The federal government is spending more on its interest bill than on subsidising childcare or building infrastructure as the budget "is heaving" with debt, Treasurer Jim Chalmers has said.
Subscribe now for unlimited access.
or signup to continue reading
Highlighting the big burden on the country from years of accumulated debt, the budget papers are expected to show that taxpayers will spend almost $18 billion in interest payments this financial year - the second biggest expense after the National Disability Insurance Scheme.
The revelations come as speculation mounts that Dr Chalmers will report a narrow surplus when he delivers his second budget next Tuesday.
But the Treasurer warned that interest payments were a big drag on the government's finances.
"The cost of servicing the debt left behind by our predecessors is one of the fastest growing pressures on [the] budget," Dr Chalmers told The Canberra Times.
"The Liberals and Nationals left behind a budget that is heaving with a trillion dollars of debt".
The total interest bill is expected to amount to almost $112 billion over the next five years, including close to $20 billion next financial year, $21.2 billion in 2024-25, $27 billion in 2025-26 and $26 billion in 2026-27.
Government liabilities soared during COVID as the Morrison government poured billions into programs like JobKeeper to sustain economic and employment during the pandemic.
These emergency outlays came on top of other spending, sending gross government debt soaring. It reached almost $895 billion last October and is predicted to climb to $1.1 trillion (43.1 per cent of GDP) by mid-2026.
Dr Chalmers said the huge interest bill was "a big pressure" on the budget: "It's $112 billion that everyone can think of better ways to spend."
READ MORE:
Revelations of the size of the government debt burden come as the budget is expected to show a short-term improvement in government finances.
The government has benefited from a revenue windfall from soaring commodity prices and increased income tax receipts as a result of strong employment growth.
Combined with less-than-expected spending on JobSeeker and NewStart payments because of low unemployment, the revenue jump is expected to result in a substantially smaller deficit - or even possibly a thin surplus.
Economic forecasters including Deloitte Access Economics and ANZ Bank expect the deficit could be as little as $8 billion this financial year, far less than the government's prediction from last October of $36.9 billion.
The Treasurer would not be drawn on whether he would report a budget surplus on Tuesday.
But Dr Chalmers said the government had banked 99 per cent of the revenue windfall it received in the October budget and "we will bank significantly more than most in this budget".
He said the government's performance in this regard was far better than its predecessors, claiming the Coalition only directed 40 per cent of upward revisions to revenue to reduce debt and found no savings.
"If we adopted the same approach as our predecessors we'd be nowhere near it [a surplus]," the Treasurer said.
"The substantial improvement in the bottom line this year and, to some extent next year, is the fruits of the responsible and restrained approach we've taken to spending over two budgets.
"By banking most of the upward revision to revenue we have guaranteed a substantial improvement in the budget."
But forecasters warn the revenue surge will be temporary while strong spending growth will be sustained, increasing the need for significant tax reform if the budget is to be put on a sustainable path.
Dr Chalmers has previously ruled out any changes to the stage three tax cuts and he told The Canberra Times the government would not be raising the tax-free threshold, which has been stuck at $18,200 for the past decade.
But he flagged that the government would "have more to say" about the petroleum resource rent tax and indicated that further reform was likely in coming budgets.
"I have always seen budgets not as moments in time but staging points of progress," Dr Chalmers said.
"You can't do everything you want to do every budget.
"It will take more than one budget to clean up the mess we were left with."
Adrian Rollins
Karen Barlow
Contact her on karen.barlow@canberratimes.com.au
