Government Debt Interest Payments to Increase by 57% in 2024 Budget
Total interest payments are expected to significantly increase from $22.7 billion in the 2023-24 financial year to $35.6 billion in 2027-28.
Australia is set to experience a 57% surge in interest payments on national debt over the next four years as the government embarks on a borrowing spree to cover its growing expenses.
As a percentage of GDP, this increase represents a rise from 0.8% in 2023-24 to 0.9% in 2024-25, and 1.1% in 2027-28.
It’s important to note that the growth in interest payments is linked to a significant increase in the government’s gross debt.
Gross debt is projected to rise from $904 billion (33.7% of GDP) in 2023-24 to $934 billion (33.9% of GDP) in 2024-25, and $1.112 trillion (34.9% of GDP) in 2027-28.
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Despite approaching the $1 trillion mark in gross debt, the Labor government perceives it as a victory due to a slowdown in previous forecasts.
Treasurer Jim Chalmers stated, “This year gross debt will be $904 billion instead of the more than one trillion we inherited–meaning debt is $152 billion lower. A stronger budget means we save around $80 billion in interest costs over the decade. These are the dividends of our responsible economic management.”
On the other hand, the opposition has lambasted the Labor government for not curbing spending and fueling inflation through its budgetary measures.
The opposition claims that the Labor government has incurred an additional $209 billion in spending through its past budgets.
“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 remarked.
Upcoming Deficits
The new budget papers project a second surplus of $9.3 billion (US$6.14 billion) for the 2023-24 financial year, driven by revenue from robust employment and high commodity prices.
This marks the first time in nearly two decades that Australia has reported back-to-back surpluses.
However, the surplus is expected to be eroded by a deterioration in the budget’s cash balance in the coming years.
From the 2024-25 financial year, the budget is forecast to shift to a deficit of $28.3 billion, with a cumulative deficit of $112 billion by 2027-28.
Rising government expenses are attributed to 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 documents state.
Despite the anticipated deficits, the government asserts that its economic and fiscal strategy will enhance the economy’s resilience and ensure the budget’s sustainability over time.
“The government will enhance the budget position in a measured manner, consistent with the goal of reducing gross debt as a share of the economy over time,” the budget papers affirm.
“This approach allows fiscal policy to adapt to changes in economic conditions to support macroeconomic stability, particularly in times of high inflation.”
