This week, Australia’s government debt passed $1 trillion for the first time.
To put that number into context: it’s a thousand billion dollars.
Or a million... million dollars.
It comes at the same time as U.S. Government debt surpasses $40 trillion ($AU56 trillion) for the first time.
Let’s unpack why that happens, and what the number actually means.
Debt
Debt is simply what the Government currently owes.
Local and international investors and major banks lend the Australian Government money because they trust it will pay them back, with interest.
The Government uses that money to fund things it can‘t otherwise cover with tax revenue, which could include hospitals, roads, disaster relief, or income support.
Taking on debt is a normal tool governments use to keep the economy running, not, on its own, a sign something has gone wrong.
How it works
Say the Government wants to fund the NDIS, build new hospitals, and respond to a natural disaster, all in the same year.
If tax revenue doesn’t cover it, the Government borrows the difference.
Borrow too much, though, and the interest bill itself becomes a growing cost.
Paying it off
The Government only starts properly paying down debt once it’s in surplus.
A surplus means it collects more (usually in taxes) than it spends in a year, rather than the other way around.
Australia last had surpluses in 2023 and 2024.
The budget has been back in deficit since 2025, including this year, which means debt has been growing again rather than shrinking.
The Government forecasts a return to surplus by 2034-35.
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Two things are driving that.
First, wages rising over time push more people into higher tax brackets automatically, without the Government raising rates, meaning more tax gets collected each year.
Second, recent changes to who qualifies for the National Disability Insurance Scheme are forecast to slow how fast spending on the program grows.
The dollar figure itself keeps climbing for now though, and is expected to hit $1.1 trillion within two years.
The last time Australia was “debt free” was in the 2006-07 financial year.
Net government debt hit zero for the first time in three decades as the result of a run of budget surpluses through the late 90s and 2000s under Liberal Treasurer Peter Costello.
The Global Financial Crisis in 2008 tipped the budget back into deficit, and debt has been building since, accelerated by the COVID pandemic.
Global debt
Measured against the size of the economy, Australia’s debt is small by international standards.
Japan’s is more than double the size of its economy.
The U.S. and UK’s debts are either near or above the size of their entire economies.
Australia sits at roughly a third.
The same week Australia hit $1 trillion, the U.S. hit a milestone of its own: total government debt passing $US40 trillion ($AU56 trillion).
The yearly interest on that borrowing now tops $1 trillion.
What’s next?
Both major parties agree debt matters.
They disagree on what to do about it.
The Government points to Australia’s low debt relative to other countries, and to its record of running smaller deficits than forecast.
The Opposition argues the dollar figure itself is the problem, with Shadow Treasurer Tim Wilson saying: “Today’s debt is tomorrow’s taxes”.
Debt is expected to dip back under $1 trillion later this week, before new borrowing pushes the total straight back over it in the weeks after.
