Gross debt has been revised down from last year’s budget. But it is still on track to break the $1 trillion mark in 2023-24 and hit $1.2 trillion by the middle of the decade.
Higher interest rates are also starting to bite into the budget.
The government has to roll over $160 billion in debt by the end of 2024. That debt will attract higher interest rates,pushing up the nation’s interest bill.
By 2025-26,the interest bill on Australia’s gross debt will be $26.3 billion,or more than what is paid in terms of family assistance. In 2024-25,the interest bill is forecast to be $21.6 billion.
Net interest payments as a share of the economy are expected to reach 1 per cent by 2025-26. The last time they were that high was in 2000-01.
Mr Frydenberg said the government was saving the proceeds of a strong economy to help the budget bottom line.
“We have drawn clear lines. Banking the dividend of a stronger economy. Ending economy wide emergency support,” he said.
Treasury estimates the nominal economy will be $300 billion larger over the next five years compared to what was expected in the mid-year update.
That increase is due to higher commodity prices for goods such as iron ore and coal plus stronger inflation.
Loading
Combined,these will boost government tax receipts by a combined $126 billion between 2021-22 and 2025-26. Payments,pushed up by inflation,are expected to be higher by $11.4 billion over the same period.
Of the net $114.6 billion lift in revenue,government plans announced in the budget will cost $30.4 billion out to 2025-26. The single largest impact falls in 2022-23,with government policies expected to cost $17.2 billion.
There is an upside to the budget. If iron ore and coal prices remain at current levels until the end of the September quarter,tax receipts are likely to be $30 billion over four years better than forecast by Mr Frydenberg.
While that would improve the deficit,the government would also face higher costs linked to inflation and borrowing costs.
Treasury also notes a possible risk to the budget if China’s economy slows more quickly than expected due to another COVID-19 outbreak. That would drive down the price of key commodities.
Jacqueline Maley cuts through the noise of the federal election campaign with news,views and expert analysis.Sign up to our Australia Votes 2022 newsletter here.