Budgetary issues in Australia have dominated public policy discussion at the federal level since the 2008-10 Global Financial Crisis (GFC). Governments at both national and state level entered the GFC running budget surpluses, yet post-GFC Australia has experienced one of the fastest growing public debt levels in the world due to a series of historically large budget deficits that have persisted for longer than after previous economic downturns (see Figure 1).
Figure 1 – Australian, state and local government budget balances.
Figure 2 – Federal Government revenue and payments (percent of GDP).
In answer to the second question (macro economic risks of deficits and debt), the main risk of failing to rein in the fiscal deficit is a downgrading of Australia’s AAA credit rating, which would add a risk premium to interest paid on government bonds. A 30 basis point rise in interest paid on government debt, for instance, would increase the annual federal public debt interest bill by some $1.5 billion, other things the same.