Watch Wayne conjure up a surplus

Gird the loins for a cacophony of historic and hysteric proportions, for we are hurtling headlong towards the dreaded federal budget.

Gird the loins for a cacophony of historic and hysteric proportions, for we are hurtling headlong towards the dreaded federal budget.

If you thought this week's release of the biannual International Monetary Fund report on the world economy was a nasty affair, full of spin and recrimination from Parliament and punditry, get set for next month.

It is one year out from an election after all, and this budget is the one where Wayne Swan has to stick to his surplus promise. If there is a book in it, it should be titled Against all Odds. It might be skinny, it might be symbolic, but, teeth-clenched, the Treasurer looks like he might just get there - with some hocus pocus on the national book-keeping front.

Should he do so, motivated by the sheer delight of tormenting Tony Abbott and Joe Hockey, it will be a feat of political rather than economic moment. A sideshow if you like.

By the standards of its peers, and as noted by the IMF, Australia is in tip-top shape (more by good fortune than good management) and the significance of our public debt, most of it owed to Australians anyway, is trifling.

There is another debt far more profound, however, than public debt, or the national debt as it is also called. It is rarely ever mentioned but is potentially far more devastating. It is Australia's foreign debt.

It is the amount of money the economy owes, not the government the culmination of Australia's relentless current account deficits and of bank borrowing overseas to fund the national mortgage obsession.

You won't hear the ALP or the Coalition rabbiting on about this

ol' debt. This is our Crocodile Dundee debt, as esteemed colleague Ross Gittins once dubbed it. National debt? "That's not a debt ... this is a debt!"

The Reserve Bank rarely mentions it, the Bureau of Statistics hardly showcases it, economists act as if it doesn't exist. And yet it grows.

Our foreign debt, as at the December quarter, stood at $1.27 trillion. Fair enough, that is Australia's gross debt, and debt should be seen against a borrower's capacity to repay.

Our net foreign debt is $735 billion. It grew by $396 billion under 11 years of John Howard. Under Rudd and Gillard it has kept rising, up another $147 billion in five years.

And now that the secret is out, that the banks are too big to fail, that is, we all own it.

It is not the fault of the banks. There is nothing wrong with borrowing offshore to fund a domestic business. But it is a huge policy issue as borrowing without consequence can't last forever, as the plight of Europe and the US shows.

The banks mostly borrow in three and five-year paper so our massive foreign liabilities will get very nasty when or if the dollar drops back to US60? alongside, say, a pullback in China. A lower currency means higher borrowing costs when it comes to rolling the debt. Ergo, credit squeeze.

Yes, one day the banks' "higher funding costs" spiel will be real. One day.

In case you missed it, the rather large accounting firm BDO blew up a few weeks ago and its rival, Grant Thornton, signed off on a rescue package for its Melbourne and Sydney operations this week.

How, you reasonably ask, does a large accounting firm blow itself up? Quis custodiet custodes?

Good question. Were they doing such a fastidious job auditing other people's accounts that they forgot to tend to their own?

Under the loose federation of practices that make up the BDO franchise in Australia, the state-based partnerships ran their own show.

Melbourne and Sydney, though, ran a poor show. They let their debts escalate to $100 million relative to revenues of $88 million.

A common weakness of a partnership model is that when some partners decide to leave, the other partners have to buy them out. Hence they borrow.

It is perhaps ironic that BDO touts "aged care" as one of its core strengths for too much debt was raised to pay out too many retiring partners in Sydney and Melbourne.

All's well that ends well. The sale price is rumoured at $50 million, but it's a rubbery number without knowing the full picture on debt and so forth.

The deal, which has caused some headaches among dissenting partners at Grant Thornton, will sign up another 55 partners and catapult the firm into the number six slot in Australia, just behind WHK - with the Big Four bean-counting majors well out in front.

It's been a long and arduous journey for investors in listed property stocks. And for some, that journey reached a welcome denouement this week when Canadian giant Brookfield lobbed a $410 million takeover for Thakral Holdings.

It was pitched at a regulation 30 per cent premium to where the stock had last traded on the day before the bid. On the day of the bid, however, there was some ... let's say, ahem, impeccably timed buying.

Here were Thakral shares trundling along in their typically illiquid fashion, only trading once at 53.5? all day. Then, suddenly, a buyer or three with great foresight and acumen swooped, paying up to 58? a share in a series of nine trades between 3.18pm and 3.31pm.

Then, with unnerving coincidence, just three minutes after this last purchase, at 3.34pm, the ASX put Thakral into a trading halt and lo and behold there's Brookfield with its takeover bid at 70? a share!

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