THE federal government has begun preliminary talks with the Australian Greens in a bid to end the debt ceiling stand-off as Treasurer Joe Hockey again warned it was impacting international investor confidence.
The government wants to increase the ceiling by $200 billion to $500 billion but Labor and the Australian Greens joined forces in the Senate against the bill that is listed for debate on Tuesday.
The legislation was returned to the upper house after Mr Hockey rejected a Labor and Greens amendment proposed two weeks ago to limit the increase to $100 billion, for a cap of $400 billion.
The Greens later said they were prepared to discuss scrapping the ceiling altogether, as long as there was greater government transparency on what additional debt was used for.
A spokesperson for the Treasurer confirmed on Monday that talks have begun but said they were preliminary and involved officials.
Earlier Prime Minister Tony Abbott was challenged on how his conservative coalition could negotiate with a party he describes as "economic fringe dwellers".
"Our challenge as a government is to clean up Labor's mess," he told reporters on Monday.
"Part of cleaning up Labor's mess is to avoid the sort of problem which the United States had recently because they were running up against legislated debt ceilings."
Mr Hockey told parliament he had taken phone calls from international investors and global rating agencies concerned about Australia reaching its current $300 billion debt limit by December 12.
Government debt subject to the ceiling stood at $296.09 billion on Friday.
Mr Hockey said the former Labor government had budgeted for a debt peak of $370 billion but it didn't take into account the need for a $60 billion buffer in case of an emergency.
"This is unprecedented territory," he said.
"If the Labor party is going to prevent us from trying to fix the problem they created they will wear this."
Greens leader Christine Milne rejects the government's depiction of the stalemate as threatening the economy and confidence.
Opposition Leader Bill Shorten warned that the government was asking the Greens to give it a "blank cheque" to increase debt.
"These guys are desperate to do whatever they want, regardless of the consequences," he said.
Treasury Secretary Martin Parkinson recently told a senate committee one option was to scrap the debt ceiling, introduced by Labor in 2008.
Nationals senator John Williams backs scrapping the ceiling.
"We don't want to go down the road of America where we're having a deadlock of actually keeping our public sector going," he said.
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