Was two-thirds of the debt in the budget borrowed before the start of the pandemic?
Shadow treasurer Jim Chalmers says the two-thirds of the debt in the budget was borrowed by the Government before the COVID-19 pandemic began. RMIT ABC Fact Check investigates.
by the Department of Finance.Stephen Bartos, a former senior official from the Department of Finance who is now a visiting fellow at the Australian National Univertsity's Crawford School of Public Policy, said it was acceptable to rely on gross debt.
"In most discussions internationally about countries' government debt levels, the figure commonly referred to is gross debt," Mr Bartos told Fact Check in an email."Gross debt and net debt will trend pretty much together for the foreseeable future — gross and net debt rising and falling in parallel. Either way, they are both at post-WWII highs."
Even if a government has no net debt, it may still have some gross debt.This is the situation Australia enjoyed before the global financial crisis, which according to the Reserve Bankbegan in mid-2007.As Mr Bartos explains: "In cases where a government has no net debt — the fortunate position Australia was in before the GFC — it may still want to be a borrower and a lender at the same time in order to keep a government bond market going (so there is always some debt being traded in the market). That's because financial institutions like banks like there to be an official interest rate to refer to in pricing their own lending."
Assessing the claimMr Chalmers referred to "debt in the budget". He made the claim on the morning of July 23, just hours before the Government released its budget update.Fact Check will assess the claim on the basis that he was using the phrase "in the budget" in the broader sense, referring to the Government's financial position, rather than specifically the latest budget papers, which had not yet been released when he made the claim.
Mr Chalmers also refers to the debt levels "before the outbreak of COVID-19".Australia announcedits first recorded case of the virus on January 25, 2020.At the time Mr Chalmers made his claim, the latest net debt figures available were for the end of May, missing one and a half months of borrowing during the crisis.
Fact Check has consequently primarily used the end-of-month gross debt figures and the latest daily figures to assess the claim.What the figures showWhen the Coalition came to power in September 2013, Australia's gross debt was $280.3 billion. This was largely the consequence of borrowing (and budget deficits) notched up as the former Labor government responded to the global financial crisis, which
according to the Reserve Bankstarted in about mid-2007.As the following graph shows, Australia's gross debt has been rising since the onset of the global financial crisis.The rise in the gross debt represents the cumulative consequence of successive annual budget deficits, apart from any borrowing undertaken to maintain the government bond market.
By the time the coronavirus pandemic struck Australia, towards the end January 2020, gross debt had risen to $568.1 billion, an increase of $287.8 billion since the Coalition took office.Mr Chalmers made his claim on the morning of July 23. The AOFM told Fact Check that at the close of business the previous day, July 22, the total face value Australian Government Securities (gross debt) on issue was $723.4 billion, an increase of $155.3 billion since the start of the pandemic.
This represents 35 per cent of the total increase ($443.1 billion) since the Coalition came to power.The remaining 65 per cent of the debt was borrowed before the start of the pandemic.This is consistent with Mr Chalmers's claim that "something like two-thirds of the debt in the budget was borrowed by the Government before this outbreak of COVID-19".
If the $280.3 billion of debt accumulated by Labor before the Coalition came to office is included in the equation, pre-crisis debt accounts for an even bigger proportion, equivalent to 79 per cent of the total.What about the net debt figures?As noted, net debt figures are often seen as a better indicator of a government's ability to handle its liabilities because offsetting financial assets are factored into the equation.
Monthly net debt figures are published by the Department of Finance. However, as noted, the latest data available at the time Mr Chalmers made his claim was for May 2020, making the information somewhat out of date as a tool for assessing his claim.At the end of September 2013, shortly after the Coalition came to power, net debt stood at $174.6 billion.
By the end of January 2020, at the start of the pandemic, net debt was $430.2 billion, an increase of $255.6 billion.Over the next four months to the end of May 2020, net debt increased to $463.6 billion, an increase of $33.5 billion.That suggests that Coalition borrowing undertaken after the onset of the pandemic accounted for just 11.6 per cent of the total increase in net debt under the Coalition, compared with 88.4 per cent before the pandemic.
In terms of assessing Mr Chalmers' claim, however, Fact Check places less store in the net debt figures than the gross debt figures. This is because the net debt figures exclude about one-and-a-half months of borrowing during the six months of the pandemic at the time of the claim.
What the experts sayHead of Investment Strategy and Chief Economist at AMP Capital, Shane Oliver, said he was not surprised that most of the debt had been notched up before the start of the pandemic as the budget had been in deficit for many years."That's just the way it works," Dr Oliver told Fact Check.Read more: ABC News »
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