milne said any comparison with the US was “ridiculous”. The political systems were quite different, which should be obvious to foreign markets. Parkinson agreed with the theory but pointed out that financial markets often took out wrong impressions.
New senator Sam Dastyari, former secretary of the NSW ALP, zeroed in on the government’s moving Parkinson on from his position. Dastyari wanted to know who he had spoken to before Tony Abbott’s statement on September 18 that Parkinson “has advised the Treasurer that he will be standing down next year. He has agreed to stay on to the middle of 2014. The government will be discussing a further appointment with him next year.” Parkinson said the only minister to whom he’d spoken was Hockey.
Trying to fend off the probing, he said that by next year he’d have been seven years as a secretary and would be 56. There were a lot of things in life one could do, notwithstanding that this was the best job in the public service and possibly in Australia.
Parkinson and Hockey get on well, and is it known that Hockey would have been happy for Parkinson, whose contract doesn’t expire until 2015, to stay on. It is being speculated that he now may remain until after the G20 at the end of next year.
This has been the most difficult year of Parkinson’s bureaucratic life. In the election campaign, he and Finance Department chief David Tune were caught in the controversy over opposition costings – they distanced themselves from the government attack on the Coalition.
Today Parkinson found himself again in the political crossfire. Milne later said he had made it clear there was no urgency for the $500 billion ceiling.
It’s the fate of the public servant – shields for a government, sometimes targets for those hunting the government.
Meanwhile the impasse over the debt ceiling legislation remains. Unless something unexpected happens, it seems the government will have to blink and accept the rise to just $400 billion.
Dealing with the problem by more roundabout routes would be complicated, and do little to inspire confidence in the overseas markets.
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