Federal Budget 2022: Australia faces another 28 years in the red

Interest payments on Australia’s forecast trillion dollar debt have become the “fastest growing” area of spending. A baby born today would be 28 before the debt bill is paid.

Interest payments on Australia’s forecast trillion dollar debt have become the “fastest growing” area of federal government spending, expected to blowout to $1190 for every person in the country.

Australia’s gross debt is forecast to grow from $927 billion this year to $1.15 trillion — or 43.1 per cent of GDP — by 2025-26, according to the October budget.

Within a decade gross debt is estimated to increase to 46 per cent of GDP, and without substantial reforms economists have forecast a baby born today would be 28-years-old before the debt bill was paid down.

Interest payments have become one of the top five spending pressures on the budget, expected to cost the government a total of $18.9bn this financial year, and within four years will soar to $32.6bn, which is $6bn more than was forecast just six months ago.

Treasurer Jim Chalmers said the government had inherited a budget with debt at its highest in 70 years, but due to spending restraints had been able to modestly reduce it compared to March forecasts.

Labor’s budget measures have resulted in $50bn being slashed off the gross debt forecast this year, $52bn in 2023-24, $26bn the year after and $10bn off the fourth year in the forward estimates.

“That’s less debt than our predecessors – less debt, with more to show for it,” Mr Chalmers said.

However he said higher borrowing costs meant interest payments had “blown out considerably”.

“Borrowing costs are the fastest growing budget pressure, rising at more than 14 per cent a year over a decade,” he said.

The cost of servicing the debt amounts to $719 for every Australian this financial year, but will blow out to a forecast $1190 by 2025-26.

In March interest payments were about $680 per person this year, growing to $960 over the forward estimates.

Only last year, the government was borrowing money at an interest rate of less than one per cent.

However as rates increased, that cost has risen to as high as 4.5 per cent this month.

Net debt — taking into account government assets — is forecast to reach $572bn this year and increase to $766.8bn in 2025-26.

Mr Chalmers said “restraint” was the “name of the game” as he prepared the October budget, where spending had been reigned in both to avoid adding to inflation and to make a “start” on budget repair.

Labor will return 90 per cent of unexpected savings gained through higher commodity prices and strong employment, back to the budget bottom line instead of increasing spending.

Mr Chalmers said this was “significant” and by comparison the previous Coalition government had averaged returning about 40 per cent of savings to the budget.

Originally published as Federal Budget 2022: Australia faces another 28 years in the red