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Australia governs with low debt

Figures released today by the OECD show Australian governments are burdened with the smallest financial liabilities of any country in the Western world.

The figures, included in the OECD's half-yearly Economic Outlook, show Australian state, federal and local governments have gross financial liabilities totalling just 16 per cent of GDP - one-fifth of the OECD average.

By contrast, the United States has liabilities - debts and other future obligations such as superannuation payouts - equivalent to 65 per cent of its GDP, while Italy's liabilities amount to 117 per cent of its GDP and Japan's to a massive 169 per cent.

In net terms, subtracting the financial assets of government superannuation and investment bodies, the liabilities of Australian governments amount to just 1 per cent of GDP, behind only Norway, Korea and Finland.

Australia was one of just 10 OECD countries whose governments are running surpluses, while the other 20 are in deficit, by as much as 8.4 per cent of GDP in the Czech Republic, the OECD estimates.

The Paris-based think tank forecasts a good two years ahead for Western economies, predicting their combined GDP to grow by 3.4 per cent this year and 3.3 per cent in 2005. Australia would be slightly above average, with growth of 3.8 and 3.5 per cent. But it warns that governments - especially that of the US - could undermine the durability of the recovery by leaving interest rates too low.

The OECD extends this warning even to Australia, urging the Reserve Bank to use Australia's good run of growth to shift interest rates to "a more neutral setting", apparently implying two more interest rate rises. The Reserve made it clear last Friday that it did not see any more rate rises ahead unless housing prices started climbing again.

Tim Colebatch
Economics Editor
The Age
May 12, 2004