Budget 2024: Interest Payments on Government Debt to Soar by 57 Percent in 4 Years

An Australian 100 dollar note is shown on Oct. 6, 2009. Greg Wood/AFP via Getty Images

Australia will see a 57 percent surge in interest payments on national debt in the next four years as the government goes on a borrowing spree to cover its rising expenditures.

In the newly released federal budget forecast (pdf), the Albanese government forecast that total interest payments would rise from $22.7 billion (US$15 billion) in the 2023-24 financial year to $23.8 billion in 2024-25, before soaring to $35.6 billion in 2027-28.

Total interest payments include interest payments on Australian Government Securities, loans, and other type of government borrowing.

As a share of GDP, this represents an increase from 0.8 percent in 2023-24, to 0.9 percent in 2024-25, and 1.1 percent in 2027-28.

In comparison, the recent peak of interest payments in the 2018-19 financial year was around 1 percent of GDP, while the average rate between 2011-12 and 2022-23 was over 0.7 percent.

It is worth noting that the growth of interest payments is on the back of a significant increase in the government’s gross debt, exacerbated by factors like the pandemic.

Gross debt is projected to grow from $904 billion (33.7 percent of GDP) in 2023-24, to $934 billion (33.9 percent of GDP) in 2024-25, and $1.112 trillion (34.9 percent of GDP) in 2027-28.

Despite gross debt heading toward the $1 trillion mark, the Labor government still considered it a win because it was a slowdown of previous forecasts.

“This year, gross debt will be $904 billion instead of the more than one trillion we inherited—meaning debt is $152 billion lower,” said Treasurer Jim Chalmers.

“A stronger budget means we save around $80 billion in interest costs over the decade.

“These are the dividends of our responsible economic management.”

According to a 2021-22 budget review, the former Coalition government’s total spending on direct economic and health support since the onset of the pandemic to the 2021-22 financial year reached $25 billion.

Meanwhile, the opposition has criticised the Labor government for not restraining spending on items views as unsustainable, while warning that excess spending is fanning inflation.

“If you want to tame inflation, you’ve got to get the budget back into balance, you’ve got to make sure that there’s restraint in the sense of ensuring that the economy is growing faster than spending,” Shadow Treasurer Angus Taylor told ABC Radio.

The opposition criticised the Labor government for incurring $209 billion of additional spending in their last two budgets since coming into government.

“That’s $20,000 for an average Australian household. And I bet there’s not many Australian families out there who are feeling the benefit from that,” Mr. Taylor said.

Treasurer Jim Chalmers holds a budget paper in Canberra, Australia, on May 14, 2024. Tracey Nearmy/Getty Images

Upcoming Deficits

The new budget papers projected a second surplus of $9.3 billion (US$6.14 billion) for the 2023-24 financial year, which was driven by the revenue from strong employment and high commodity prices.

This is the first time Australia has reported a back-to-back surplus in nearly two decades.

However, the surplus will soon be wiped out by the deterioration in the budget’s cash balance in the years after that.

From the 2024-25 financial year, the budget is forecast to plunge to a deficit of $28.3 billion, with a cumulative deficit of $112 billion by 2027-28.

Rising government expenditures are responsible for the negative growth in the underlying cash balance.

“The larger deficit is driven by the government’s cost-of-living relief and addressing unavoidable spending, including the extension of funding for terminating health measures and frontline services,” the budget papers read.

Despite the projected deficits, the government said its economic and fiscal strategy would make the economy more resilient and the budget more sustainable over time.

“The government will improve the budget position in a measured way, consistent with the overarching goal of reducing gross debt as a share of the economy over time,” the budget papers read.

“This approach enables fiscal policy to respond to changes in economic conditions to support macroeconomic stability, including in times of high inflation.”