Australian government debt

The Australian government debt is the amount owed by the Australian federal government. The Australian Office of Financial Management, which is part of the Treasury Portfolio, is the agency which manages the government debt and does all the borrowing on behalf of the Australian government.[3] Australian government borrowings are subject to limits and regulation by the Loan Council, unless the borrowing is for defence purposes or is a 'temporary' borrowing. Government debt and borrowings (and repayments) have national macroeconomic implications, and are also used as one of the tools available to the national government in the macroeconomic management of the national economy, enabling the government to create or dampen liquidity in financial markets, with flow on effects on the wider economy.

Throughout this article, the unqualified term "dollar" and the $ symbol refers to the Australian dollar.

Date (30 June)	Gross debt (A$ billion)	Debt ceiling (A$ billion)	Debt as share of GDP
2004	59.628	n/a	12.0%
2005	60.103	n/a	10.9%
2006	59.078	n/a	10.0%
2007	58.273	75	9.7%
2008	60.451	75	11.8%
2009	101.136	200	16.7%
2010	147.123	200	20.5%
2011	191.283	250	24.1%
2012	233.968	300	27.7%
2013	257.370	300	30.6%
2014	319.479	n/a	34.1%
2015	368.730	n/a	37.8%
2016	420.412	n/a	40.4%
2017	500.979	n/a	41.0%
2018	531.937	n/a	41.4%
2019	541.992	n/a	41.8%
2020	684.298	n/a	n/a
Source: Commonwealth of Australia[1]			Source: IMF[2]

The net government debt is gross government debt less its financial assets, which is often expressed as a percentage of Gross Domestic Product (GDP) or debt-to-GDP ratio.

As at 6 March 2020, the gross Australian government debt was $573.1 billion. As at 11 April 2017, the gross Australian government debt was $551.75 billion.[1] The government debt fluctuates from week to week depending on government receipts, general outlays and large-sum outlays. Australian government debt does not take into account government funds held in reserve within statutory authorities such as the Australian Government Future Fund, which at 30 September 2016 was valued at $122.8 billion,[4] and the Reserve Bank of Australia. Nor is the net income of these statutory authorities taken into account. For example, the Future Fund net income in 2014–15 was $15.61 billion, which went directly into the fund's reserves. Also, guarantees offered by the government do not figure in the government debt level. For example, on 12 October 2008, in response to the Economic crisis of 2008, the government offered to guarantee 100% of all bank deposits. This was subsequently reduced to a maximum of $1 million per customer per institution. From 1 February 2012, the guarantee was reduced to $250,000,[5] and is ongoing.

Australia's net international investment liability position (government debt and private debt) was $1,028.5 billion at 31 December 2016, an increase of $5.4 billion (0.5%) on the liability position at 31 December 2016, according to the Australian Bureau of Statistics.[6]

Australia's bond credit rating was rated AAA by all three major credit rating agencies as at May 2017.[7] Around two-thirds of Australian government debt is held by non-resident investors – a share that has risen since 2009 and remains historically high.[8]

History

Before 1979, the government borrowed using individual cash loans and a mechanism known as the TAP system. Under this system, the government would set a fixed yield, and the private market would finance as much public debt at this yield as it saw fit. In the event that the market did not finance all the debt on offer, the treasury was able to borrow the outstanding amount from the Reserve Bank of Australia at a concessionary rate of 1%. This allowed the government to finance its debt without limitation.[9] In 2000, the then Deputy Chief Executive Officer of the AOFM, Peter McCray, remarked that this system was "breaching what is today regarded as a central tenet of government financing—that the government fully fund itself in the market." He also remarked that this form of funding implied "reduced fiscal discipline" on the government's side, leading to likely inflationary consequences, as well as adverse implications to the private bond market.[10]

The government retired the TAP system and introduced a tender system for short-term Treasury Notes in December 1979 and for Treasury Bonds in August 1982. Under this system, bonds are issued in an auction where primary dealers[11] bid against each other.[9] Macroeconomist Bill Mitchell notes that there is still no risk of the government being unable to finance itself because when demand for bonds falls the auction system will naturally increase the yields.[12]

During the Howard government, large budget surpluses resulted in a reduction of treasury bonds on issue. In 2002, the government conducted a review into how this would affect bond market participants. Consistent with the outcome of the review, the government decided to continue issuing debt in the form of treasury bonds despite the surplus in order to maintain the bond market. This was justified on the basis that a declining bond market would have negative implications to those looking to hedge interest rate risk using bond futures, financial market diversity, and those who use bonds as investment vehicles. In balance with continued issuance of liabilities, it was decided the government would continue to accumulate financial assets, thus expanding its balance sheet and increasing the exposure to financial risks. However, it was decided that the benefits of maintaining a bond market outweighed such risks.[13]

The Howard government also saw the unwinding of the federal government's foreign currency liabilities, ending a long period during which the government had a significant exposure to currency risk. The debt portfolio is now managed to a benchmark with a zero foreign currency component.[14]

Net government debt

Net government debt is defined by the International Monetary Fund as "gross debt minus financial assets corresponding to debt instruments".[15] Financial assets corresponding to debt instruments include currency and deposits, debt securities and loans. In the context of the budget, general government sector net debt is equal to the sum of deposits held, government securities (at market value), loans and other borrowing, minus the sum of cash and deposits, advances paid and investments, loans and placements.[16][17] The net debt to GDP ratio over time is influenced by a government surplus/deficit or due to growth of GDP and inflation, as well as movements in the market value of government securities which may in turn be influenced by movements in general interest rates and currency values.

