Australian Government Debt

Budget Resources

Gregory O’Brien

Australian Government debt levels have been increasing in both absolute and relative terms since the Global Financial Crisis in 2008–09 and increased further to fund government health and economic support packages in response to the COVID-19 pandemic. At the start of 2007, prior to the Global Financial Crisis, Australian Government gross debt was under $52 billion. Between 2007 and March 2020 total Australian Government Securities (AGS) on issue increased to $580 billion, and is $897 billion as of 5 May 2023.

The 2023–24 Budget forecasts further increases in gross debt to $1.067 trillion (36.5% of GDP) by the end of the 2026–27 financial year, albeit at a slower pace than had been forecast in the October 2022–23 Budget (Budget strategy and outlook: budget paper no. 1: 2023–24, p. 421). While these are the highest levels of debt (relative to GDP) on issue by the Australian Government since the 1950s, they remain well below Australian historical peaks reached following the Second World War (p. 8) and current government debt levels in many other developed countries.

Key terms used in the Budget when presenting Australian Government debt figures are outlined below, followed by an overview of Australian Government debt figures in the Budget based around 3 frequently asked questions: how current levels of Australian Government debt compare to the past; how they compare internationally; and who owns Australian Government debt. A final section highlights where to find more detailed discussions of debt in the Budget.

Australian Government debt issuance and key terms

Australian Government debt is a key component of the Budget. Government spending is funded either through receipts – primarily taxes – or through borrowing. In the Budget, the difference between receipts and payments is referred to as the cash balance, which had been in deficit (payments have exceeded receipts) since 2007–08 prior to the estimated $4.2 billion underlying cash balance surplus for 2022–23 reported in the 2023–24 Budget.

This financial year’s estimated underlying cash balance surplus is not forecast to continue, with Treasury forecasting underlying cash balance deficits through the medium-term to 2033–34, although the primary cash balance (which adjusts the underlying cash balance for net interest payments) is forecast to be in surplus from 2029–30 (Budget paper no. 1, p. 96). However, both the underlying cash balance and the primary cash balance forecasts have improved over the medium-term compared to the October 2022–23 Budget. The improved outlook means that gross debt is now forecast to peak at 36.5% of GDP in 2025–26, five years earlier than the 46.9% peak forecast in the October 2022–23 Budget for 2030–31.

The Australian Office of Financial Management (AOFM) manages Australian Government debt issuance. The AOFM issues 3 types of debt securities, collectively known as Australian Government Securities (AGS):

Treasury Bonds: medium to long-term debt securities that pay interest at a fixed annual rate every 6 months. These are the largest type of AGS, representing 91.3% of AGS on issue by face value as of 5 May 2023.

Treasury Indexed Bonds: medium to long-term debt securities that include adjustments for inflation. These represented 4.3% of AGS on issue as of 5 May 2023.

Treasury Notes: short-term debt securities with maturations up to one year. These represented 4.3% of AGS on issue as of 5 May 2023.

The total face value of AGS on issue at a given point in time, which represents the total amount that will need to be repaid when all extant AGS mature, is used as a measure of gross debt in the Budget. The AOFM publishes a weekly figure for total AGS on issue, broken down into the 3 types described above, as well as more detailed information in its data hub.

While gross debt is a good representation of the total magnitude of outstanding debt, it may not be the best measure for analysing debt sustainability depending on the financial assets available to service or pay off this debt. For this reason, the Budget also provides figures for Australian Government net debt, defined as ‘the sum of interest-bearing liabilities less the sum of selected financial assets (cash and deposits, advances paid, and investments, loans and placements)’ (Budget paper no. 1, p. 249). While some of the investments, loans and placements are held by government investment funds, including the Future Fund, holdings of equity, including those held by these investment funds and the Government’s equity investment in the NBN, are not included in the calculation of net debt.

Whether gross debt or net debt is a better measure of government indebtedness will depend on the context of the analysis. The difference between these measures is described in more detail when looking at international comparisons of government debt, below.

Trends in Australian Government debt

The Budget provides historical data for a range of budget aggregates back to 1970–71 in the Historical Australian Government Data statement of Budget paper no. 1 (Statement 11). When comparing levels of debt across long periods of time, it is useful to convert the dollar values of debt into a relative measure, usually the ratio to GDP, to control for the impacts of price changes across the economy. Figure 1 shows gross debt, represented by the total face-value of AGS outstanding, and net debt, as a ratio to GDP over the last 50 years and including Budget 2023–24 estimates through to 2026–27. It also shows total (gross) interest payments on this debt for the same period, also as a ratio to GDP. The estimates for gross and net debt for 2022–23 to 2025–26 contained in the October 2022–23 Budget are provided for comparison.

