# State Government's Debt Load



## Michael Cornips (28 April 2011)

A lot of attention is paid to the Federal Government deficit, the mounting debt and the impact that cutting Government expenditure will have on national income. The Treasurer is preparing us for a tough budget in May, where the $50 Billion plus growth in annual debt needs to be reduced to zero growth by June 2013. That's a pretty big anchor to throw out in the hope of the private sector's ability to replace the expenditure with economic expansion.

With taxation running at about 22% of Gross Domestic Product (GDP), the current $53 Billion shortfall in taxation represents a required increase in GDP of $240 Billion, or a required 18% increase in GDP; that's if Government expenditure does not increase. If you allow for a 2% increase in Government Expenditure each year for two years then, from an annual expenditure base of $350 Billion, another $7 Billion in tax revenue is required for each of the next two years.

That $14 Billion increase in required taxation revenue requires about another $60 Billion increase in GDP (based on taxation equaling 22% of GDP). So the economy needs to grow by $300 Billion ($240 Billion plus $60 Billion) by 2012/13. That is nominal GDP growth of 22% over two years. Not impossible, of course, but definitely boom times are being predicted by the Government.

(Note: Our expectations for March 2011 GDP will be, at best, flat)

We are currently hearing from Ted Baillieu in Victoria that there are unexpected blowouts in the State's budgets. Well, it is not really unexpected if you look at the State Governments' debt growth since 2008. The State Governments have been doing a great job in maintaining our standard of living with annual debt growth (to February 2011) of $20 Billion. With the political power moving to the right in NSW and Victoria, and given Ted Baillieu's statements, you will clearly expect the State Governments to begin to bring their budgets into balance.

Total Government Debt, both State and Federal, now stands at $351 Billion (as at February 2011), a $77 Billion increase over the year. Without arguing the merits or otherwise of the move to balance the budget, the political forces in Australia are moving to decrease Government spending, which is private sector income, by a substantial amount. Their logic is that the private sector will expand.

Again, not arguing the merits of the current course of action, it is a better to understand the framework our economy is operating in, the future Government expectations, and how you can best manage the investing environment as events unfold.

Michael Cornips


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## IFocus (28 April 2011)

Baillieu's claims have been disputed by Independence observers as poor politics all be a surprise that there wasn't some massive black hole left by Labor.

But if that is what he needs to do to get the job done to return to surplus so be it.

Even so state dept is an issue WA's projected $20Bil is of a concern and totally dependent on the good times continuing for the next 4 years.


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## Julia (28 April 2011)

Could the OP please clarify whether you are referring to the debt of one government or all the State governments.

The apostrophe before the 's' indicates reference to just one state government.
If that's the case, are you only discussing the situation with regard to the Victoria government?


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## joea (29 April 2011)

Michael Cornips

Thanks for that.

Now all I have ever heard, was Barnaby Joyce telling us that it was close to $180 bullion.

What I would like to know, is why the media and political journalist  ARE not interested in these figures.?

A visitor to Perth told me they are chasing around 80,000 people to fill positions in WA in the near future. I thing Gillard is stock piling asylum seekers to fill some of the jobs.

To me its obvious that subbies and small business , people in mills on the east coast etc. are going to head over there.

I think there are thousand of people on part time jobs, being propped by the government and just do not want to work.

So we have a 2 speed economy gaining momentum, and growing further apart.

Well I do not think Gillard and Swan can manage this type of economy( plus the costs from floods etc.) They may have been capable of a normal economy( to give them some credit).

Hopefully the agriculture bowls will start to produce to bring back the prices.

Cheers


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## sinner (3 May 2011)

Another excellent topic Mr C.

For those curious about their home states status, I suggest you check this website:

http://www.debtclock.com.au/

States shown in red are increasing their debt, states shown in black are decreasing their debt.

I remember years before the GFC, when I started getting into the market I questioned my mentor on the matter of "risk free rate" used to calculate Black Scholes type models and he mentioned to me that although there was decent price discovery in Aussie bonds, not very many where on issue as the Govt had successfully paid down their debt.

How times change. I guess at this point, anyone wishing to invest in Aus Gov Bonds wouldn't have too much trouble doing it, at least from a supply/demand perspective.



Julia said:


> Could the OP please clarify whether you are referring to the debt of one government or all the State governments.
> 
> The apostrophe before the 's' indicates reference to just one state government.
> If that's the case, are you only discussing the situation with regard to the Victoria government?




For serious? In the chart legend it says "All State Government Debt", unless this was added after you posted?


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## Garpal Gumnut (3 May 2011)

Julia said:


> Could the OP please clarify whether you are referring to the debt of one government or all the State governments.
> 
> The apostrophe before the 's' indicates reference to just one state government.
> If that's the case, are you only discussing the situation with regard to the Victoria government?




Good point Julia. It is still unclear.

I have even seen the Australian run a story on "The State Gallery" referring to the
gallery of one of the bankrupt states, either Victoria or NSW, I remember not which. 

Please clarify for those of us in deficit averse states.

gg


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## Julia (3 May 2011)

sinner said:


> For serious? In the chart legend it says "All State Government Debt", unless this was added after you posted?



This is the heading on the chart:


> State Government's Debt Load



That is what I was referring to which should have been obvious to anyone with even the most basic comprehension of the placement of apostrophes.

The phrase "All State Government Debt" is dependent on context for its meaning.
Think about it:  it could be referring to 'all the debt of e.g. NSW'   or  alternatively  'all the debt of all the States.'

So perhaps ease off on the sarcasm.


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## sinner (4 May 2011)

Julia said:


> This is the heading on the chart:
> 
> That is what I was referring to which should have been obvious to anyone with even the most basic comprehension of the placement of apostrophes.
> 
> ...




Err ok I wasn't being sarcastic at all, but whatever.

The chart itself is untitled, what you are referring to is the title of the forum post. The legend of the chart, states pretty clearly blue line is "All State Government Debt".

Nevermind.


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## Julia (4 May 2011)

sinner said:


> Err ok I wasn't being sarcastic at all, but whatever.
> 
> The chart itself is untitled, what you are referring to is the title of the forum post. The legend of the chart, states pretty clearly blue line is "All State Government Debt".
> 
> Nevermind.



Yes, you're quite right, sinner.  I'd taken the thread title as the chart title.
My mistake.  My apologies.


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## drsmith (5 May 2011)

sinner said:


> For those curious about their home states status, I suggest you check this website:
> 
> http://www.debtclock.com.au/
> 
> States shown in red are increasing their debt, states shown in black are decreasing their debt.



Almost.

SA's number is black, but going up.


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## sinner (5 May 2011)

drsmith said:


> Almost.
> 
> SA's number is black, but going up.




Yeah thanks for pointing that out, quite strange.


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