Bankers who met Joe Hockey and Treasury secretary Martin Parkinson in New York in October reported that the pair worked closely and effectively together.
The teamwork was notable because the government had already announced that Parkinson would be standing down next year. The Treasury secretary backed up his boss again on Wednesday at the Senate estimates committee, supporting Hockey's push for an increase in Australia's legislated debt limit from $300 billion to $500 billion and undermining Labor's argument that an increase to $400 billion is enough for the time being.
Treasury's pre-election economic and fiscal outlook on August 13 predicted debt of $370 billion in 2015-16, and Parkinson said on Wednesday that a buffer of between $40 billion and $60 billion was desirable.
He also said the growth outlook embraced in the PEFO was too optimistic. Treasury would not have a "final grasp" until it saw the September-quarter national accounts on December 4, but growth this financial year was likely to be lower than the PEFO predicted. That meant government revenue would also be lower, the budget deficit larger and the borrowing task larger.
Even if Treasury did not lower its growth estimates for following years, a downgrade this year would spill into them and depress revenue, he said, adding that Treasury was also inclined to cut its forecasts beyond 2013-14.
A ceiling "significantly above" $430 billion was needed "if you want to cover all the forward years", he concluded, adding Treasury had briefed the government on options, including lifting the ceiling, scrapping it (it has only been in place since 2008) and indexing it. The decision was the government's and the government had decided to raise the limit, he concluded.
Former Labor finance minister Penny Wong grilled Parkinson about the pace at which Australia's debt load would rise, in an attempt to reinforce Labor's argument that the $400 billion limit Labor and the Greens passed in the Senate and the Coalition rejected in the lower house was enough for now.
She didn't make much headway, however. The precise timing of the debt ramp-up depends on the size of the growth downgrade that is likely to follow the September-quarter national accounts, and without seeing them Parkinson was already stating that $500 billion was prudent "if we place a premium on ensuring market confidence".
If the ceiling were lower and the economic growth outlook deteriorating, it would be "entirely reasonable" for the financial markets to "wonder what was going to happen", he added.
He also confirmed the government's prediction that the $300 billion limit would be reached next month. Asked by Greens leader Christine Milne whether there were sanctions for breaching it, he said simply: "It's illegal."
The government could use temporary borrowing arrangements or access funding through the Reserve Bank but both moves would send a signal to the markets, he said. Treasury's chief economist, David Gruen, hinted at what that signal might be earlier in the hearing, saying while the US debt ceiling stand-off in October had a relatively minor direct economic impact, "of more concern is the picture such debates paint of the US Congress being unable to come to grips with a credible plan".
Gruen's take on the global economy and Australia's prospects was pretty much in line with the OECD, which on Tuesday night downgraded its global growth estimate for next year from 4 per cent to 3.6 per cent, citing slower growth in emerging economies as the main culprit.
Growth of 3.6 per cent next year would still be an improvement on global growth of about 2.7 per cent this year, however, and the OECD predicts growth of 3.9 per cent in 2015. It and Treasury see the stabilisation of China's growth rate near 7.5 per cent and signs of a continuing recovery in the US as positives.
Both also agree, however, that emerging economies, and ones such as India and Indonesia that run large current deficits in particular, are vulnerable as America's upcoming quantitative easing taper tightens money supply worldwide and bears down on growth. As an exporter to emerging markets, Australia is exposed.
A footnote: Labor senator Sam Dastyari spent some time at the hearing probing to little effect whether the government's mid-September announcement that Parkinson would step down after the May budget next year was a beheading. For me, the more interesting question is whether the September announcement will be reversed: an extension for Parkinson is not inconceivable. It would be welcomed by the markets.