Australia rejects raising debt ceiling, hopes to avoid America-style shutdown

Australia’s upper house rejected a proposal to raise the debt ceiling to AU$500 billion ($465 billion), which if not resolved by December 12, could send the country into a US shutdown scenario.

Australian Prime Minister Tony Abbott has promised he will lift the debt ceiling of the world’s 12th-largest economy to AU$500 billion, but is facing opposition from the Labor Party and Greens, who want to cap the limit at AU$400 billion (about$373 billion).

The current limit stands at AU$300billion, which is expected to be reached by December 12, according to the Liberal-National coalition.

Abbott’s coalition has a majority in the lower house, but not the upper house Senate, which has the power to block legislation.

If no deal is reached, they would enter a US-style government shutdown, closing ‘non-essential’ arms of the government and laying off state employees until a debt limit is agreed.

Federal Treasurer Joe Hockey has stoked the idea of a government shutdown, and has warned of “massive” spending cuts if the ceiling isn’t extended.

“If Labor prevents an increase in the debt limit, there is no choice but to have massive cuts to government expenditure,” Treasurer Hockey said on Australian television on November 13, Bloomberg reports. 

“The government is running on borrowed money,” Hockey said.

The negotiations in Australia show the government’s slippery stance on its budget, Nomura Holdings Inc. interest-rate strategist Martin Whetton told Bloomberg.

“It’s not a good look for Australia,” said Sydney-based Whetton. “We’ve seen with the US example how disruptive these sorts of political disputes over debt can be. The bigger picture is that budget revenue expectations are poor for the government over the next four years because of high spending and an economy growing sub-trend.”

The US government was forced into a shutdown when Congress failed to negotiate on a budget deal amid nearly $17 trillion in debt.

National Australia Bank chief executive Cameron Clyne recommends Australia expands its deficit in order to grow.

Australia's AAA credit rating, according to the bank’s chief, provides it a unique opportunity to issue more government debt in order to fund domestic infrastructure and growth.

Australia’s $1.5 trillion economy has a very gloomy forecast- unemployment isn’t expected to drop until 2015, a budget deficit over $30 billion is expected for the 2013 fiscal year, and free trade talks with neighbors are breaking down over spy revelations.

After winning office on September 7, Abbott announced he wanted to expand Australia’s duty-free trade relationship with China, Japan, India, Indonesia, and 8 other countries by singing the Trans-Pacific Partnership.