Estimates outline big interest bill
A conservative free-market think tank says the interest bill on Australia’s debt could be $75 billion by 2030.
If the Reserve Bank’s official cash rate returns to pre-GFC levels, the Institute of Public Affairs (IPA) claims that the annual interest bill on over $1 trillion in federal government debt could quadruple by the end of this decade.
The think tank - which is frequently criticised for what appears to be a partisan, pro-Lliberal Party leaning - says a 5 per cent overnight cash rate by 2030 could push Australia’s annual interest bill to $75 billion.
A yearly interest bill of $75 billion would be triple the current forecast of $25.6 billion by 2025-26.
Most economists expect the cash rate will steady between 2.5 per cent and 3.5 per cent in the current tightening cycle, but the IPA claims that even with a 2 per cent cash rate, annual debt interest payments will approach $44 billion.
“The consequences of two decades of reckless government spending are set to be multiplied as rapidly rising interest rates will cause an explosion to the federal government’s debt repayment obligations,” says Daniel Wild, IPA deputy executive director.
“The government’s debt obligations can only be repaid by increasing taxes or reducing spending. Both measures will be disproportionately felt by the middle and working classes.
“It’s time for both sides of politics to demonstrate economic leadership by showing restraint and self-control when it comes to committing to spending taxpayers’ money.”