an Age of Debt Guay Lim 20 July 2017 Page 1 Outline What Debt? - PowerPoint PPT Presentation

MELBOURNE INSTITUTE Applied Economic & Social Research Fiscal Stimulus in an Age of Debt Guay Lim 20 July 2017 Page 1

Outline • What Debt? • Empirical facts: Debt, Deficits and Interest Payments • Why should we care? • High debt, low growth economy and distributional effects • What can policy do? • Short-run, Long-Run, Monetary and Fiscal Policies ESOC | 20 July 2017 Page 2

Net Government Debt (% of GDP) 25 16/17 20 15 10 5 0 estimates -5 94 96 98 00 02 04 06 08 10 12 14 16 18 Source: Budget Papers: Historical Australian Government Data: Table 4 Page 3

Household Debt (% of Income) 140 120 100 80 60 40 94 96 98 00 02 04 06 08 10 12 14 16 Source: RBA Statistical Table E2 Page 4

General Govt Debt (% of GDP): OECD (2015) 250 200 150 100 50 0 EST CHL TUR LUX NOR LVA CHE DNK MEX CZE SVK SWE AUS POL FIN NLD DEU ISR IRL HUN SVN AUT GBR CAN ESP FRA USA BEL PRT ITA GRC JPN Source: OECD Statistics Page 5

Household Debt (% of net disposable income) OECD (2015) 350 300 250 200 150 100 50 0 HUN LVA SVN POL SVK CZE EST ITA DEU AUT FRA USA BEL GRC ESP FIN JPN PRT GBR KOR CAN SWE IRL CHE AUS NOR NLD DNK Source: OECD Statistics Page 6

Net Government Interest payments (% of GDP) 2.0 1.6 1.2 16/17 0.8 estimates 0.4 0.0 -0.4 94 96 98 00 02 04 06 08 10 12 14 16 18 Source: Budget Papers: Historical Australian Government Data Table 4 Page 7

Household interest payments (% of income) 14 13 12 11 10 9 8 7 6 5 94 96 98 00 02 04 06 08 10 12 14 16 Source: RBA Statistical Table E2 Page 8

Official Interest Rates (per cent) 8 7 6 5 Australia 4 3 2 1 USA 0 94 96 98 00 02 04 06 08 10 12 14 16 Source: RBA Statistical Table F13 Page 9

Growth in real GDP (per cent) 16 China 12 8 Australia 4 0 forecasts USA -4 94 96 98 00 02 04 06 08 10 12 14 16 18 20 Source: IMF: World Economic Outlook Page 10

Inflation in Australia (per cent) 6 HEADLINE UNDERLYING 5 4 3 2 1 0 94 96 98 00 02 04 06 08 10 12 14 16 Source: RBA statistical table G1 Page 11

Wage Growth (annual change, %) 4.5 4.0 3.5 3.0 2.5 2.0 1.5 94 96 98 00 02 04 06 08 10 12 14 16 Source: ABS Page 12

Households with owner-occupier housing debt (%) Share of households with home loan Labour market status of 2002 2006 2010 2014 reference person Employee 45 46 48 46 Employer or self-employed 37 43 40 46 Unemployed 20 21 15 28 Retired 5 5 7 8 Other not in the labour force 19 18 19 17 RBA Statistical Tables E7 Page 13

Monetary policy and Growth 8 7 cash rate 6 5 4 3 2 GDP growth 1 94 96 98 00 02 04 06 08 10 12 14 16 Source: ABS and RBA Page 14

Household Savings Ratio (per cent) 20 16 12 8 4 0 -4 60 65 70 75 80 85 90 95 00 05 10 15 Source: ABS Page 15

Contributions to growth (per cent) 2 consumption 1 0 investment -1 -2 -3 94 96 98 00 02 04 06 08 10 12 14 16 Source: ABS Page 16

Gini: Australia (0.337) OECD (0.318) Norway Denmark Slovenia Finland Czech Republic Belgium Slovak Republic Austria Sweden Luxembourg Netherlands Hungary Germany France Switzerland Poland Korea Ireland OECD OECD Canada Italy Japan New Zealand Australia Portugal Greece Spain Latvia United Kingdom Estonia Israel Turkey United States Mexico Chile 0.000 0.050 0.100 0.150 0.200 0.250 0.300 0.350 0.400 0.450 0.500 Presentation name | Tuesday, 25 July 2017 Page 17

OECD: Bottom 20% OECD: Top 20% Chile Chile Mexico Mexico Turkey United States Israel United States Turkey United Kingdom Estonia Spain Estonia Israel Greece Latvia Japan Portugal Latvia Greece Italy Australia Portugal New Zealand Korea Spain Canada OECD OECD Australia Japan United Kingdom Italy New Zealand Canada OECD OECD Ireland Poland France Ireland Switzerland Hungary Poland Germany Germany Switzerland Korea Netherlands Hungary Luxembourg Netherlands Austria Luxembourg Sweden Austria France Sweden Belgium Czech Republic Slovak Republic Slovak Republic Slovenia Finland Norway Belgium Finland Denmark Czech Republic Slovenia Denmark Iceland Iceland Norway 0.0 2.0 4.0 6.0 8.0 10.0 12.0 0.0 10.0 20.0 30.0 40.0 50.0 60.0 Source: OECD Page 18

Concluding Remarks • What Debt? • International perspective on government and household debt • Why should we care? • Low growth, low interest rates and distributional effects • What can policy do? • Short-run fiscal stimulus and long term goals ESOC | 20 July 2017 Page 19

MELBOURNE INSTITUTE Applied Economic & Social Research Fiscal Stimulus in an Age of Debt Guay Lim 20 July 2017 Page 20