Effects Of Rising Foreign Debt On Australia - 1237 Words

3.0 Positive and negative: While rising foreign debt is widely viewed as a concern, Glenn Stevens (2009) argues that it is not an issue since the imported capital is being used productively. This may be true to some extent however Australia has been in a significant amount of debt for a while. Although the investment benefits are substantial in Australia and we would be no where without the ability to borrow and accumulate debt, there are is much longer list of negatives linked to foreign debt. 3.1 Positives: i) Investments If foreign debt is accumulated through borrowing funds used to increase the development of industries or productive capacity it is considered a positive thing for the Australian economy, helping grow Australian†¦show more content†¦So to encourage investors the RBA would have to increase interest rates making borrowings more expensive, but because of the inverse relationship high interest rates has with demand in Australian economy it would also mean a slow in domestic income and consumption and consequently higher unemployment. (Foster, 2013) ii) Impacts on standards of living Eventually the debt has to be paid back, and when it does Australians income is diverted from consumption to servicing the debt. This means that luxuries that are classified as the basic standard of living for everyday Australian’s have to be foregone to be able pay taxes and the increased prices in everyday prices. In paying off debt the government has to raise revenue to service their public debt, this is usually done in increasing taxes which is why so many governments are hesitant to peruse this difficult issue. Or provided the return is high enough the profits from the investment should be enough to deliver to the shareholders. (Adkins, 2015) On the other hand the private sector must also repay investors or loans through maximising profits to service their liabilities, this is sometimes done by pushing the burden onto the customer or by cutting costs (job cuts). If that is not possible businesses or individuals go bankrupt are forced into liquidation. It is much more diff icult for the government or entire country to go bankrupt, as government could just sell more bonds or their citizens would