Interest payments on commonwealth government debt will cost the federal budget $112bn over five years, or $60m a day.
The treasurer, Jim Chalmers, revealed the soaring cost of debt in the lead-up to Tuesday’s budget, which will show interest now costs more than the family tax benefit, childcare or infrastructure.
The Albanese government blames the Coalition, which left gross debt of $888bn, or net debt of $517bn, when it lost office in May 2022.
The annual cost of debt will rise from $17.7bn in 2022-23 to a peak of $27.1bn in 2025-26, before reducing back down to $26bn in 2026-27, according to new estimates in the budget.
In April the Grattan Institute noted that interest costs are “one of the fastest-growing categories of expenditure” due to “the build-up of debt over the past decade and a half – supercharged by Covid – and growing borrowing costs”.
“The federal government’s interest payments are expected to grow from 0.9% of GDP to 1.7% over the next 10 years,” it said.
According to the institute, keeping debt stable would save taxpayers about $10bn a year in interest payments alone by 2033 – almost the entire higher education budget.
Chalmers said that “Australians are still paying the price” for “the Liberals and Nationals leaving behind a budget that is heaving with a trillion dollars of debt”.
That claim is based on the trajectory of gross debt in the March 2022 budget and is also contested because the Coalition inherited gross debt of $272bn when it came to office in 2013.
“More than a hundred billion dollars of interest payments was the Liberals’ parting gift to the country,” Chalmers said.
“The cost of servicing the debt … is one of the fastest growing pressures on Tuesday’s budget.”
Chalmers said the Albanese government had made “substantial progress when it comes to repairing the budget”, in reference to $22bn of savings in the October budget and the fact Labor banked more than 90% of upward revisions of revenue.
The October budget still showed a deficit of $36.9bn and, while a one-off surplus or balanced budget may be possible this year, the structural deficit is expected to see deficits return to at least $50bn a year.
“We’ll continue our efforts in the budget I hand down on Tuesday [but] it will take more than one budget to clean up the mess we were left with,” Chalmers said.
“We take our role in managing the budget very seriously and that’s why spending restraint and fiscal responsibility will be central to the Albanese government’s second budget next week.”
On Wednesday the chief executive of the Grattan Institute, Danielle Wood, said Labor risked playing “footsies with the big social and fiscal challenges” because it could have done more to reduce poverty and structural deficit if it were prepared to make bigger savings, such as restructuring stage-three tax cuts.
After the surprise 11th interest rate rise in a row on Tuesday, the Coalition has called for greater spending cuts.
On Wednesday the shadow finance minister, Jane Hume, said in Canberra that “the most important thing the government can do is make sure its fiscal policy is aligned to monetary policy”.
“The government needs to make sure that it’s doing all it can do to help the [Reserve Bank] to make sure that it doesn’t have to do all the heavy lifting.”
