By chief political correspondent Emma Griffiths
Video: Hockey raises debt limit, unveils audit details (7.30)
Photo: Joe Hockey says the Government debt limit will be raised by $200 billion to $500 billion. (AAP: Lukas Coch)
The Federal Government has announced a $200 billion increase to the Commonwealth debt ceiling and a six-month audit into government spending in the face of a "deteriorating" budget position.
Treasurer Joe Hockey announced the measures after a federal Cabinet meeting in Canberra on Tuesday.
"The Coalition Government will have to increase the debt limit for Commonwealth government securities to $500 billion," he said.
"We are increasing it to that level because I've been advised that on December 12, the current debt limit of $300 billion will be hit."
He said the last Treasury assessment, provided in the pre-election fiscal outlook, predicted debt would peak at $370 billion.
What is the Government debt limit?
- The Government issues Commonwealth Government Securities (CGS) to meet budget deficits
- Examples of CGS include Treasury Bonds, Treasury Indexed Bonds, Treasury Notes and Aussie Infrastructure Bonds
- The amount that can be issued is governed by the Commonwealth Inscribed Stock Act 1911
- Before today the limit was $300 billion
- If the debt limit is reached, the Government faces the possibility of running out of money and defaulting on its obligations
However, recent trends show it will instead "exceed $400 billion".
Mr Hockey would not give any more details, saying only that the Treasury figures would be available in the Mid-Year Economic and Fiscal Outlook (MYEFO) due to be delivered before Christmas.
"We need to put it beyond any doubt and we do not want to have to revisit this issue again," he said, adding the Government needed to "move quickly" particularly in the wake of the recent US debt limit crisis.
"This is Labor's legacy," he told ABC TV's 7.30 program following the announcement.
"They were leaving us with a debt of $370 billion on their own projections. I've been advised that that will be significantly larger, and we are not going to allow ourselves to get into the position that the US is in where there's tremendous uncertainty about the capacity of a country to live within its means."
"I can't stop the debt that has accrued because of Labor policy," he continued.
"We need to deal with the budget as it stands, and quite frankly it has deteriorated since the election."
Opposition says Hockey asking for 'blank cheque'
Opposition treasury spokesman Chris Bowen has called on the Government to release MYEFO as a "matter of urgency" given the size of the increase.
"What he's asking for is a blank cheque," Mr Bowen told PM.
"He's asking for a very big increase in the debt cap without releasing figures."
Mr Bowen conceded that some increase to the cap was "justified" and said the Opposition would take a "responsible" look at the issue when it came before Parliament next month.
Hockey says 'no restrictions' on what commission can recommend
The Opposition has also criticised the National Commission of Audit, announced by Mr Hockey as crucial to helping the Abbott Government "fix the budget".
"What matters is not the debt limit, it's the debt. And the level of the debt," the Treasurer said.
"You've got to have a credible plan to bring the debt down and that's what we're developing.
Video: Hockey defends decision to raise debt limit (7.30)
"That's why we're having the commission of audit.
"This is the moment of truth for Labor. We are discovering all the things that they failed to reveal properly to the Australian people. Over the next few weeks and months we will explain that to the Australian people, but most importantly we are going to have a road map to get the budget back in good shape.
"I'm going to have to have remedial action and that's going to come in the form of a commission of audit. And the commission of audit is going to deal with these issues, which is what we announced [Tuesday]."
The commission will assess the "scope, efficiency and functions" of the entire operations of the Federal Government, including the potential privatisation of Commonwealth assets.
"Every area of government will be examined. There are no restrictions," Mr Hockey said.
Finance Minister Matthias Cormann, who also announced the measures, said the commission would deliver an initial report by the end of January and give its final recommendations by the end of March.
"We have inherited from Labor a budget which continues to deteriorate," Senator Cormann said.
"The Government has to be able to live within its means on a sustainable basis over the long term and this is of course what the commission of audit has to help us achieve in a calm, methodical and orderly fashion."
Mr Bowen warned the tight timeframe pointed to imminent cuts.
"We're seeing a very tight timeframe - early reports over just a matter of months," he said.
"That indicates they will be cutting this term - they won't be going to the people to get a mandate for their cuts."
Business Council president to head commission
The commission will be chaired by Business Council of Australia president Tony Shepherd.
Video: Hockey announces Commission of Audit; says debt limit to be raised (ABC News)
Four other commissioners have also been appointed: former Howard government minister Amanda Vanstone, NSW Independent Pricing and Regulatory Tribunal chairman Dr Peter Boxall, former Treasury Secretary Tony Cole and former WA senior bureaucrat Robert Fisher.
During the election campaign, Prime Minister Tony Abbott promised the audit would not trigger any action "inconsistent with our mandate".
The Labor Party has previously slammed the plan as a "licence to cut" spending.
The last Commonwealth commission of audit was established by the incoming Howard government in 1996
