26 Nov 2013
Flash: Scenarios to Australian debt limit standoff - Westpac
FXstreet.com (Barcelona) - While it may be easy to forget, Sean Callow, FX Strategists at Westpac notes, that "Australia's major political parties are currently in a standoff as government debt heads for its A$300bn limit by 12 December."
Scenarios to resolve the standoff
Scenario 1: Coalition accepts $400bn, grumbles about Labor and Greens but looks forward to new Senate composition from 1 July 2014 when the balance of power will lie with small parties and independents who should be generally supportive of Coalition legislation.
Scenario 2: Senate passes $500bn bill with Green votes. Labor seems quite settled in its stance but the Greens might be willing to accept the advice of Treasury in order to avoid having to revisit the debate. The Greens’ solitary lower house representative, Adam Bandt, this week called for the debt ceiling to be abolished i.e. returning to the pre-2008 status quo. In last week’s Senate hearings, Greens leader Senator Milne wondered if the very idea of a debt ceiling came from “watching too much of The West Wing”. She deemed comparisons with the US debt limit standoff “ridiculous” and “nonsense” (though Dr. Parkinson was more concerned about international perceptions). Passing a $500bn limit is in practice closer to abolishing the cap than the $400bn option which seems likely to guarantee the issue returns in this parliament.
Scenario 3: No deal by 12 December. This is of course theoretically possible but we see no serious danger of this occurring. This scenario will only draw more attention if the limit is not raised in the first week of December. Note that a $9.3bn bond matures on 15 Dec so debt outstanding seems set to bump around the $300bn area into 2014.
Scenarios to resolve the standoff
Scenario 1: Coalition accepts $400bn, grumbles about Labor and Greens but looks forward to new Senate composition from 1 July 2014 when the balance of power will lie with small parties and independents who should be generally supportive of Coalition legislation.
Scenario 2: Senate passes $500bn bill with Green votes. Labor seems quite settled in its stance but the Greens might be willing to accept the advice of Treasury in order to avoid having to revisit the debate. The Greens’ solitary lower house representative, Adam Bandt, this week called for the debt ceiling to be abolished i.e. returning to the pre-2008 status quo. In last week’s Senate hearings, Greens leader Senator Milne wondered if the very idea of a debt ceiling came from “watching too much of The West Wing”. She deemed comparisons with the US debt limit standoff “ridiculous” and “nonsense” (though Dr. Parkinson was more concerned about international perceptions). Passing a $500bn limit is in practice closer to abolishing the cap than the $400bn option which seems likely to guarantee the issue returns in this parliament.
Scenario 3: No deal by 12 December. This is of course theoretically possible but we see no serious danger of this occurring. This scenario will only draw more attention if the limit is not raised in the first week of December. Note that a $9.3bn bond matures on 15 Dec so debt outstanding seems set to bump around the $300bn area into 2014.