What To Watch Out For As Bond Yields Continue To Climb In Australia

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Although Australia has many impending costs, such as an ageing population and a forecasted NDIS blowout, the cost of servicing government debt is what new attention should be placed on.

In October, Treasurer Jim Chalmers revealed the long-term financial costs facing Australia in his budget outline. Many of these expenses were due to the pandemic and the consequent government response of $300 billion.

With an ageing population, the NDIS (National Disability Insurance Scheme) blowout, and Labour’s childcare initiatives, sustaining our current society is becoming increasingly expensive. This costs taxpayers more money and creates significant future deficits and government debt.

“The Government has not announced any plan to alleviate the costs created by borrowing such large amounts of money,” said a treasury spokesperson. “The lack of transparency makes investors anxious and could provoke investor flight.”

On top of these looming expenses, more investors are backing away from Australia due to the growing need for government funding, driving down bond yields further. The RBA’s monetary policy is just a band-aid solution to the costs that increasing government debt will create, and there is no relief in sight.

The Australian Treasury and Reserve Bank of Australia need to clearly plan how they will sustain the country as bond yields continue to climb. Without this, Australia will struggle to keep up with the costs of ageing and a growing population.

“In the long term, Australia needs to place more emphasis on controlling debt and finding ways to reduce expenses,” said a spokesperson for the Australian Treasury. “To do this, we must make tough decisions on how we will deal with our current fiscal issues.”

To sustain Australia’s current economic state, cutting costs and reducing government debt must be a priority. This is not to say that the work being done by the RBA is irrelevant. Their efforts thus far to stabilize the economy should be commended. However, more meaningful action needs to be taken for investors to keep funding Australia.

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