The $57.6 billion deficit announced by the federal government was high but not excessive, an investment specialist said.
"Obviously the deficit is pretty high, but that is understandable in the context of the global recession," Colonial First State Global Asset Management head of investment markets research Stephen Halmarick said yesterday.
The deficit is the result of government plans to fund a project of "nation building" - a term used to describe a multi-billion investment program that includes investments of $22 billion in infrastructure, an initial $4.7 billion in a national broadband network and $4.5 billion in clean energy generation.
To support the funding of these investments, the government will also issue about $60 billion in government bonds over the twelve months to 30 June 2010.
The amount of government bonds on issue will increase to about $133 billion by the end of June 2010, while net debt is forecast to peak at 13.8 per cent of GDP in 2013-14. But this will not affect Australia's ability to raise funds.
"That is still within the AAA rating band," Halmarick said, although he did warn that the government should not be complacent about rising debt.
The increase in bond issuance could see a reinvigoration of the market but this will need some input from the government, Tyndall head of fixed income Roger Bridges said.
"In the 70s and 80s they forced super funds to hold government bonds. Now we don't have that demand," he said. "We would like to see the government stimulating the government index bond market."
Although many investors have become more wary of investment risks as they have seen their portfolios decrease during the financial crisis, it remains to be seen whether they would allocate more money to bonds.
MLC Investment Management portfolio manager Stuart Piper said he would not seek to increase his allocation to bonds.
"We would be maintaining that allocation in our portfolio, but we run a very diversified portfolio and a lot of that is not invested in government bonds but in credit, which we find relatively attractive."