Figure 1        Australian Government total AGS on issue (gross debt), net debt, and interest paid

Source: Australian Government, Budget 2023–24: Budget Paper No. 1, 418–421, and October Budget 2022–23: Budget Paper No. 1, 380–383.

Figure 1 shows that Australian Government debt fluctuated around 20% of GDP from the early 1970s to the mid-1990s with one period of sustained decreases in the late 1980s. Government debt then trended down between the mid-1990s until the GFC in 2007–08, as the Howard Government prioritised debt repayment and budget surpluses. From 2008–09, following the GFC and associated government economic support packages, government debt has steadily increased as a ratio to GDP.

The 2023–24 Budget forecasts the government debt to GDP ratio will fall 3.9 percentage points from 38.8% in 2021–22 to 34.9% of GDP in 2022–23 as nominal GDP growth increased at a higher rate than gross debt. From 2023–24 to 2026–27 this ratio is forecast to increase slightly but both the level and the growth is forecast to be much lower than had been forecast in the October 2022–23 Budget. In dollar terms, gross debt is forecast to increase to reach a trillion dollars in 2025–26, reaching a peak over the forward estimates of $1.106 trillion in April 2027 (Budget paper no. 1, p. 244). While current and forecast debt to GDP ratios are high relative to recent history, they are still well below the peak of over 120% of GDP reached following the Second World War (p. 8).

The increase in the level of Australian Government debt following the GFC did not see a commensurate rise in the amount of interest paid because interest rates on Australian Government debt fell over the period, largely offsetting the increase in the level of debt. However, interest rates on Australian Government debt have risen steeply since 2022. This increase has been common to many countries globally in response to inflationary pressures and the tightening of monetary policy by central banks. This increase in interest rates has led to an increase in the estimates for Australian Government interest payments as a proportion of GDP, which are estimated to increase from 0.7% of GDP in 2022–23 to 1.0% of GDP in 2025–26. As Australian Government debt is composed of a portfolio of fixed rate securities with maturities extending up to 2051, the interest rate on this debt responds slowly to changes in market interest rates. So, the full effect of an increase in market interest rates takes many years to be fully reflected in the interest paid on AGS.

International comparison of General Government debt

Despite increases in Australian Government gross and net debt since the GFC, levels of both remain relatively low when compared to other similar countries. The International Monetary Fund (IMF) publishes data on General Government sector gross and net debt across countries. The IMF approach includes all levels of government (for Australia, the Australian Government, state and local governments), which allows for more meaningful comparison across countries with different structures of government. Figure 2 shows IMF estimates of gross debt and net debt for 2022 across several advanced countries from the IMF’s Fiscal monitor April 2023 publication.

Figure 2        IMF General Government gross and net debt (% of GDP) estimates, 2022

Source: International Monetary Fund (IMF), Fiscal Monitor April 2023: On the Path to Policy Normalization (Washington, DC: IMF, April 2023), Tables A7 and A8.

Figure 2 shows the important difference between gross debt and net debt when comparing across countries. Countries with significant relevant financial assets, such as Canada (held by public pension plans) and Norway (held in a sovereign wealth fund) have much lower levels of net debt than gross debt once these financial assets are incorporated. This is also relevant to a lesser extent for Australia, where some of the $250.5 billion managed by the Future Fund and other smaller government investment funds has contributed to a widening gap between gross debt and net debt over time (p. 1).

There is variation across countries in the degree to which these financial assets are held to meet future specified expenditure purposes, and some debate as to whether it is appropriate to consider these assets as offsetting government debt. Gross debt is a more consistent measure across countries, as there is less variation due to different social security regimes.

As Figure 2 shows, despite the increase in both Australian Government net debt and gross debt since 2007–08, the level of government debt compared to international peers remains relatively low. The Australian General Government gross debt to GDP ratio is less than half that of the United States, and less than a quarter of that of Japan. Australia’s gross debt to GDP ratio is lower than any of the larger economies in the G7 and only Canada has a lower net debt to GDP ratio. Australia has a government debt ratio closer to that of other smaller economies such as South Korea and New Zealand.

