We are at or close to peak Government spending in Australia, spending that leaves record levels of Government debt across the country.
Below are the estimates of total Australian Government debt, as taken from recent budget tables. Queensland reports were delayed due to the state election but we can assume the net debt level will rise by approximately $20 billion. Total Government debt is estimated to reach ~AS1.4 trillion. This will create challenges for Governments at every level.
Total Government debt is forecast to rise to over A$1.3 trillion.
Governments across the country have committed to productivity style reforms to alleviate the debt levels. While welcome, this is unlikely to be enough to pay down debt significantly.
As I have written previously, debt levels across the world are at all-time highs as Governments have spent aggressively to offset the pandemic.
This has cushioned economic impact but not slowed the spread of COVID-19, as daily cases and deaths continue to trend higher globally. Australia stands out amongst a small group of countries that have controlled the spread of COVID-19. This significant achievement has come with higher debt levels.
What are the implications of the significant increases in Government debt?
Global GDP growth is set to soar in 2021 with some forecasters predicting 6% global growth. Inflation will remain subdued and rates will stay low. This is all pushing asset prices higher today in anticipation of a stronger 2021.
Assets markets live year-to-year. Commentators focus on year-to-date and year-on-year returns, as everyone must mark to market annually for tax payments.
Sustainable investment return looks beyond the year-on-year, adding capability and productivity gains to create financial returns.
Sustainable investors can take advantage of the likely peak in Government expenditures by investing in private sector providers of services (service providers).
Beckon Capital actively invests in the SME sector, creating a pool of sustainable, investable assets.
Beckon Capital uses impact assessment to help these businesses grow and thrive. The Government cannot be relied upon to provide the same levels of assistance; it will actually become a drag on growth.
Sustainable businesses will be the driver of growth going forward.
David (Bushy) Nolan
Beckon Capital Pty Limited (ABN 49 628 013 678), authorised representative No. 001280538 of Fundhost Limited (ABN 69 092 517 087, AFSL No. 233045) (“Beckon”)