The claim
Facing calls to help ease cost-of-living pressures ahead of the May 2023 budget, Labor has been reminding voters that the government, too, is feeling the pinch, as it foreshadows a long road back to budget sustainability.
It has also been busy blaming the Coalition for its fiscal woes, reviving claims about the "trillion dollars" of debt it says was racked up by the former government.
During an April 13 interview with Sky News, Treasurer Jim Chalmers said he was concerned "about the cost of servicing that trillion dollars in Liberal debt that we inherited from our predecessors".
Challenged in a subsequent interview by the ABC's Sarah Ferguson, who suggested the former Labor government shared some responsibility, Mr Chalmers said that its contribution represented "a tiny fraction of what we inherited almost a year ago".
So, did the Coalition leave behind a trillion dollars of debt, and was it responsible for all but "a tiny fraction" of that spending?
RMIT ABC Fact Check investigates.
The verdict
Mr Chalmers's claim is spin.
When the Coalition left office in March 2022, Labor was left with $888 billion of gross debt, or $517 billion of net debt.
But while most of that debt was accrued during the Coalition's term, a sizeable chunk was inherited from the previous Labor government.
Labor's share amounted to either 25 per cent of gross debt ($218 billion), or 31 per cent of net debt ($161 billion).
In neither case did this represent a "tiny fraction" of the total.
Experts consulted by Fact Check reiterated that debt was not necessarily a bad thing, and that debt levels needed to be viewed in context.
Importantly, they said, that means considering what the debt was used for, which in the Coalition's case included keeping the economy afloat during the critical early stages of the COVID-19 pandemic.
Measuring debt
As Fact Check has previously explained, government debt — or the cumulative effect of budget deficits — can be measured in either gross or net terms.
Gross debt reflects government borrowing on financial markets (via the issuing of Commonwealth-backed securities).
Meanwhile, net debt represents gross debt minus the value of selected financial assets, making it a better measure of the government's capacity to cover its liabilities.
What Labor inherited
This is not the first time Mr Chalmers has accused his predecessors of leaving behind "a trillion dollars of Liberal debt".
Fact Check's previous analysis found that when Labor came to power in May 2022, gross debt stood at $888 billion while net debt stood at $517 billion.
Forecasts contained in the pre-election budget showed gross debt was on track to surpass $1 trillion within the year.
However, net debt was expected to take several more years to reach that milestone, being forecast to hit $865 billion by mid-2026.
At the time of Mr Chalmers's latest claim, figures published by the Australian Office of Financial Management (AOFM) showed gross debt to have reached $906.6 billion by March 2023.
According to government financial statements for the same month, net debt had grown to $565.6 billion.
Critically — and as alluded to by Mr Chalmers during the interview — not all of the debt Labor inherited was accrued by the Coalition.
A 'tiny fraction'?
Mr Chalmers said the previous Labor government, led by prime ministers Kevin Rudd and Julia Gillard, was only responsible for "a tiny fraction" of the debt inherited by the Albanese government.
However, Fact Check's analysis showed that while the Coalition left behind $888 billion in gross debt, it inherited $272 billion of that from Labor — of which $54 billion had been inherited from the Howard government.
In other words, Labor could be credited with having contributed some $218 billion (25 per cent) of gross debt (as at the May 2022 election).
Of the $517 billion in net debt handed over by the Coalition, the former Labor government was responsible for $161 billion (31 per cent).
When it assumed office in 2007, Labor inherited a $22 billion net surplus from the Howard government.
Fabrizio Carmignani, dean of Griffith University's business school, confirmed Fact Check's figures and analysis.
On either measure, he said, debt was "definitely not one trillion [dollars]" at the time of the election, and it was fair to say that "about one-third of the debt inherited by [the Albanese government] was from previous Labor times", even if "technically the bonds issued at the time of Gillard and Rudd might have been repaid".
"All in all, I would not think that one-third is a tiny fraction," Professor Carmignani said.
What the experts say
The last time that Fact Check broached this topic, experts said the debt figures were largely meaningless without being viewed in context, and cautioned that debt was not necessarily a bad thing.
David Hayward, an emeritus professor of public policy with RMIT University, had also expressed concern about the focus on gross debt, which — since it ignores one side of the balance sheet — was the "most extreme measure".
Contacted again, each expert confirmed that they stood by their previous comments.
Professor Hayward said Mr Chalmers' latest statement was also "not strictly correct" because of the portion of debt "bequeathed to the Coalition by the previous Labor government".
Moreover, he said, it "sidesteps the most important question" by ignoring what the debt was used for.
Most of Labor's debt was "accumulated through wise counter-cyclical spending during the global financial crisis" while much of the Coalition's was due to its coronavirus stimulus and support package, Professor Hayward said.
"Some of this involved poor judgement … but most of the Coalition's measures were correctly supported by Labor."
Pascalis Raimondos, the head of Queensland University of Technology's economics and finance school, similarly told Fact Check that Mr Chalmers' claim was "not the whole truth" .
However, he said it captured "the right sentiment for why the current government needs to increase taxes".
In an email, Professor Raimondos noted that "all governments had to increase expenditure to keep the economy alive" during the pandemic.
"However, when you increase expenditure, you rarely reduce taxes (which is what the previous government did)."
Consequently, he said, the former government had "exacerbated the accumulated debt in Australia. And since debts must be financed, increasing taxes now seems the right thing to do."
Notably, Labor is on track to deliver so-called stage 3 tax cuts from July 1, 2024, which will further reduce the government's revenue base.
Principal researcher: David Campbell
Sources
- Jim Chalmers, Interview with Sky News, April 13, 2023
- Jim Chalmers, Interview with ABC's 7.30, April 13, 2023
- Jim Chalmers, Interview with the Today Show, April 11, 2023
- Jim Chalmers, Media conference, April 17, 2023
- Fact Check: Jim Chalmers says the Coalition is responsible for $1 trillion of debt in the federal budget. Is that correct?, October 25, 2022
- Fact Check: Jim Chalmers says two-thirds of the debt in the budget was borrowed before the start of the pandemic. Is he correct?, August 13, 2020
- AOFM, End of month positions, April 2023
- Department of Finance, GGS monthly financial statements, March 2023
