NEW issues of Australian government securities will shrink sharply in the new financial year, with net new issues falling from $44 billion this year to just $9 billion in 2012-13.
The announcement by the Australian Office of Financial Management could put further downward pressure on Australian bond yields, which have fallen to record lows as investors flee the stockmarket and Europe.
Tumbling bond yields have already slashed $600 million off the government's estimated interest bill for 2012-13, and $2.4 billion off the forecast bills for the next two years.
It came as the opposition attacked the government's decision to raise Australia's debt ceiling by a further $50 billion.
The increased debt limit was not mentioned by Treasurer Wayne Swan in his budget speech.
But an appropriations bill, introduced on Tuesday night after the budget, would increase the nation's credit limit from $250 billion to $300 billion.
The opposition seized on this yesterday as its main attack on the budget. Opposition Leader Tony Abbott called it "really extraordinary", saying it "gives the lie to Wayne Swan's talk about a surplus".
Shadow treasurer Joe Hockey asked why the Commonwealth needed to raise its credit card limit.
"If they really are delivering a surplus and that surplus is meant to pay down debt, why did they need to increase the allowable borrowings of the Commonwealth government to $300 billion?" he asked.
But Mr Swan said the government was acting on the advice of the AOFM, the Treasury agency that runs Australia's debt finance. He said the AOFM wanted the rise to give it a "buffer" against a temporary financing challenge.
"What tends to happen is that government revenues come in big lumps towards the end of the year but government expenditure goes out evenly across the year. Secondly, we also have to retire bond lines as we bring new ones on," Mr Swan said.
The government has yet to decide on or publish a report by senior Treasury, Reserve Bank and AOFM officials urging that after the budget returns to surplus, gross government debt should be kept at 12 to 14 per cent of GDP about $200 billion now to maintain a liquid market for trade in bonds.
Yesterday the AOFM announced that gross issuance of new Treasury bonds would shrink from $58 billion this financial year to $35 billion in 2012-13.
They will include a new line of bonds maturing in 2024, to be launched early next year, and a new 15-year bond to be launched a bit later. A further $2 billion of Treasury indexed bonds will also be issued, and short-term Treasury Notes as required.
The AOFM also floats the possibility that some Aussie Infrastructure Bonds used to finance NBN Co's investments might be raised in the same process.
