'Australia, we have a debt problem'
National Australia Bank chief executive Cameron Clyne said we had a "unique window" as a AAA-rated country to issue more government debt to fund desperately needed infrastructure.
"Australia has a debt problem: we don't have enough," Mr Clyne said on Thursday.
"If we continue to have the debate that suggests that all debt is bad, and not a debate on the productive use of debt, we will simply not be able to fund the infrastructure this economy needs to thrive into the future."
Mr Clyne's comments came a day after the Business Council of Australia released a 10-year action plan for a stronger economy, calling on major political parties to focus on long-term rather than short-term policies.
It listed 10 things it would like the government to do, including developing a national infrastructure plan to ensure the right infrastructure was delivered at the right time.
"Dedicated annual funding and a clear policy on the use of debt for infrastructure will ensure that Australia's stock of infrastructure grows in line with our economic development and population growth," the report said.
The BCA's action plan should not be dismissed quickly, Mr Clyne said. "It should be analysed. Maybe not everything in it is worthy of implementation, but we can't let it fall to short-term populism," he said.
The NAB boss also called for Australia's political leaders to focus on long-term policies, rather than play day-to-day political games through the media.
"One of the reasons why the Australian currency has possibly been somewhat higher than what the technical or fundamental level would be is there is significant demand for what limited Australian government debt there is," he said.
"Most investors around the world are up to their eyeballs in northern-hemisphere government paper. We have a unique window, as a AAA nation, with strong demand for AAA debt, to issue that debt and divert it to productive infrastructure."
Bank of America Merrill Lynch chief economist Saul Eslake said he had sympathy with that view.
"One of the more sensible ways of seeking to reduce the risk of recession when the mining investment boom starts to wind down in a couple of years' time would be for the government to do precisely that," he said.
"We could borrow up to 3 to 4 percentage points of GDP without imperilling our AAA rating, as long as it was for rigorously evaluated and well-targeted infrastructure spending."
Frequently Asked Questions about this Article…
Cameron Clyne was arguing that Australia can responsibly issue more government debt to fund productive infrastructure. He criticised a public debate that treats all debt as bad and said the focus should be on using debt productively to deliver the infrastructure the economy needs.
Clyne and the Business Council of Australia both suggest using Australia's strong AAA credit rating and global demand for AAA debt to borrow and channel funds into a national infrastructure plan. The BCA specifically called for dedicated annual funding and clear policy on the use of debt for timely infrastructure delivery.
No. Bank of America Merrill Lynch chief economist Saul Eslake said Australia could borrow up to about 3 to 4 percentage points of GDP without imperilling its AAA rating, provided the borrowing financed rigorously evaluated and well-targeted infrastructure spending.
The BCA's action plan urges major parties to focus on long-term policy and includes 10 recommendations such as a national infrastructure plan and dedicated funding for infrastructure. Everyday investors should watch this because long-term infrastructure policy and credible funding plans can influence economic growth, government borrowing, and investment opportunities.
Clyne said strong global demand for limited Australian government paper has been one reason the currency sat higher than fundamentals might suggest. Issuing more AAA-rated debt to meet investor demand could help redirect international capital toward productive infrastructure.
The article highlights that treating all debt as harmful can block necessary investment. Both Clyne and the BCA argue the debate should distinguish between unproductive borrowing and debt used to fund infrastructure that supports long-term economic development and population growth.
Yes. Saul Eslake expressed sympathy with using government borrowing to smooth the transition as mining investment winds down, suggesting carefully targeted infrastructure spending could reduce recession risk in a few years' time.
Investors should look for clear, long-term infrastructure plans, dedicated and transparent funding mechanisms, evidence that proposed projects are rigorously evaluated and well targeted, and whether political debate focuses on productive use of debt rather than short-term populism—points emphasised by NAB's Cameron Clyne and the BCA in the article.
Call 1300 880 160
Start a chat
Schedule a call
