One of the major economic policy issues of the times is the growth of public debt in the wake of the coronavirus pandemic and what this growth means for the future. Some economists believe the burden will be manageable. Others express varying degrees of concern.

The fiscal landscape has changed dramatically and rapidly since March 2020, and for several months it was difficult to quantify the effects on government budgets. The much delayed delivery of Commonwealth and state/territory budgets in recent months now makes it possible to construct a comprehensive picture of the debt outlook up to 2024. This includes the updated Commonwealth 2020/21 budget estimates released in the mid-year review in December.

Key points:

• After many years with low public debt, Australia is seeing a much higher debt burden as a result of the coronavirus pandemic. In the years ahead, it will reach levels (relative to the size of the economy) last seen in the early post-World War II years.
• The confidence often heard expressed that the debt burden will be manageable in the long-term should be heavily qualified. A steep decline in the debt burden such as was seen after World War II will depend on vigorous economic growth, continuing very low interest rates and the exercise of fiscal discipline, none of which is assured.
• The increase in debt from the pandemic is due in large part to net operating deficits (the cost of current government services exceeding current revenue) totalling $515 billion at the Commonwealth level and $120 billion at the state level over the five years to 2023/24, rather than to investment in infrastructure.
• NSW and VIC have already suffered downgrades to their previous AAA credit ratings since their budget announcements, and further downgrades in those and some other states and territories would not be surprising.