The Trillion-Dollar Reckoning

Australia crossed a line yesterday morning that no Australian government had crossed before. Commonwealth gross debt reached $1 trillion.

The figure was arrived at after the Australian Office of Financial Management priced $13 billion in new bonds and conducted another $4.1 billion in debt tenders. Add those transactions to the AOFM’s previously published figure of $983.7 billion and the committed face value comes to about $1.0008 trillion.

There is a technical wrinkle. Some of the debt will not formally settle until next week, while $6 billion in Treasury Notes matures almost immediately. That could pull the published figure back under $1 trillion for a short time. It changes little. More bonds are coming, further deficits are forecast and nobody seriously expects the debt to stay below the line.

A trillion is one of those numbers so large that most people struggle to picture it. Put another way, Australia now owes one thousand billion dollars.

Years ago, when Barnaby Joyce tried to warn us where this was heading, Canberra laughed at him.

Joyce became the Coalition’s Shadow Finance spokesman in December 2009, during the first Rudd government. He lasted only three months. He warned that Australia was “going into hock to our eyeballs” and approaching the point where it would struggle to repay what it owed.

He was blunt, occasionally too blunt. In one speech he mixed up billions and trillions, and his warning that default might be close was plainly premature. Labor and much of the media seized on those mistakes, while people inside the Coalition came to regard him as a political liability.

Tony Abbott removed him from the finance portfolio in March 2010 and installed Andrew Robb. Joyce said he had been “white-anted”. Abbott tried to present the move as a better use of Joyce’s talents, praising him for drawing public attention to debt and deficit while saying he would be more effective travelling through regional Australia than being “chained to a desk costing policies”.

Everyone knew what had happened. Barnaby had made himself inconvenient.

When Joyce issued those warnings, Commonwealth gross debt was about $147 billion. It has now reached roughly $1 trillion. Canberra, under governments of both colours, presided over a near sevenfold increase after treating him like a fool for raising the alarm.

His timing was wrong. His warning was not.

Anthony Albanese did not create this entire debt mountain. The Coalition left office in 2022 with gross debt around $895.2 billion, much of it accumulated during the extraordinary spending of the pandemic years. Any honest account has to acknowledge that.

But Labor has governed since May 2022. It inherited high commodity prices, strong population growth, low unemployment and enormous revenue upgrades compared with the forecasts available before the election. At some point a government has to own what happens on its watch.

Gross debt has now crossed $1 trillion, the Budget is back in deficit and Treasury expects borrowing to continue for years. The official figures have gross debt reaching $1.051 trillion by June 2027, $1.120 trillion by June 2028, $1.193 trillion by June 2029 and $1.249 trillion by June 2030.

That works out to an average increase of roughly $66 billion a year over the forward estimates. If Labor wins a third term and the same trend continues, gross debt would reach about $1.315 trillion by June 2031.

Net debt is heading in the same direction. Treasury expects it to rise from $556 billion in 2025-26 to $767.8 billion in 2029-30. Continue that trajectory and net debt reaches roughly $818 billion by June 2031, then passes $1 trillion around the beginning of 2035.

That is an estimate based on the existing trend, rather than an official Treasury forecast. Still, it tells us what continued inaction looks like.

The interest bill is already biting. Treasury forecasts $29.566 billion in cash interest payments during 2026-27, which comes to $568.6 million a week. Every day, around $81 million will leave the public purse in interest. By the hour it is about $3.37 million.

By 2029-30, annual cash interest is expected to reach $42.264 billion, or around $812.8 million every week. We are getting dangerously close to spending a billion dollars a week simply to service past borrowing.

That money does not build a hospital or put another nurse on a ward. It does not teach a child to read. It buys no frigate, fighter aircraft or missile. It pays for yesterday.

The current annual cash interest bill is equal to about 79 per cent of annual Commonwealth public-hospital funding. It amounts to 64 per cent of federal funding for schools and higher education, and more than half the defence budget.

Spread the headline debt across the latest ABS estimate of 14,807,200 employed Australians and it comes to $67,589 for each employed person. Nobody receives a personal bill for that amount, of course, but the burden is real. It turns up in taxes, bracket creep, inflation, reduced services and opportunities forgone.

The annual interest bill alone is equal to about $1,997 for every employed Australian. Imagine what an ordinary household could do with an extra $2,000 a year. Car registration, power bills, school costs, groceries, a badly needed dental appointment. Canberra spends the equivalent servicing debt before it starts paying for anything else.

Across the whole population, children included, gross debt is roughly $36,000 a person.

The occasional ridiculous grant did not create a trillion dollars of debt. It does tell us something about Canberra’s attitude to money. A government staring at deficits for years to come still spends as though there will always be another dollar waiting to be borrowed or taxed.

Labor spent $411.27 million on the failed Voice referendum. Australians gave their answer, decisively, and the money was gone.

