Why are the Commonwealth borrowing amounts limited to between -$1 billion and $1 billion per year?
In reality, Governments sell a variety of bonds to finance their debt, not just one type of bond as the model assumes. For individual policy proposals with smaller financial impacts, this assumption is more valid, however it is less reasonable to assume large amounts of borrowings are being financed by the one type of bond. Therefore, the calculator restricts the borrowing amounts to a limited range.
For a one-off change in borrowing in 2022-23, why does the PDI impact jump up in 2032-33?
The PDI Calculator assumes that the nominal interest rate is fixed from the day the bond is issued to when it matures. For instance, if a 10-year bond is issued in 2022-23 with a 2.27% nominal interest rate, the same rate is applied each year until the bond matures in 10 years' time, in 2032-33. At this point, it is refinanced with another 10-year bond with its associated nominal interest rate for 2032-33 (i.e., 3.64% based on the yield path assumptions from the 2022-23 Budget). This results in a significant increase in the PDI impacts in the last year when it is refinanced at a much higher rate.
Why doesn't the PDI impact go to zero when I borrow in one year and pay back the same amount in a subsequent year, even after accounting for capitalised interest?
The PDI Calculator should not be used to simulate the impact of an increase in borrowing in one year and the subsequent repayment of that borrowing in another year. Any change in borrowing (increase or decrease) is a change relative to a baseline level of borrowing in that year, and has no link to changes in borrowing in previous or future years. Any reduction in Commonwealth borrowing in one year should not be interpreted as a repayment of previous borrowing.
The PDI impact resulting from a change in borrowing reflects the interest costs based on the interest rate for the year the change in borrowing occurred and this may be different from the interest rate of a previous borrowing.
For example, say borrowing increased by $100 million in 2025-26 and then decreased by $102.27 million in 2026-27 (accounting for capitalised interest of $2.27 million from 2025-26). The calculator treats the $102.27 million as a separate change-in-borrowing event with its own interest rate, rather than a repayment. As the projected interest rates for 2025-26 and 2026-27 are different, the PDI impact estimated by the calculator is non-zero (reflecting the difference in interest rates between the two years).
Note that if the increase and decrease in borrowing occurred in years where the projected interest rates are the same, the PDI impacts would perfectly offset each other, resulting in a zero PDI impact.
The interest rate profile for the period to 2032-33 can be found in the 'Detailed Calculations' tab.
Why does the PDI calculator only go out for 11 years when bonds issued by the government can extend beyond the 11 years presented here?
Consistent with the PBO's written costing advice for policy proposals, the calculator estimates the PDI impacts for the current Budget year and the following ten years.
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