Hockey's $8.8b RBA top-up bid draws debt ceiling scrutiny
Previously secret Reserve Bank documents reveal neither of Joe Hockey's two predecessors as treasurer were ever asked to top-up the bank's reserve fund by the $8.8 billion he said was needed.
The top-up, announced within weeks of taking office, as well as the $1.2 billion of extra funding for schools announced this week have the potential to add $10 billion to government debt, boosting the case for an increase in the $300 billion debt ceiling.
Treasurer Joe Hockey and Greens leader Christine Milne spoke by phone on Tuesday about a way out of the deadlock over the ceiling, which the Coalition wants to lift to $500 billion and Labor wants to limit to $400 billion.
The Greens demanded four changes in return for voting with the Coalition to abolish the ceiling altogether:
A statement to Parliament every time total debt increases by $50 billion or more.
Debt reporting standards to give information in the budget about gross and net debt at nominal and market value, and a breakdown of publicly guaranteed debt exposure.
Publication of grants to state or local governments for infrastructure.
Changes to budget papers to extend the forward estimates horizon from four years to 10 years.
"The Greens want every single dollar of government debt to be justified and debated. We want more scrutiny not less," said Senator Milne as the negotiations progressed.
A spokeswoman for the Treasurer described the talks as "high level, ongoing and personal".
Senator Milne said after years of hysterical debate about the debt ceiling no-one was any the wiser about what the debt was raised for. A breakdown, with the opportunity for Parliament to examine the debt every time it increased by $50 billion would provide better scrutiny than the present series of proposals to lift the ceiling every few years.
The Greens proposal would result in parliamentary debates over debt four times a year, with the first one likely in the early months of next year.
The government has until next Thursday to lift or abolish the ceiling. That's when Australia's gross government debt is scheduled to sail past $300 billion.
Mr Hockey insisted in his second Canberra press conference as Treasurer that he had decided to grant the Reserve Bank $8.8 billion in order to boost its reserve fund to the "target" of 15 per cent of the bank's assets at risk.
But correspondence released under freedom of information rules to the West Australian show the bank never mentioned such a target to either Mr Hockey's immediate predecessor Chris Bowen or his predecessor Wayne Swan.
The nearest Reserve Bank governor Glenn Stevens came to identifying such a target was in a letter sent to Mr Bowen on July 13, two months before the Coalition took office. It said the fund was "about $4.1 billion short of the board's target relative to balance sheet risk".
Mr Stevens' letter implies that at the time the bank had a target of 10 per cent of assets at risk rather than the 15 per cent it later presented to Mr Hockey.
Mr Stevens told a business dinner in November that the bank rather than Mr Hockey increased the target.
"We came to the view desirably that we would like [a] higher number than we used to think was appropriate," he said.