Federal Budget 2021: Australia’s national debt is $963 billion

Economists are warning that while Australia’s debt may be affordable at the moment, it could create long-term challenges for the future.

A decade of rising debt looms for taxpayers despite the Federal Government borrowing much less than it expected during Australia’s strong economic rebound from the pandemic.

While this year’s deficit of $161 billion is a massive $52.7 billion lower than the $213.7 billion forecast last October, the government will continue spending about $100 million more than it receives for each of the next two financial years.

And Budget deficits are projected to continue until at least 2031-32, pushing gross government debt from $963 billion in 2021-22 to close to $1.5 trillion early next decade.

Treasurer Josh Frydenberg said Australia’s debt was “low by international standards”.

“Net debt will increase to $617.5 billion or 30 per cent of GDP this year and peak at $980.6 billion or 40.9 per cent of GDP in June 2025,” he said.

“As a share of the economy, net debt is around half of that in the UK and US and less than a third of that in Japan.”

Economists said Australia’s debt remained affordable at the moment, but that could change.

Tradespeople and those looking to break into the trades industry are well catered for in the 2021-22 federal budget. Picture: supplied

AMP Capital chief economist Shane Oliver said a stronger economy meant “more tax revenue going to Canberra and less welfare payments”.

He said the government’s current interest bill was lower than it had been in recent years, despite the record debt levels.

“For much of the last year the Federal Government has been able to borrow money for 10 years at about 1 per cent,” Dr Oliver said.

“In normal times you would be paying 4 to 5 per cent on government bonds.”

CreditorWatch chief economist Harley Dale said the government was spending on the economy to grow it.

Treasurer Josh Frydenberg said Australia’s net debt is around half of that in the UK and US. Picture: Sam Mooy/Getty

“A lot of voters worry about deficits and debt, but right now it’s about creating jobs and opportunities for people, and keeping businesses alive,” he said.

“The government seems to be prepared to invest in measures that will grow the economy, which means we will have more jobs than we otherwise would have, and hopefully in time have faster growth in wages.”

The big-spending Budget forecasts deficits of $106.6 billion in 2021-22, $99.3 billion in 2022-23 and $79.5 billion in 2023-24, as higher income from tax receipts is offset by extra spending in areas such as aged care and mental health. These combined deficits are more than what was forecast in last year’s Budget.

“The underlying cash balance is expected to improve from a deficit of 7.8 per cent of GDP

in 2020-21 to a deficit of 1.3 per cent of GDP by 2031-32,” the Budget papers say.

Gross debt is forecast to hit $1.06 trillion in 2022-23 and continue rising.

PwC Australia chief economist Jeremy Thorpe said while much of last year’s Budget spending to combat COVID was temporary, this year’s was locked in.

“That’s not a concern when interest rates are low and iron ore is at record high prices, but it’s more of a challenge as we move forward,” he said.