Where did Scomo find $130 billion? Let’s explore the truth to cabinet’s seemingly bottomless piggybank.
Turns out, the government doesn’t actually have $130 billion just lying around, nor does it have a bottomless piggybank.
So, just like everyone else, the government has to borrow this money. However, it’s not quite as easy as walking on down to the bank and asking for a loan.
Who do they borrow $130b from?
Due to such a large amount of money being borrowed, there will be multiple different lenders required to chip in – no single lender is out there with $130 billion that they are willing to lend to Scomo.
These lenders can include the RBA, superfunds, commercial banks and other investors.
How will the government repay this much money?
As with any debt, this $130bn will have to be repaid somehow. For the government, there are three typical options:
- Increase taxes
- Decrease spending
- Leave it to the future
The first two often work in tandem: increasing taxes will raise funds to repay debt, while spending cuts will involve lower priority government projects losing funding, freeing up $ for debt repayment.
Collectively, these two measures will help to rebalance the budget and service the loans.
Leaving it to the future is an option?
The final option is leaving it to future generations. This involves “rolling over” debt, which means that new funds are borrowed to repay old debt.
It’s not too dissimilar to borrowing money from one friend to repay the other!
And this continues in a cycle of borrowing to repay until inflation has reduced the real value of money owed, making repayment more easy – just like how that $10 you once owed someone doesn’t seem to be that much money anymore.
Realistically, we will likely see the government use a combination of all these options, but much of the repayment will be left to future taxpayers.