Exclusive: Falling rates expose economic dangers while delivering Josh Frydenberg up to $2 billion | swrighteconomy
Tumbling interest rates on government debt will deliver Josh Frydenberg up to $2 billion in budget savings just in time for the federal election campaign but the fall is also pointing to growing major economic risks.
Even though the return to a budget surplus will reduce the need for the government to borrow money, the drop in interest rates will cut the cost facing Mr Frydenberg for future bond issues.The sharp drop, if maintained, could deliver almost $500 million in lower interest costs in the 2019-20 financial year and a similar amount the following year. Over the full four years of budget forward estimates, the saving could approach $2 billion.
In the mid-year budget update released in December, Treasury assumed an average cost of 2.5 per cent on the nation's future borrowings. That was a fall on the 2.8 per cent assumed when the budget was released in May. While the budget will improve off lower interest costs, the fall in rates on government borrowings point to an economic slowdown that may force the Reserve Bank into cutting official interest rates.
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