Australian government debt

Throughout this article, the unqualified term "dollar" and the $ symbol refer to the Australian dollar.

The net government debt is gross government debt less its financial assets, which is often expressed as a percentage of Gross Domestic Product (GDP) or debt-to-GDP ratio.

The government debt fluctuates from week to week depending on government receipts, general outlays and large-sum outlays. Australian government debt does not take into account government funds held in reserve within statutory authorities such as the Australian Government Future Fund, which at 30 September 2016 was valued at $122.8 billion, and the Reserve Bank of Australia. Nor is the net income of these statutory authorities taken into account. For example, the Future Fund net income in 2014–15 was $15.61 billion, which went directly into the fund's reserves. Also, guarantees offered by the government do not figure in the government debt level. For example, on 12 October 2008, in response to the 2008 financial crisis, the government offered to guarantee 100% of all bank deposits. This was subsequently reduced to a maximum of $1 million per customer per institution. From 1 February 2012, the guarantee was reduced to $250,000, and is ongoing.

Australia's net international investment liability position (government debt and private debt) was $1,028.5 billion at 31 December 2016, an increase of $5.4 billion (0.5%) on the liability position at 31 December 2016, according to the Australian Bureau of Statistics.

Australia's bond credit rating was rated AAA by all three major credit rating agencies as at May 2017. Around two-thirds of Australian government debt is held by non-resident investors – a share that has risen since 2009 and remains historically high.

History

Before 1979, the government borrowed using individual cash loans and a mechanism known as the TAP system. Under this system, the government would set a fixed yield, and the private market would finance as much public debt at this yield as it saw fit. If the market did not finance all the debt on offer, then the treasury was able to borrow the outstanding amount from the Reserve Bank of Australia at a concessionary rate of 1%. This allowed the government to finance its debt without limitation. In 2000, the then Deputy Chief Executive Officer of the AOFM, Peter McCray, remarked that this system was "breaching what is today regarded as a central tenet of government financing—that the government fully fund itself in the market." He also remarked that this form of funding implied "reduced fiscal discipline" on the government's side, leading to likely inflationary consequences, as well as adverse implications to the private bond market.

The government retired the TAP system and introduced a tender system for short-term Treasury Notes in December 1979 and for Treasury Bonds in August 1982. Under this system, bonds are issued in an auction where primary dealers bid against each other. Australian macroeconomist Professor Bill Mitchell notes that there is still no risk of the government being unable to finance itself because the Australian government issues its own currency and can always meet any financial liabilities that are denominated in that currency. The Australian government can never run out of its own currency.

During the Howard government, large budget surpluses resulted in a reduction of treasury bonds on issue. In 2002, the government conducted a review into how this would affect bond market participants. Consistent with the outcome of the review, the government decided to continue issuing debt in the form of treasury bonds despite the surplus to maintain the bond market. This was justified on the basis that a declining bond market would have negative implications to those looking to hedge interest rate risk using bond futures, financial market diversity, and those who use bonds as investment vehicles. In balance with continued issuance of liabilities, it was decided the government would continue to accumulate financial assets, thus expanding its balance sheet and increasing the exposure to financial risks. However, it was decided that the benefits of maintaining a bond market outweighed such risks.

The Howard government also saw the unwinding of the federal government's foreign currency liabilities, ending a long period during which the government had a significant exposure to currency risk. The debt portfolio is now managed to a benchmark with a zero foreign currency component.