Australia Takes Debt To Menzian Levels With No End In Sight

“We are entering 2022 with confidence and a lot of hope. We have one of the highest vaccination rates in the world and now one of the strongest economic recoveries in the world. This is something all Australians can be proud of.

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But Stephen Koukoulas, of Market Economics, said the party that wins next year’s federal election will face the large debt accumulated over the past decade.

He said the Coalition’s tax cap as a share of GDP would come up against the rising cost of programs like the National Disability Insurance scheme and the government’s own pledge to increase defense spending. Labor had not mentioned any spending cuts or revenue increases it could bring to the elections scheduled for May.

“Whoever wins the election will have to deal with the state of the budget and the level of debt. I’m not saying we need an austerity budget, but small spending cuts – maybe a quarter of a percent of GDP – will definitely improve the situation, ”he said.

“The debt level is sustainable but we have record interest rates. If rates go up 100 or 200 basis points, the net interest rate bill really starts to rise. “

Net interest is expected to hit a record $ 14.8 billion in 2021-22, more than what is expected to be spent on the drug benefit plan this year.

And it is not just the federal government that has increased the debt.

Australian households are the second most indebted in the world, according to the IMF, only Swiss residents owing more. As a percentage of GDP, Australian household debt stands at 123.53 percent, Switzerland’s at 131.9 percent.

Only five other countries – Norway, Canada, Denmark, the Netherlands and South Korea – have household debt levels above 100%.

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Most of the debt is tied up in mortgages which, due to record interest rates around the world, are the most affordable of this century. But some central banks have already started raising interest rates to cope with emerging inflationary pressures as banking regulators have raised concerns about the sharp rise in house prices that has occurred in many areas. countries, including Australia.

While the Reserve Bank has said it will not raise official interest rates until 2024, financial markets and economists believe the RBA will move as early as the middle of next year.

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