Greg Jericho
Senior Economist

The government is trying to let us all know that it has debt under control and that it has “lowered debt”.

And well… not really. The key line from the government is “gross debt in 2024-25 is $177 billion lower than what was projected at the time of the last election”.

What they are really saying is that in the March 2022 Budget (the last one by Josh Frydenberg) the Treasury estimate for gross debt in this current financial year of 2024-25 was $1,117bn or 44.9% of GDP, whereas in last week’s budget the estimate for this year is now $940bn – thus the $117bn difference.

But remember we are just talking about the difference between reality and a projection. Back in March 2022, things were still looking pretty grim coming out of the pandemic. Every forecast was rather pessimistic – on fact overly pessimistic. And what has happened is the recovery has been better than expected. So, has the government reduced debt? Not really, it’s just that the projections in March 2022 were very wrong – and to be honest, understandably so.

Both sides play silly buggers with forecasts not coming true. If a government forecasts a deficit and something changes – like a spike in iron ore prices – and so they raise more revenue than expected, they claim great budget management has delivered a surplus. If things go the other way and the projections are too optimistic, the opposition claims the government has lost control of the budget. It’s all rather stupid.

Just remember we have low government debt compared to most advance economics. We are still rated AAA by all credit agencies (yes the ones who helped cause the GFC) and the interest rates the government has to pay when it borrows money is currently lower than they had to pay back in 2006-07 when we had no net debt at all. In other words, no one sees our debt as a worry that the government will not be able to pay its bills.