Australian government debt and fiscal position

Alan Payne and Alicia Hall, Statistics and Mapping

Key issue
In recent years, and particularly around elections, there has been significant discussion around Australia’s debt levels, as well as Australia’s fiscal position (that is, the Government’s taxation and spending). However, to understand the real implications of debt, it helps to look carefully at what the numbers mean.

National debt is not necessarily financially dangerous or unsustainable. It depends on the wider circumstances and economists use a number of terms to measure and compare debt (see boxed text). Against these measures, and when compared against both historical and international data, Australia’s economy is relatively strong.

Gross debt is the amount of money owed by an organisation. It indicates the magnitude of debt owed, but it does not show whether an organisation can repay that debt and provides limited detail about the overall financial health of an organisation (including governments).

More often reported, net debt is the sum of all liabilities (gross debt) of an organisation, less their respective financial assets (cash and other liquid assets). Net debt is one of numerous economic indicators which provide a quantitative measure of the financial health of an organisation.

For example, if a government has a gross debt that is 50% of GDP but has very little cash and or assets (high net debt) it may struggle with this level of debt. However, if a government has a gross debt of 50% of GDP but has large amounts of cash and/or assets (low net debt) then it is in a much better position to handle this level of debt. 

Debt is often reported as a relative indicator to allow comparison across all years, expressed as a proportion of Gross Domestic Product (GDP). In the 2013–14 Budget, the Government indicated that net debt in Australia rose from -3.8% of GDP in 2007–08 to 10.0% of GDP in 2011–12. The August 2013 Pre-Election Economic and Fiscal Outlook (PEFO) estimated that net debt would rise to 11.7% of GDP in 2013–14 and peak in 2014–15 at 13.0% of GDP. These levels of net debt are not unprecedented in Australia. Between 1970–71 and 2011–12, net debt level as a percentage of GDP exceeded 10.0% ten times (mainly in the 1990s). The chart on net debt indicates that, when compared with other advanced economies, Australia’s net debt levels are comparatively low, and have been for some time.

Fiscal balance is the difference between revenues and expenditures. A negative fiscal balance implies that expenditures are larger than revenues. In this situation, an organisation is in deficit and will need to borrow money to make up the shortfall in revenues. If the fiscal balance is positive, the organisation is in surplus, which it can then save, give back to its shareholders or use to retire debt. 

The chart on Australian Government revenue and expenses shows that at the time of the Global Financial Crisis (GFC), expenses increased significantly whilst revenues declined. Overall, between 1996–97 and 2011–12, Australia’s fiscal balance fluctuated between a high of 1.8% (1999–00 and 2007–08) and a low of -4.2% (2009–10). The PEFO projected a return to surplus of 0.1% in 2015–16.

To determine whether Australia’s fiscal balance presents a concern, it is useful to compare it with other countries. The International Monetary Fund (IMF) publishes data on various countries’ structural budget balances, which adjust budget balances for temporary or one-off factors beyond the economic cycle. As illustrated in the structural budget balances chart, although Australia’s fiscal balance fell to a low in the context of the GFC, its structural budget balance is reasonable compared to other advanced economies.

Net debt

Net debt

Source: International Monetary Fund, World Economic Outlook Database, April 2013.

Australian Government revenue and expenses

Australian Government revenue and expenses

Sources: Australian Government, Budget strategy and outlook: budget paper no 1: 2013–14, p.10-10 and Secretary to the Treasury and Secretary of the Department of Finance and Deregulation, Pre-election Economic and Fiscal Outlook 2013, p. 23.

Structural budget balances

Structural budget balances

Source: International Monetary Fund, World Economic Outlook Database, April 2013.

Further reading

A Payne, ‘Australia’s current debt position – update June 2013’, FlagPost weblog, 25 June 2013. 

Monthly Statistical Bulletin, Parliamentary Library, Canberra.

P McDonald, State statistical bulletin 2010–11, Background note, Parliamentary Library, Canberra, 6 September 2012.

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