The government has committed $600 million over ten years to a Papua New Guinea NRL franchise and associated rugby league programs. Around $290 million goes to the franchise, $250 million funds regional rugby development and another $60 million is a licence fee.

Canberra and the Queensland Government assembled a $940 million package of grants, loans and equity for the US-headquartered quantum computing company PsiQuantum. Questions were raised about transparency, contestability and why an overseas company received such extraordinary treatment. Not all of that money is a straight grant, but taxpayers are still carrying the risk.

The electric vehicle fringe-benefits-tax exemption is expected to cost $1.35 billion in forgone revenue in 2025-26 alone, vastly more than first anticipated. Among the biggest beneficiaries are people with incomes high enough to salary package a new electric car. The worker keeping an old Falcon or Commodore on the road helps carry the cost.

Billions more have gone into universal electricity rebates. Families appreciate any relief they can get, but the rebates merely cover part of the bill and temporarily suppress the published inflation figure. They do not provide reliable new generation, lower network costs or repair the energy policy that made the rebates necessary.

Labor’s 20 per cent reduction in student debts will remove almost $16 billion from the value of Commonwealth loan assets. More than three million graduates benefit, including many on healthy professional salaries who have no trouble servicing their HECS debts.

Future Made in Australia carries a headline commitment of $22.7 billion over a decade. It includes billions in production tax credits for hydrogen and critical-minerals projects. Ministers call this industrial policy. To many taxpayers it looks like the government gambling their money on favoured companies and technologies.

Then there was the Bureau of Meteorology’s $96.5 million website rebuild. That figure covered security, backend systems and other infrastructure, rather than merely the pages people see when checking whether it will rain. Even allowing for that, $96.5 million for a weather website is the sort of figure that leaves ordinary people shaking their heads.

The Australian Public Service is forecast to reach 217,256 employees in 2026-27. The Parliamentary Budget Office says forecast wage spending for that year rose by $3.8 billion between two consecutive budgets.

Some expenditures are small compared with a trillion dollars, but they reveal the culture. Government departments spent about $453,000 on Welcome to Country ceremonies over two years. More than 60 people travelled to COP28 at a cost approaching $1.3 million. Services Australia spent $25,817.91 sending 13 senior officials to drama classes at NIDA.

The Australian Research Council has provided about $877,000 to investigate the best length for workplace naps. Approximately $724,000 went towards studying Chinese temple-theatre architecture. Another $216,000 funded research into Asterix and the Making of Modern France, while roughly $458,000 was allocated to study gender inequality in opera.

Whale-watching tourists became the subject of a $1.293 million project intended to improve their environmental understanding. Public-toilet architecture attracted another $712,282.

There will be an academic explanation for every one of these projects. Some may even produce something worthwhile. That is part of the frustration. Within the Canberra-university world, there is always a carefully worded explanation for spending the next dollar, yet rarely a serious thought given to leaving it with the person who earned it.

The same habit extends overseas. Australia will spend $5.209 billion on foreign aid in 2026-27, including $71 million a year for the Gender Equality Fund. Nauru will receive $100 million over five years in direct budget support and another $40 million for policing and security. Australia has also committed $100 million to the Pacific Resilience Facility, along with millions for climate, gender, health and social programs across the region.

The government says this spending buys stability, goodwill and influence in the Indo-Pacific. With China extending its reach through the Pacific, there is a strategic argument for some of it. Yet Australians can still ask why Canberra finds billions for programs overseas while borrowing heavily and telling its own citizens that essential services cannot be afforded.

Foreign aid is not large enough to explain the national debt, and abolishing it would not balance the Budget. It belongs to a wider problem. Every program has a constituency, an official justification and a group of people ready to declare any reduction heartless, dangerous or short-sighted. Once money starts flowing, stopping it becomes almost impossible.

The big structural commitments are much harder to deal with than questionable grants or overseas programs. The Commonwealth will spend $68.7 billion on the Age Pension in 2026-27, $56.3 billion on defence, $53.7 billion on the NDIS and $43.8 billion on aged care. Medicare costs $37.6 billion and public hospitals receive $37.4 billion. Total interest expense, using the broader accrual measure, is $43.4 billion.

By 2036-37, the Parliamentary Budget Office expects the Age Pension to cost $111.8 billion a year. Defence rises to $97.6 billion and interest expense reaches $91.3 billion. The NDIS climbs to $75.3 billion, hospitals to $74.4 billion, aged care to $72.6 billion and Medicare to $62.6 billion.

There is no politically painless way to bring those numbers under control. Reducing pensions or tightening eligibility would trigger a revolt among older Australians who spent their lives paying tax on the understanding that the pension would be there. Slowing expenditure on hospitals, Medicare, disability services or aged care would be denounced as an attack on the sick, the disabled and the elderly.

Defence cannot responsibly bear the brunt of the cuts either. China is becoming more powerful and assertive, the region is less secure than it was a decade ago and Australia has neglected its military capability for too long already.

