According to the 2022-23 Commonwealth Budget (the budget), gross federal government debt is expected to increase from approximately $900 billion to $1.17 trillion by 2026. Current annual interest repayments on debt amount to approximately $20 billion and are expected to reach $25 billion by 2026.

The purpose of this research report is to provide an update to an earlier IPA report (2021), in the context of rising inflation and interest rates. Specifically, this paper analyses three scenarios for how the trajectory of interest rates for the remainder of the decade could affect the federal government’s debt repayments. These three scenarios are:

• Scenario one: the cash rate rises from 1.35% to 2% by 2030. Under this scenario, annual interest repayments on federal government debt could reach $44 billion by 2030.
• Scenario two: the cash rate rises from 1.35% to 5% by 2030. Under this scenario, annual interest repayments on federal government debt could reach $75 billion by 2030.
• Scenario three: the cash rate rises from 1.35% to 7% by 2030. Under this scenario, annual interest repayments on federal government debt could reach $89 billion by 2030.