Sunita Somvanshi
Australia's government interest bill is rising. The question is by how much, over what timeframe, and whether the trajectory is as severe as some coverage implies.
Treasurer Jim Chalmers has flagged higher borrowing costs as a factor in Australia's fiscal position. The Parliamentary Budget Office provides the most detailed independent long-term projection of what debt-servicing costs actually look like.
According to PBO data, national public debt interest payments are projected at $54.2 billion in 2026–27. That figure is forecast to rise to $77.2 billion by 2029–30. As a share of revenue, interest payments move from 4.1% in 2024–25 to 6.2% in 2029–30. National gross debt — which combines Commonwealth and state-level debt — is forecast at 55.4% of GDP in 2026–27, rising to 58.0% by 2029–30.
These are meaningful numbers. They represent government expenditure on debt servicing that reduces the share of revenue available for other budget priorities. But they need context to be understood accurately.
What the Government Says Its Own Policies Have Done
Chalmers has argued that the government's fiscal settings have reduced projected debt compared with what it inherited. That claim is about the counterfactual — how debt and interest payments would have grown under the previous trajectory versus under the current government's budgets.
The PBO and Treasury publish separate measures that can differ based on methodology, what debt is included, and what time horizon is used. When comparing figures, it matters which measure is being used. National gross debt — the 55.4% figure — includes both Commonwealth and state government debt. Commonwealth gross debt alone is approximately 34% of GDP in 2026–27. Net debt subtracts financial assets held by the government and typically gives a lower number still. Headlines that use any of these figures without specifying which one can be difficult to compare directly.
The PBO forecasts rising gross debt, net debt and public debt-interest costs over the forward estimates. The core fact is that interest costs as a share of revenue are rising — from 4.1% to 6.2% over five years — which means a growing slice of tax revenue is committed to debt service rather than services or savings.
For context on how Australia's debt position compares internationally, the IMF and OECD publish cross-country fiscal data. Australia's national gross debt at 55–58% of GDP sits in the moderate range for developed economies — lower than the United States, the United Kingdom, Japan, or the eurozone average in national gross debt terms, but higher than it was before the pandemic fiscal expansion.
Whether the current trajectory is a manageable feature of post-pandemic budgets or a structural problem depends heavily on interest rate assumptions. The key variable is the spread between Australia's economic growth rate and the rate it pays on its debt. If the economy grows faster than the interest rate, the debt burden stabilises or shrinks as a share of GDP even without a primary surplus.
The RBA's September 28–29 meeting is directly relevant here — its rate decisions affect the government's borrowing costs as existing debt rolls over into new issuances at prevailing market rates. Tracking Australia's budget position and interest rate outlook together gives a clearer picture than either does alone.
The next MYEFO, typically released in December, will provide an updated government fiscal outlook with revised debt and interest projections. For anyone following Australia's fiscal position, that update will revise the PBO figures with the government's own forecasts.