Politicians often reach for productivity as the answer because it sounds painless. Governments can improve the conditions for productivity, but they cannot order it into existence. Higher taxes, expensive energy, regulation and constant government interference can also choke the private investment required to generate it.

That leaves taxes, including the tax increases Canberra prefers not to call tax increases.

The PBO’s supposedly improving medium-term outlook depends heavily on bracket creep. It expects the average personal income-tax rate to rise from 24.9 per cent in 2026-27 to a historic high of 28.6 per cent by 2036-37. Workers will lose more of each pay rise without Parliament having to announce a new tax rate.

Those projections also assume no substantial future income-tax cuts and no significant new spending beyond what has already been announced. They rely on $37.8 billion in NDIS savings and a decline in public-service staffing from around 216,000 to 176,000.

Even after making those generous assumptions, the Budget does not return to surplus until 2034-35. If public-service staffing remains flat instead of falling, the surplus is delayed. If NDIS spending returns to annual growth of 10 per cent, the PBO says there will be no return to surplus during the medium term.

It is difficult to take that forecast seriously. Successive governments are supposed to go a decade without announcing major new programs, deliver every promised saving, shed tens of thousands of public servants and keep swallowing workers’ wage increases through bracket creep without eventually offering tax relief. Anyone who has watched federal budgets for a few years knows how unlikely that is.

The comfortable answer is that Australia retains a AAA credit rating, borrows in Australian dollars and carries less debt relative to GDP than many comparable countries. All of that gives us time. It does not give us immunity.

Our institutions, resources, population growth and long history of repaying creditors mean Australia can borrow on terms that many countries would envy. Those advantages can be squandered.

A period of economic stagnation could expose how fragile the position has become. Revenue falls short, deficits widen and more bonds have to be sold. Investors demand higher yields, refinancing costs rise and interest consumes a larger share of government revenue. More borrowing is then required to cover the larger deficit.

Lenders do not have to refuse to buy Australian bonds for a crisis to begin. They only have to demand a much higher return. Once the interest bill begins feeding the deficit that created it, the options become ugly very quickly.

Australia can create Australian dollars, but printing money is no free escape. The loss is passed to everyone through a weaker dollar and higher prices. Creditors might receive the number of dollars promised, only to find those dollars buy far less.

Formal default and monetary debasement take different routes, but ordinary people still pay. Savings lose value. Mortgages become harder to service. Imported fuel, medicine and machinery cost more. Governments raise taxes and cut services while insisting there was no other choice.

Argentina defaulted in 2001 during a recession, currency collapse and freeze on bank deposits. Poverty rose from about 37 per cent before the final collapse to roughly 58 per cent a year later. Families who thought they had money in the bank discovered they could not get to it.

Greece went through debt restructuring, punishing austerity, higher taxes and pension cuts. Its economy shrank by about 25 per cent, unemployment approached 28 per cent and banks closed under capital controls.

Sri Lanka defaulted in 2022 after running down its foreign reserves. The economy contracted by 7.3 per cent, inflation peaked near 70 per cent and the currency collapsed. Shortages of fuel, food and medicine pushed people onto the streets, while poverty almost doubled.

Lebanon’s default came during an even worse banking and currency disaster. Banks became insolvent, depositors were locked out of their savings and the currency lost around 98 per cent of its value. More than a third of the population was driven into poverty.

Australia has been through its own version of the warning. In 1931 the New South Wales government stopped meeting overseas interest payments. The Commonwealth stepped in and paid more than £4.48 million to protect Australia’s credit.

The NSW Government Savings Bank closed its doors. Public money was hidden inside Treasury vaults, and armed officials transported cash so that teachers, police and other public servants could still be paid. The confrontation eventually ended with the dismissal of Jack Lang’s government.

Default sounds like an argument between governments, bankers and bond traders. In practice it reaches the supermarket, the petrol station, the mortgage payment and the family savings account.

Barnaby Joyce was accused of hysteria because he warned of consequences before they arrived. His talk of imminent default in 2010 was premature, but warnings are supposed to come early. Waiting until a crisis begins is not foresight.

Since then, Commonwealth gross debt has risen from about $147 billion to $1 trillion. Interest is moving towards $1 billion a week. Structural spending continues to climb, and the official return to surplus depends on higher effective taxes, heroic savings and a shrinking bureaucracy that few people expect to see.

There is still no sign that either major party is prepared to make the decisions required. Every sizeable program is protected by someone, every serious cut brings a political punishment and every new subsidy is sold as an investment in our future.

If the economy stagnates and lenders lose faith in Australia’s willingness to control its debt, events could move much faster than Canberra expects. By then, Barnaby Joyce being proved right will be the least of our problems.

“I, however, place economy among the first and most important of republican virtues, and public debt as the greatest of the dangers to be feared.”
― Thomas Jefferson