Holdings of Australian Government Securities

Australian Government debt is owned by a range of Australian and international investors. The AOFM provides information on the share of AGS on issue owned by non-residents on a market-value basis. Under the Guarantee of State and Territory Borrowing Appropriation Act 2009, the AOFM was tasked with establishing a Public Register of Government Borrowings. As the AOFM has no powers to compel financial intermediaries to disclose the beneficial owners of AGS they administer, the register has limited information on the countries of residence of foreign owners of AGS.

The Reserve Bank of Australia (RBA) started purchasing significant amounts of AGS on the secondary market as part of its monetary policy response to the COVID-19 pandemic to support financial markets and maintain loose monetary conditions when interest rates approached zero. This led to the RBA holding a growing share of the total AGS on issue. The RBA ceased purchasing AGS on 10 February 2022, and in its May 2022 Statement on Monetary Policy decided:

[…] the Board will not reinvest the proceeds of maturing government bonds and expects the Bank’s balance sheet to decline significantly over the next couple of years as the Term Funding Facility comes to an end. The Board is not currently planning on selling the government bonds that the Bank has purchased during the pandemic. (p. 3)

This decision means that RBA ownership of AGS should slowly recede as the existing AGS owned by the RBA mature. As total outstanding AGS is forecast to increase over the period, these maturing bonds will need to be absorbed by the resident and non-resident markets for AGS. Given the duration of these bonds, this process is likely to slowly occur over the next decade, with the longest duration AGS bond held by the RBA due to mature on 21 April 2033.

Figure 3 below shows estimates for the ownership of AGS by non-residents, the RBA and other domestic owners. The figures for resident and non-resident holdings are based on the market-value of AGS holdings (that is, the value of the securities on the secondary market) while the RBA figures are published in face value (that is, the amount the Government pays back at maturity) (Budget paper no. 1, p. 243). RBA holdings of AGS are considered resident holdings.

The chart shows resident holdings of AGS have steadily increased over the last decade and non-resident holdings have fallen as a proportion of the total while RBA holdings increased between March 2020 and February 2022 when the RBA’s bond purchase program finished. This trend has reversed somewhat over the past 12 months as non-resident holdings have remained steady while resident holdings have fallen. The reduction in the proportion of AGS held by non-residents reduces the risk of interest rate volatility associated with capital flight, when non-resident investors sell overseas assets and repatriate the money, often in response to market volatility. The decrease in the overall level of AGS held by both resident and non-resident investors at market value over the past 12 months shows the impact that rising interest rates have had on the value of bond portfolios. The RBA figures, published at face value, are not marked to market, so do not show the same decline.

Figure 3        Estimated resident and non-resident holdings of AGS (market value) and Reserve Bank Australia holdings of AGS (face value)

Source: Parliamentary Library calculations based on Australian Office of Financial Management, Non-Resident Holdings of AGS, and Reserve Bank of Australia, Holdings of Australian Government Securities and Semis.

Where to find additional discussion of debt in the 2023–24 Budget

While this article provides a broad overview of the debt figures contained in the Budget, more detailed discussion is provided on several debt-related topics in Budget paper no. 1:

  • Budget paper no. 1 – statement 3: fiscal strategy and outlook provides the medium-term (through to 2033–34) projections for the underlying cash balance (p. 96), gross debt (pp. 110–111) and net debt (p. 113), and how these projections have changed since the October 2022–23 Budget.
  • Budget paper no. 1 – statement 3 also includes an outline of the Government’s new green bonds issuance slated to start in mid-2024, which will see the AOFM issue green bonds to fund government projects with climate change or environmental objectives (Box 3.4, p. 112).
  • Budget paper no. 1 – statement 7: debt statement provides detailed figures on Australian Government debt parameters over the forward estimates (to 2026–27).
  • a complete breakdown of Treasury Bonds on issue is provided in Table 7.4 (p. 246).
  • non-resident holdings of Australian Government Securities is discussed on page 248.
  • a breakdown of liabilities and assets included in net debt is provided on page 249.
  • yield curve assumptions (interest rate assumptions for Treasury Bonds of different maturities) used in the Budget and how they have changed since the October 2022–23 Budget are provided on page 251.
  • Statement 8: forecasting performance and sensitivity analysis discusses how changes in underlying assumptions impact key budget forecasts. The sensitivity analysis for movements in yields (pp. 272–273) shows how alternative assumptions of 10-year bond yields would lead to different assumptions for the path of gross debt levels.


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