The Australian government has been running budget deficits since the GFC, meaning its had to issue debt to finance the shortfall.
- The total value of outstanding Australian government bonds is expected to peak at $558 billion in 2027-28, some $126 billion lower compared to estimates offered just six months ago.
- ANZ Bank expects a stronger fiscal position should help support prices for longer-dated Australian government debt.
The Australian government has been running budget deficits since the GFC, and is expected to do so until the 2019/20 fiscal year.
As such, it’s been had to borrow to make up the budget shortfall by issuing government debt.
The chart below from ANZ Bank shows the gross amount of Australian Commonwealth Government Bonds (ACGS) on issuance, including where it stood in the past and where it’s expected to stand in the future.
Clearly, the amount on issuance has increased rapidly since the onset of the financial crisis in 2007/08.
However, while the outstanding value of ACGS is expected to increase again in the years ahead, there’s something that stands out in the government’s gross issuance projections.
The sharp upwards trajectory is expected to slow, then fall, in the decade ahead.
“Looking at the government’s borrowing, the face value of ACGBs is expected to peak in 2025-26 at $596 billion,” says Martin Whetton and Jack Chambers, Rates Strategists at ANZ Bank.
“Total value of ACGBs on issue is expected to be $558 billion in 2027-28, which is $126 billion lower compared to $684 billion forecast in the 2017-18 MYEFO.”
The government’s forecasts largely reflect an expected improvement in Australia’s budget position over the forecast period and out years.
While $596 billion is a scary figure to comprehend, it needs to be put into a broader economic perspective.
As a share of GDP, net government debt — gross debt on issuance less its financial assets — is expected to peak at 18.6% of GDP in the current fiscal year before declining to just 3.8% by 2028/29.
Although high by Australian standards, even at its peak, Australia’s net government debt position is also far lower than other major developed nations, especially those hardest hit by the GFC.
We shouldn’t feel comforted by the fact that we have less government debt than other major nations, especially given Australia’s household debt burden, but it does offer a bit of perspective.
While Whetton and Chambers see modest challenges when it comes to refinancing existing debt issuance, they don’t believe the government will have much difficulty in finding willing buyers.
“The next few years sees a large amount of debt come due in gross terms, with $159 billion of debt maturing by the end of calendar year 2021,” they say.
“This does present a challenge, though we would note the underlying budget strength, as of now, helps reduce the reliance on net debt increases.
“We expect that the longer end of the ACGB curve (longer dated bonds) will be a beneficiary of a reduced borrowing program.”
Following the release of Australia’s budget, all three major credit ratings agencies — S&P, Moody’s and Fitch — kept Australia’s sovereign debt rating at the highest AAA level.
Only one, S&P, has Australia’s rating on a negative outlook.