It’s becoming clear what the The Abbottalypse is going to cost Australia. Item number one, the sovereign rating, from the AFR:
Mr Abbott repeated on Wednesday he was happy for now with a [debt] trajectory outlined in the recent intergenerational report, which found that based on the budget measures so far passed by the Senate, the budget would come close to balance in 2019-20 before blowing out again.
…Bank of America Merrill Lynch economist Saul Eslake said even the trajectory in the Intergenerational Report was optimistic.
…”I despair as to how we are going to solve the long-term problem,” Mr Eslake said.
The intergenerational report trajectory cited by Mr Abbott shows that by 2054-55, debt would be 60 per cent of GDP and the deficit 6 per cent of GDP.
…Ratings agencies warned the Abbott government last month that it would need to deliver further spending cuts or tax hikes to maintain the AAA rating stayed in place over the longer term.
With bulk commodity prices falling apart, the Budget is buggered before we even see it. The last thing we need to do now is take our foot off the reform pedal and drive for Budget repair.
That does not mean austerity, by the way, I’m in favour of expanding quality infrastructure spending, we’re going to need it. But productivity-directed reform to tax and Federal structures are a vital way to manage the post-boom adjustment rather than letting markets shock our costs lower via recession.
Letting the budget blow out while the banks gorge themselves of cheap offshore debt for one last party all but guarantees the latter when the next external shock (to funding) triggers the loss of the sovereign rating at the worst possible time.
All to save Tony Abbott’s skin.
