Activity 8h: Deficits and debt
- Gross government debt refers to the total amount owed to third parties, such as overseas and domestic lenders. It equates to the total value of Australian government securities (i.e. government bonds) on issue at any given time. In contrast, net government debt refers to the difference between the amount the government owes to others (i.e. gross government debt) minus the amount that third parties owe to the government. Given that the government always lends money to third parties (e.g. Student loans), it must be the case that gross government debt exceeds net government debt. This is evidenced by the statistics in the table, where GGD always exceeds NGD, with the difference being the amount of money owed to the government.
- Government debt increased from $889.8 billion (actual) in 2022-23 to an estimated $1.112 trillion by 2027-28. This is directly linked to the deteriorating budget outcome over the period, where ongoing budget deficits beyond 2024-25 mean that the government borrows to finance these deficits. [Note that a major reason for the higher gross government debt levels over 2023-24 and 2024-25, periods of budget surplus, relates to the difference between the headline and underlying budget outcome. The table quotes the underlying budget outcomes (consistent with the Study Design requirements), when in reality it is the headline outcome that is important for financing purposes rather than the underlying outcome.]
- This is because the budget remains in deficit. Despite the fall in the deficit from $42.8 billion to $26.7 billion, it is still a budget deficit that requires financing in the form of debt.
- Government debt levels can fall into the future if the government remains committed to achieving budget repair which involves it introducing discretionary initiatives that involve expenditure restraint and/or increases in government revenue. These types of structural changes to the budget can be supported by cyclical improvements to the budget overtime to the extent that the economy improved into the future. Automatic stabilisers will help to increase revenue relative to expenditure and exert further downward pressure on the budget deficit.