Rising interest rates are stressing the federal budget, with borrowing costs surpassing the National Disability Insurance Scheme (NDIS) as the fastest-growing area of Commonwealth spending.
Borrowing will add an extra $80 billion (US$52 billion) to the government’s expenses over 11 years until 2033-34, even though the expected gross Commonwealth debt is lower than initially forecast in the May budget.
Before the mid-year economic outlook released on Wednesday, Treasurer Jim Chalmers said rising interest rates are making handling the trillion dollars of debt inherited from the previous Coalition government more expensive.
He added the mid-year update would indicate significant and positive progress in budget improvement.
“It will also show that we’ve made room for critical investments in housing, Medicare, energy, and skills in all ways that we are strengthening our economy,” he said, referring to investments that provided tens of billions of dollars in cost-of-living assistance to Australians.
To accommodate borrowing costs, the Treasury has updated its estimate for the average cost of new borrowing to 4.7 percent, up from 3.4 percent in the 2023-24 budget.
Without this increase, gross debt would be $94 billion lower in 2033-34.
Still, anticipated details on Wednesday suggest a significant improvement in the gross debt position.
Originally projected to exceed $1 trillion in 2023-24, the current projection is now $147 billion lower at $909 billion by the end of that fiscal year.
Gross debt as a percentage of GDP is predicted to reach 35.4 percent, 9.5 percentage points lower than the previous estimate and 1.1 percentage points lower than the 2023-24 budget forecast.
The highest point of gross debt is now expected in 2027-28, postponed from the initially projected 2025-26, because of increased borrowing costs.
It comes after the Reserve Bank of Australia increased interest rates to 4.35 percent to tackle high inflation.
The inflation rate, around 8 percent late last year, dropped to 4.9 percent in October.
Government Neglecting Economic Priorities, Says Opposition
Still, the government is under pressure to take action to ease inflation and assist Australians facing rising cost of living challenges.After recent economic data revealed a notable decrease in households’ savings and spending power, Shadow Treasurer Angus Taylor criticised the government for not prioritising efforts to combat inflation, ensure budget sustainability, and foster economic growth.
“Since the Albanese Labor government came to power, mortgage repayments have almost tripled. Prices have gone up by more than 9 percent. And incredibly, taxes have gone up by over 27 percent,” he explained.
He argued this is the result of homegrown inflation “that’s higher and more entrenched than our peers.”
As a result, Mr. Taylor said Australians are living through tough times every single day.
“They’re digging deep into their savings, they’re working more hours and more jobs, and they’re cutting back on the basics like fresh food. This is the exact opposite of what we want to see.”
