Australia remains on track to rack up $1 trillion in debt for the first time, after marathon spending to respond to the COVID-19 pandemic.

But the timeframe has been pushed out by one year to 2023/24, after the mid-year budget update in December indicated the milestone could be hit earlier.

The federal government embarked on a range of programs to support jobs, business and households at the start of the pandemic in early 2020, pushing the budget into deficit.

While the government’s net interest payments are relatively low – at around $15 billion a year – they are expected to rise to $22 billion in 2025/26.

This would be in line with a forecast higher interest rate environment in Australia, and around the world.

However, in 2019 when the budget was almost in surplus the government’s interest bill was much higher at about $15 billion a year.

“Super-low interest rates have kept that debt servicing in check,” CommSec chief economist Craig James noted earlier this month.

Gross debt, which includes all the IOUs issued by the government, will hit a never-before-seen $1.06 trillion in 2023/24.

It will then peak at $1.17 trillion in 2025/26.

Net debt – which takes into account the government’s financial assets – will also trend higher to a peak of $864.7 billion in 2025/26, from around $715 billion this year.

This means net debt as a share of the economy will also peak, at 33.1 per cent, by mid-2026.

Despite the considerable cost of responding to COVID-19, the government says its debt burden remains manageable.

“Australia continues to have lower debt as a share of its economy than many other advanced economies,” the budget papers said.

Australia also has a coveted top-line triple A credit rating.

As of March 25, Australia’s gross debt totalled $866.1 billion.


Kaaren Morrissey
(Australian Associated Press)