Why ScoMo should borrow big for stimulus

Last week, the Australian Office of Financial Management (AOFM) issued a $1.2 billion 10-Year Treasury Bond at a yield of only 0.82%:

Thus, with Australia’s inflation rate running at 1.8% currently, the federal government effectively borrowed at a negative real interest rate of nearly 1%.

Put another way, even if the federal government only returns inflation on whatever it uses these borrowings for (e.g. infrastructure investment), then the Australian taxpayer will still come out ahead.

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About the author

Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.