Has the budget emergency gone away? Implications for future funding of Australian aid

By Anthony Swan

Figure 1: Adjusted Net Operating Balance and Underlying Cash Balance

Scott Morrison’s second Federal budget is, thankfully, a pragmatic one. It is a reset budget which clears the decks of previous budget measures stuck in the Senate, and puts forward new measures that are relatively Senate friendly. It also signals the potential end to the budget emergency with the Treasurer announcing that government recurrent spending is under control and, by 2018-19, all of it will be paid out of revenue rather than debt. Has the debt and deficit issue that has plagued aid allocations gone away, and can we expect a more certain and stable aid budget in the future?

A key emphasis in this year’s budget was on “good” and “bad” debt. Good debt, according to the Treasurer, is one that is used to fund assets that earn a positive return over time (think capital spending), whereas bad debt does not (think recurrent spending). This distinction helps to frame the $51bn of proposed spending on infrastructure in the budget, largely funded by “good” debt, in a much more favourable light.

This framing also allows the government to focus on a new measure, the adjusted Net Operating Balance (NOB), which indicates the extent to which the government relies on (bad) debt to fund recurrent spending. In contrast, the underlying cash balance, which is equal to government cash receipts minus payments, indicates the extent to which additional good and bad debt is relied on to fund all government spending.

Figure 1: Adjusted Net Operating Balance and Underlying Cash Balance

Figure 1 shows that the government was racking up large amounts of both bad debt and total debt after the global fiscal crisis (as indicated by a negative adjusted NOB and negative underlying cash balance, respectively). However, this reliance on bad debt is set to rapidly diminish. By 2018-19, the adjusted NOB …read more

From:: Development Policy Centre – DEVPOLICY Blog

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