Treasury Secretary Martin Parkinson has told a Senate estimates hearing that a $500 billion debt ceiling is “prudent”.

Treasury Secretary Martin Parkinson says a debt peak significantly above $370 billion in 2015/16 is likely.

He says the government’s aim for an increase in the debt limit from $300 billion to $500 billion debt ceiling is “prudent”.

In Treasury’s pre-election economic and fiscal outlook (PEFO) it forecast a debt peak of $370 billion in 2015/16.

Dr Parkinson also agreed with the Australian Office for Financial Management that there should be a buffer of $40 billion to $60 billion above the forecast peak.

“A debt limit in excess of $430 billion would be prudent even if we were totally confident about the economic outlook,” Dr Parkinson told a Senate estimates hearing in Canberra on Wednesday.

However, he said since PEFO the outlook for investment in the resources sector continues to be for a sharp downturn, non-resource sector activity has strengthen only slowly, labour force outcomes continue to be weak and wages are growing at the slowest rate since March 2000.

He said it suggests still larger deficits and hence significantly higher peak debt than the $370 billion.

Dr Parkinson said a projected cash surplus of $4.2 billion in 2016/17 now seems unlikely.

He said Treasury won’t have a firm grasp of these forecasts until after the release of the September quarter national accounts in early December.

He also noted the government has made a decision to provide the Reserve Bank of Australia (RBA) with a grant to restore its reserve fund.

“Together, these developments, a headline cash deficit already in prospect in 2016/17, a weaker economic outlook than expected at PEFO and the RBA decision suggests a peak in commonwealth securities on issue in excess of the $370 billion projected in the PEFO,” he said.

Treasury has provided a range of options to the government, including not having a debt ceiling, as was the case before 2008.

“The choice of the $500 billion limit seems prudent if we are to place a premium on insuring financial market confidence,” he said.

Labor and the Australian Greens have been unwilling to accept the $500 billion limit without the mid-year budget review, which the government won’t release until mid December.

They amended the government’s legislation to a $400 billion debt limit, but this was rejected by Treasurer Joe Hockey.

The legislation stands in limbo until the Senate sits again in December 2.

The current $300 billion will be hit on December 12 and will swing either side of that for the rest of the financial year.