The Australian Institute of Company Directors today welcomed news that the Federal Government would recognise the difference between good and bad government debt in the upcoming May Budget.
The AICD’s Blueprint for Growth, released earlier this month, called for the government to increase ‘good’ debt, particularly given low levels of interest rates, to invest in essential and productive public infrastructure.
Good debt or borrowing can be defined as borrowing that is used to fund productive assets that ultimately boost the economy’s long run capacity. On the other hand, bad government debt is used to fund recurrent budget shortfalls.
Australia’s directors and business leaders have also consistently called for greater investment in infrastructure, rating it as the key priority for the federal government over successive Director Sentiment Indexes.
AICD General Manager Advocacy Louise Petschler said that government 10-year bond yields had recently traded at their lowest levels in 160 years, making now a good time to take on ‘good debt’.
“Investment in effective and efficient infrastructure is essential to support our nation’s productivity and growth, and we should be taking advantage of the current fiscal environment to do so,” said Ms Petschler.
“Productivity is a fundamental element of the nation’s potential growth, so investment in productive infrastructure now will pay dividends in the future.
“While addressing the budget deficit must remain a key priority for the government, investment in infrastructure cannot wait until the ‘bad borrowing’ to fund recurrent shortfalls has ended.
“Taking on debt to fund pensions and public servant salaries is an obvious example of bad debt, but waiting until such borrowing ends in order to take on ‘good debt’ will place even more pressure on infrastructure that is already groaning under too much strain.
“Hopefully the Treasurer’s comments today indicate that the bad debt on Australia’s balance sheet won’t prevent the government from taking on good debt to invest in much needed infrastructure.”
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