The claim
Poised to deliver its first federal budget since the 2022 election, Labor has sought to manage expectations given the scale of the government's borrowings.
During an October 7 press conference, Treasurer Jim Chalmers said the budget was "heaving with a trillion dollars in Liberal Party debt".
He has made the claim several times before, including on September 26 and August 2, when he said Labor had "inherited a budget which is absolutely heaving with a trillion dollars in Liberal Party debt".
So, is there $1 trillion of debt in the federal budget and is the Liberal-National Coalition responsible?
RMIT ABC Fact Check investigates.
The verdict
Mr Chalmers's claim is exaggerated.
Australia's federal government debt can be measured in gross or net terms.
When the Coalition left office, total net debt was closer to $500 billion than $1 trillion.
Gross debt was higher, at nearly $900 billion, though not expected to pass the trillion dollar mark till sometime during the 2023-24 financial year, according to the March 2022 federal budget.
On either measure, around a third of the debt existed before the Coalition came to power.
Experts told Fact Check that although debt had ballooned under the Coalition before COVID-19 arrived in Australia, it was unreasonable to ignore the circumstances behind government spending, including the impact of the pandemic.
Moreover, they said it made little sense to focus on the dollar figure of debt without also considering the size of the economy, since the real question was whether the debt was sustainable.
A Labor talking point
Mr Chalmers is not alone in blaming the Coalition for $1 trillion of debt.
On September 7, Prime Minister Anthony Albanese told journalists that Labor had "inherited a trillion dollars of Liberal Party debt".
In parliament the next day, he said: "The fact is that we have inherited a trillion dollars of Liberal Party debt, and therefore we have had to make some difficult decisions."
On September 21, Minister for Financial Services Stephen Jones tweeted: "It's great [that] high resources prices are helping the budget, but we still need to pay off a trillion dollars of Liberal debt."
Multiple measures of debt
As Fact Check has previously explained, government debt can be measured in either gross or net terms. Both represent the cumulative effect of budget deficits.
In the budget, gross debt considers just one side of the balance sheet, and reflects government borrowing on financial markets via the issuing of securities.
Net debt, however, also takes into account the offsetting effect of selected financial assets, and so better reflects the government's capacity to cover its liabilities.
David Hayward, an emeritus professor of public policy with RMIT University, told Fact Check that the latest debt figures included $200 billion of debt sold to the Reserve Bank during the pandemic.
This was "like an inter-government transfer, with one part of the government lending money to another part", he said, noting that an equivalent figure would appear on the RBA's balance sheet.
That is to say, what counts towards the debt depends on which parts of the public sector are included.
"If you looked at the non-financial public sector as a whole … that amount will disappear," Professor Hayward said.
Mr Chalmers did not specify which measure his claim was referring to.
Fact Check has previously discussed which measures are most useful when assessing budget sustainability.
Sourcing the data
The Australian Office of Financial Management (AOFM) releases monthly figures for gross debt, or Australian government securities, on its website.
Meanwhile, the Department of Finance publishes monthly financial statements that contain net debt figures, covering all months except for June.
End of financial year figures for both can be found in the federal budget.
Have we hit $1 trillion?
When the Coalition left office in May 2022, net debt stood at $517 billion.
The March 2022 federal budget forecast that it would hit $865 billion by mid-2026, the last year for which estimates were available.
By contrast, at the time of the election, gross debt was already at $888 billion.
The March budget forecast that this would reach $906 billion by the end of that financial year, 2021-22, rise to $977 billion by June 2023 and surpass $1 trillion sometime in 2023-24.
The 2021-22 final budget outcome, released nine days before Mr Chalmers made his claim, showed the June 2022 actual figures were better than the March budget forecasts for both gross and net debt.
Is it all 'Liberal debt'?
At the end of August 2013, shortly before the Coalition was elected, gross debt stood at $272 billion.
This was up from $54 billion when Labor took office from the Howard government at the end of November 2007.
When it comes to the net figures, the Howard government left a surplus which under Labor turned into net debt of $161 billion.
So, under the Coalition, gross debt rose by $616 billion and net debt by $356 billion.
Pascalis Raimondos, the head of Queensland University of Technology's economics and finance school, told Fact Check that it was reasonable for Labor to say it had "inherited" a trillion dollars of debt, though it would be "unfair to put the whole weight on the previous government".
Fabrizio Carmignani, dean of Griffith University's business school, said there were often "long lags" in economics that meant "the dynamics of economic variables today are influenced by policies introduced and implemented in the past".
"In this sense, not necessarily the whole of the … increase in gross debt might be due to Liberal policies," he said.
Professor Hayward said that blaming a trillion dollars of debt on the Coalition was "very misleading" and "not really an accurate statement".
Not only did it rely on general government sector gross debt, which was the "most extreme measure", he said, but it "also ignores that Labor bequeathed to the conservatives around $250 billion of debt".
What the debt figures mean
Each of the experts consulted by Fact Check cautioned that Australia's debt levels needed to be viewed in context, without which the dollar figures were largely meaningless.
Debt was sometimes necessary, they said, and not always a bad thing.
Professor Carmignani told Fact Check the critical question was whether the long-term trend was sustainable, which was why "it does not make much economic sense to talk about the absolute level of debt".
Instead, he suggested looking at debt as a share of the economy, or gross domestic product (GDP), noting that Australia's debt-to-GDP ratio — which effectively doubled under the Coalition — was still "low by international standards."
Professor Raimondos said that while the Coalition might be criticised for failing to reduce debt levels in its earlier years, it "could do nothing [other] than to increase the debt" once the pandemic struck.
Ignoring these circumstances would be "unfair", he said.
Similarly, Professor Hayward told Fact Check that it was important to consider why the money was spent, with much of the Coalition's pandemic-era debt going towards keeping people in work.
"You can argue about whether it was … an efficient spend," he said, but "there is no doubt that Australia missed a major recession because of the interventions by the federal government and the states."
Principal researcher: David Campbell
Sources
- Jim Chalmers, Interview with Sky News, July 20, 2022
- Anthony Albanese, Hansard, September 8, 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
- Fact Check, Katy Gallagher says the federal budget is in worse shape than many state and territory budgets. Is that correct?, August 31, 2022
- Fact Check, Katy Gallagher says the government has inherited the worst set of budget books in history. Is that correct?, June 7, 2022
- AOFM, Data Hub (End of month positions, dealt basis), accessed October 2022
- Department of Finance, Monthly financial statements (Australian government general government sector), July 26, 2022
- Federal budget 2022-23 (BP No. 1), March 2022
