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Bumping its head on the ceiling - the US Treasury and extraordinary measures.

The US Government debt ceiling is currently suspended, but will be re-instated on 8 February 2014 (Saturday). When the debt ceiling is reached, the US Treasury will once again face a situation where it has two conflicting objectives – to honour the US Government’s financial commitments, and to not issue new debt. A small number of ‘extraordinary measures’ can be used in the short term, but they aren’t sustainable solutions. The temporary ‘headroom’ they provide below the debt ceiling will likely only last until June at the latest, and possibly much less. Even the potential for default has an impact on borrowing costs, and the US Treasury said ‘A default would be unprecedented and has the potential to be catastrophic’.

On 16 October 2013 the United States Congress passed legislation to end the Government shutdown and temporarily remove the debt ceiling (the Continuing Appropriations Act, 2014). The debt ceiling is a legislative restriction that does not limit spending, but restricts the US Treasury’s ability to borrow (see this Flagpost for more background). On 8 February the debt ceiling will be re-instated at a higher level (to match the additional debt issued while the ceiling was suspended, but no higher). 

If Congress does not vote to raise the debt ceiling, the US Treasury will have two conflicting obligations – paying the bills, and not borrowing. In recent comments the US Treasury Secretary noted, ‘Even though the House and Senate approved a budget … they did not yet provide the borrowing authority to pay for the spending commitments they made’. 

In the short term, the US Treasury can resort to ‘extraordinary measures’. These are strategies (legal, and used previously when the debt ceiling was reached) that postpone default for a short period, but aren’t sustainable solutions. 

• The US Treasury can stop re-investing the earnings of specific government retirement funds. The US Treasury has the authority to not re-invest earnings from (or contributions to) two retirement funds - the 'G Fund', and the Civil Service Retirement and Disability Trust Fund. Once the debt ceiling is lifted the funds must be repaid in full, to restore them to the position they would have otherwise been in (including interest earnings). These measures are expected to provide about $170 billion in headroom under the debt ceiling.
• The US Treasury can use assets in the Exchange Settlement Fund (approximately $20 billion in headroom).
• The US Treasury Secretary also recently announced that the sale of State and Local Government Series (SLGS) securities would be suspended. These securities are issued by the US Treasury to help state and local governments comply with tax regulations; the suspension may cause some disruption for those organisations.
• Other measures have been used previously, including swapping US Treasury debt for debt issued by the Federal Financing Bank (which can issue up to US$15 billion of debt that is exempt from the debt limit). A range of factors mean that these measures are less useful in this situation. 

These extraordinary measures provide a short term solution to enable the US Treasury to continue paying its bills, although how long they will last is uncertain. In the long run the deficit run by the US Government (higher expenses than revenue) means that new debt needs to be issued. Material from the US Treasury, US Congressional Research Service, the US Congress Government Accountability Office, and the Bipartisan Policy Analyis Centre provides more detail on extraordinary measures used in previous situations when the debt ceiling was reached.
Chart data from: The US Treasury Monthly Statement of Public Debt.

The role of the Fair Work Commission in tackling workplace bullying

From 1 January 2014, the Fair Work Commission (FWC) has jurisdiction to hear complaints from workers covered by the Fair Work Act 2009 (FWA) who allege they are victims of workplace bullying.

Medicare at 30

Image: Department of Human Services

Medicare, Australia's universal health insurance scheme marks its 30th anniversary on 1 February 2014. For 30 years Australians have had free public hospital treatment and subsidised medical services; free if the doctor bulk bills. Medicare is part-funded by a 1.5% levy on income tax (which meets around half its cost) and general taxation. In 2012–13, spending on Medicare totalled $18.5 billion. This makes Medicare the third most expensive government program after the Age Pension and family payments.

Australia tops the charts... in tax deductions

Image source: Wikimedia Commons

In the International Monetary Fund (IMF)’s recently released ‘Reforming Tax Expenditures in Italy: What, Why, and How?’, Australia was found to forgo more revenue as a proportion of GDP than all other OECD nations.

Although tax expenditures result in the government forgoing revenue, they have not been widely scrutinized and cannot be comprehensively measured. As a method through which specific groups, sectors, regions and activities receive a ‘myriad of discounts in the tax code’, tax expenditures continually arise as the subject of debate.

High Speed Rail for Australia - a fast track to the future or just the same old pipe dream?






Image Source: Wikimedia Commons

High Speed Rail Planning Authority Bill 2013

High Speed Rail (HSR) has been talked about for many years in Australia but has never progressed beyond the study and report stage. However, on 9 December 2013, the Shadow Minister for Infrastructure and Transport, Anthony Albanese, introduced a private member’s bill — the High Speed Rail Planning Authority Bill 2013. The Bill proposes setting up a High Speed Rail Planning Authority which, as the second reading speech notes, is designed to provide critical ‘long-term Commonwealth leadership to progress the project’ and to ‘maintain the momentum generated by the recent strategic studies’. The other objective of the Bill is to secure the rail corridor, which will run through a variety of landscapes including city, suburban and rural, in order to prevent future encroachment on these areas.

Growth in Age Pension receipt: the elephant in the room of the welfare reform debate

Image source: Wikimedia Commons

The Minister for Social Services, Kevin Andrews, has recently expressed concern at the continued growth in the number of people in receipt of income support payments, and suggested that the welfare system is unsustainable. He has therefore commissioned Patrick McClure to undertake a review of the welfare system. Mr McClure’s previous review led to the Welfare to Work changes in 2006. However a closer investigation of the figures, released by the Department of Social Security, suggests that welfare receipt among those of working age is already declining, and hence the scope to make further large reductions may be limited. However Age Pension take up rates continue to increase.

Keeping our sharks....at a distance

Image Source: Grant Peters/Flickr

In the last three years there have been six fatal shark attacks on popular beaches in Western Australia. In response, the state government announced on 10 December 2013 a program to catch large sharks (great white, bull and tiger) near heavily used beaches off Perth and the state’s South West (from Capel to Margaret River). The government program deploys baited drum lines one kilometre offshore, but this has been opposed by conservation groups because of the incidental catch of non-target species and the fact that the great white shark is a threatened species.

Are the good burghers of Griffith poised to make history? – House of Representatives by-elections 1901–2014

Source: AEC

The Australian Electoral Commission has announced the candidates who have nominated to fill the vacancy caused by Kevin Rudd's resignation. Early voting has begun so it’s a good time to review some of the history of by-elections for the House of Representatives.

The Griffith by-election is due to be held on 8 February 2014, 1526 days since the previous by-election, a period exceeded only by Balaclava (Vic) and Macquarie (NSW) in 1951 (1946 days) and Fremantle (WA) in 1945 (1547 days).

The heat is on: BOM launches heatwave forecasting

BOM heatwave forecast

Just as a record-breaking heatwave was moving eastwards from Western Australia last week, the Bureau of Meteorology (BOM) launched a trial heatwave forecast service. The forecast shows, up to four days in advance, which areas of Australia can anticipate heatwaves. But are heatwave warnings even necessary for “a sunburnt country” with a history of long, hot summers?