Australia’s hidden $1 trillion debt

WE’RE celebrating budget surpluses and spending billions but one number reveals a very different picture and it’s causing concern.

NEW South Wales is splashing the cash after announcing a $3.9 billion surplus this week but not everyone is convinced things are as good as they seem.

New analysis has revealed that combined infrastructure spending across state and federal governments is close to $1 trillion, according to The Australian.

While the NSW Budget was so flush with cash the government was able to set aside billions in a future fund to pay for community projects and infrastructure, US ratings agency Moody’s noted “rising debt levels” as a potential future challenge for the state.

In particular it highlighted that expenses were expected to increase by 3.2 per cent over four years, while revenue was only expected to grow by 2.5 per cent.

The Australian analysis found a similar pattern of high surpluses sitting next to rising debts in every other state budget.

When looking at “net financial liabilities”, which gives a broader picture of what would be left if all assets were sold and debts were paid, it found combined government debts from state and federal bodies would increase to about $944 billion by June 2021 — about $36,000 per person.

Much of this will be from infrastructure spending and in delivering his Budget, NSW Treasurer Dominic Perrottet said infrastructure spending in NSW would be the largest in Australia and would hit a record $87.2 billion over four years.

Former NSW treasurer Michael Egan reportedly described the states’ rising debt levels as “very worrying” and said states were able to hide this as headline budget results did not include infrastructure spending.

But The Australia Institute senior economist Matt Grudnoff said there was a very good reason infrastructure spending had been separated from the surplus figure in the 1990s.

“It was not just about trying to hide stuff, it was trying to reveal stuff,” he told news.com.au.

Previously governments that wanted to hide deficits in their budgets were able to sell assets to put them in surplus.

“This disguised the fact that they were running deficits, by periodically selling assets,” he said.

NSW Treasurer Dominic Perrottet unveiled a $3.9 billion surplus this week. Picture: Richard Dobson

Nowadays what governments are spending and earning, is separated from capital assets.

Mr Grudnoff said the $1 trillion figure was the country’s “gross debt” but this didn’t reveal what assets the government was investing in to create that debt.

“Infrastructure can be good and bad, it depends on what type of asset you are buying,” he said.

“If you are buying a new stadium that you plan to demolish to build a new stadium, then that’s probably bad.

“If you are planning to improve public transport in an overcrowded city then that’s probably good.”

In fact, Mr Grudnoff said infrastructure spending had been propping up employment and GDP growth in Australia in recent years.

“The building of hospitals and schools has been propping up the economy in the last few years. Without it, unemployment would be a lot higher and economic growth would be a lot lower.

“I would love to see more scrutiny of government infrastructure projects but I don’t think infrastructure spending is a bad thing at this time of low interest rates.

“I wouldn’t be concerned about it, we should be taking advantage of it to improve infrastructure in Australia.”