Australia will see a 57 percent surge in interest payments on national debt in the next four years as the government goes on a borrowing spree to cover its rising expenditures.
Total interest payments include interest payments on Australian Government Securities, loans, and other type of government borrowing.
As a share of GDP, this represents an increase from 0.8 percent in 2023-24, to 0.9 percent in 2024-25, and 1.1 percent in 2027-28.
It is worth noting that the growth of interest payments is on the back of a significant increase in the government’s gross debt, exacerbated by factors like the pandemic.
Gross debt is projected to grow from $904 billion (33.7 percent of GDP) in 2023-24, to $934 billion (33.9 percent of GDP) in 2024-25, and $1.112 trillion (34.9 percent of GDP) in 2027-28.
Despite gross debt heading toward the $1 trillion mark, the Labor government still considered it a win because it was a slowdown of previous forecasts.
“This year, gross debt will be $904 billion instead of the more than one trillion we inherited—meaning debt is $152 billion lower,” said Treasurer Jim Chalmers.
“A stronger budget means we save around $80 billion in interest costs over the decade.
“These are the dividends of our responsible economic management.”
Meanwhile, the opposition has criticised the Labor government for not restraining spending on items views as unsustainable, while warning that excess spending is fanning inflation.
The opposition criticised the Labor government for incurring $209 billion of additional spending in their last two budgets since coming into government.
“That’s $20,000 for an average Australian household. And I bet there’s not many Australian families out there who are feeling the benefit from that,” Mr. Taylor said.
Upcoming Deficits
The new budget papers projected a second surplus of $9.3 billion (US$6.14 billion) for the 2023-24 financial year, which was driven by the revenue from strong employment and high commodity prices.This is the first time Australia has reported a back-to-back surplus in nearly two decades.
However, the surplus will soon be wiped out by the deterioration in the budget’s cash balance in the years after that.
From the 2024-25 financial year, the budget is forecast to plunge to a deficit of $28.3 billion, with a cumulative deficit of $112 billion by 2027-28.
Rising government expenditures are responsible for the negative growth in the underlying cash balance.
“The larger deficit is driven by the government’s cost-of-living relief and addressing unavoidable spending, including the extension of funding for terminating health measures and frontline services,” the budget papers read.
Despite the projected deficits, the government said its economic and fiscal strategy would make the economy more resilient and the budget more sustainable over time.
“The government will improve the budget position in a measured way, consistent with the overarching goal of reducing gross debt as a share of the economy over time,” the budget papers read.
“This approach enables fiscal policy to respond to changes in economic conditions to support macroeconomic stability, including in times of high inflation.”