Australia's net government debt as percentage of GDP in the 2016–17 budget was estimated at 18.9% ($326.0 billion); much lower than most developed countries.[18] The budget forecasted that net government debt would increase to $346.8 and $356.4 billion in 2017–18 and 2018–19 respectively. However, despite continuing to rise in aggregate terms, growth in the economy means the government expects the proportion of debt to GDP to peak at 19.2% in 2017–18 before starting to fall thereafter.

The net government debt was negative (i.e. The Australian government had net positive bond holdings) in the 2006–07-year for the first time in three decades, from an original peak of 18.5% of GDP ($96 billion) in 1995–96.[19] The reduction in net debt is attributable to the consistent budget surpluses in the mid-2000s.

Latest budget forecasts

The federal budget is the main mechanism that determines the government's net debt position from one period to the next. A surplus (revenue is greater than expenses) allows the government to pay down its debt while a deficit (expenses are greater than revenue) requires the government to issue more debt to cover the shortfall. The 2017 federal budget forecast a deficit of $29.3 billion, or 1.6% of GDP.[20] The 2018 budget forecast a deficit of $18.2 billion. This would be Australia's eleventh consecutive budget deficit.

The 2017 budget forecast government spending to be in surplus in the 2020/21 fiscal year, while the 2018 budget forecast a surplus of $2.2 billion in 2019/20. Before the COVID-19 pandemic, the government's debt level was forecast to be $629 billion in 2019/20.

Debt ceiling

A debt ceiling on how much the Australian government could borrow existed between 2007 and 2013.

The statutory limit was created in 2007 by the Rudd Government and set at $75 billion. It was increased in 2009 to $200 billion,[21] $250 billion in 2011 and $300 billion in May 2012. In November 2013, Treasurer Joe Hockey requested Parliament's approval for an increase in the debt limit from $300 billion to $500 billion, saying that the limit will be exhausted by mid-December 2013.[22] With the support of the Australian Greens, the Abbott Government repealed the debt ceiling over the opposition of the Australian Labor Party.

The debt ceiling was contained in section 5(1) of the Commonwealth Inscribed Stock Act 1911[23] until its repeal on 10 December 2013.

See also

• Australian federal budget
• Government budget
• List of sovereign states by public debt
• Taxation in Australia

References

1. "Australian Office of Financial Management - Data Hub - End of Financial Year Positions". Commonwealth of Australia. Retrieved 7 August 2019.
2. "Report for Selected Countries and Subjects". International Monetary Fund. Retrieved 8 May 2020.
3. "Role and Function". Commonwealth of Australia. Archived from the original on 27 January 2013. Retrieved 2 February 2013.
4. "2015/16 Future Fund Annual Report" (PDF). Future Fund – Australia's Sovereign Wealth Fund. 27 September 2016.
5. "Questions & Answers about the Guarantee on Deposits". guaranteescheme.gov.au.
6. "5302.0 – Balance of Payments and International Investment Position, Australia, March 2017". abs.gov.au. 4 December 2018.
7. "Federal budget 2017: Standard & Poor's reaffirms Australia's AAA credit rating". Australian Broadcasting Corporation. 17 May 2017. Retrieved 8 August 2017.
8. The Age, 29 January 2016, Treasury secretary John Fraser: Australia has a spending and a revenue problem.
9. "A history of Treasury Bond tenders and performance". Australian Office of Financial Management. Retrieved 7 April 2019.
10. "Paper presented to the Asian Development Bank Conference on Government Bond Markets and Financial Sector Development in Developing Asian Economies". Australian Office of Financial Management. Retrieved 7 April 2019.
11. "How to Buy AGS | AOFM". Archived from the original on 4 April 2019. Retrieved 4 April 2019.
12. Bill Mitchell (8 April 2009). "Will we really pay higher interest rates?". Retrieved 7 April 2019.
13. "Review of the Commonwealth Government Securities market". The Commonwealth of Australia. Archived from the original on 13 August 2006. Retrieved 7 June 2019.
14. "Foreign currency debt". Australian Office of Financial Management. Retrieved 17 October 2019.
15. International Monetary Fund, Government Finance Statistics Manual 2014
16. Parliament of Australia, The Australian Government’s current debt position – April 2015 update
17. MYEFO 2014–15, p.94.
18. "Budget Paper No.1 2016–17". budget.gov.au. Archived from the original on 13 December 2017. Retrieved 8 August 2017.
19. Budget 2006–07, Australian Government is now debt free Archived 4 October 2017 at the Wayback Machine
20. "Budget Overview 2017–18" (PDF). budget.gov.au. 9 May 2017. Retrieved 8 August 2017.
21. The Age, 24 October 2013 – Debt ceiling – all because of West Wing?
22. The Age, 14 November 2013.
23. Commonwealth Inscribed Stock Act 1911 as at 18 November 2012, s 5(1)

External links

• Australian Office of Financial Management
• Katrina Di Marco, Mitchell Pirie and Wilson Au-Yeung: A history of public debt in Australia, Treasury, Commonwealth of Australia. (ca. 2011).
• Debt Statistics for Australia