The elephant in the room this federal budget season is our national debt. Real debt, with real interest attached, is now brushing up against the trillion dollar mark.
The Australian Office of Financial Management confirms that, with the budget update at the end of last year projecting gross debt to be at $993billion, when the current financial year ends on June 30.
The number is so big it can start to sound abstract. But remember this: We had zero net debt two decades ago.
The trillion dollar debt problem has been built over the course of the past 20 years. It didn’t appear overnight, it has accumulated, decision by decision, budget by budget, across different partisan governments. And it is high time it was addressed properly.
There is no great mystery surrounding how we got here. The global financial crisis blew a hole in the budget back in 2008. The pandemic blew an even bigger one through it in 2020. Both demanded large scale government interventions that cost a fortune - no serious person denies that.
But such explanations (and excuses) have long since outlived their political usefulness. The GFC didn’t happen last year, and nor did Covid. Governments cannot keep pointing to old emergencies as a standing excuse for a lack of fiscal discipline in the present. Justified deficits back then can’t be justified now, especially in the context of the amount of debt that has accumulated in a relatively short space of time.
Paying the interest bill on government debt is fast becoming the single largest line item in the budget, and that’s before we even think about trying to pay the debt itself off.
Now Treasurer Jim Chalmers has a new excuse not to roll his sleeves up and get started: stagflation fears tied to the Middle East conflict and the hit that higher oil prices could inflict on growth and inflation.
A young Australian trying to buy a home, pay their taxes, raise children and help fund the services of an ageing society will also be paying for the debt binge
We are passing the debt burden on to younger generations. We should be ashamed, writes Peter van Onselen
He has warned the war could have ‘severe’ budget consequences, with Treasury modelling scenarios involving weaker growth and higher inflation.
That risk is real enough, but it can’t be allowed to become the latest all purpose alibi.
A crisis can justify borrowing in the moment, but it doesn’t justify giving up on repairing it afterwards - a point Canberra continually refuses to confront.
The real unfairness here is generational. A young Australian trying to buy a home, pay their taxes, raise children and help fund the services of an ageing society will also be helping pay for yesterday’s borrowing binge.
That is the burden being passed on to younger generations. We should be ashamed.
And, worst of all, the amount of debt is deepening. Underlying cash deficits are forecast right across the forward estimates. Treasury’s own numbers show interest on government debt is one of the fastest growing major spending items in the budget.
The current year-on-year deficit forecasts are $29.4 billion next financial year, rising to $38.5 billion by 2028–29. We are compounding the debt being loaded on top of the trillion dollars already sitting there.
That should alarm even people who normally switch off when budget debates turn into discussions about aggregates using fiscal jargon. We are no longer just servicing an old problem. We are letting the cost of past borrowing eat into future choices.
The amount of debt is deepening - and, down the track, Australian workers will suffer because of it
Yet every budget season, the same ritual unfolds. Interest groups demand relief. Economists push for reforms. Governments look for a cheap headline, as oppositions seek to stir up resentment and fear. It’s all just theatre.
A serious budget in 2026 should begin with a much simpler proposition: before government does more, it must show how it plans to stop the debt burden becoming a permanent inheritance for people who had no say in building it.
That doesn’t mean pretending the debt can be erased overnight. There’s no magic line item named 'waste' that can be slashed by one clever Treasurer’s decision. Debt reduction needs to become a genuine medium term objective, not an optional extra pushed down the priorities list.
That means capping the growth of recurrent spending, demanding real value from infrastructure before taxpayers are locked into another decade of spending overruns, and banking revenue upgrades instead of spending them as quickly as they arrive. And yes, a Yes Minister style efficiency drive, properly done, even if the media prefers to sneer at the concept.
Australia is still in a better position than most comparable countries. But being ‘not as bad as others’ isn’t a strategy for success. Treasury projects gross debt to hit 37 per cent of GDP in 2030. We used to mock countries carrying that sort of debt load.
A government that loses control of its debt eventually loses control of its priorities. If this budget doesn’t sketch a credible pathway back from the edge of the trillion dollar debt era, it will have failed younger voters. That's irrespective of how much higher taxes on capital gains for older Australians go.
By the way, that’s it’s own misnomer: unless changes to capital gains concessions are retrospective, older investors will continue to benefit from them. It’s new (younger) investors who will miss out.
Meanwhile, if Chalmers thinks stagflation is now the perfect cover for ducking the harder conversation on debt reduction, he will only prove how easily temporary shocks become permanent excuses in Australian politics.
Fixing this mess is in his hands. That is hardly a comforting thought.