Australia’s Rapidly Climbing State Debts

Over the last couple of months, the release of the 2024-25 state budgets revealed rapidly climbing state debts. Research by S&P reveals that Australia’s state debts are now amongst the largest of all developed countries. Many economists have argued that the higher spending driving increased borrowing will contribute to inflation remaining higher for longer. The RBA will respond accordingly by delaying interest rate cuts or increasing rates if inflation remains higher than expected. 

Our interstate debt analysis (Interstate Debt Comparisons FY25) reveals rapidly climbing debts and their consequences in all states except for WA over the next four years. Figure 1 portrays the projected sharp increase in total public sector gross debt per capita across all major states. Victoria maintains the largest per capita debt, and Western Australia maintains a smaller, more constant debt over the forecast period. According to various metrics, Victoria had the worst debt outlook, while NSW, SA, and Queensland vied for the second-worst position. By 2027-28, gross state debt per capita will be $35k in Victoria, followed by $30k in SA, $29k in Queensland, and $28k in NSW. Western Australia had the most favourable debt outlook.   

Western Australia’s relatively lower debt position can be linked to its controversial GST deal, which prominent economist Saul Eslake has criticized for costing the government $44 billion more than anticipated.

The precise ranking of the states depends on the metric chosen (e.g. gross or net debt) and whether the figures are for the whole public sector, including government-owned corporations or the general government sector alone. Our slide deck reports on various different metrics. As depicted in Figure 2, Queensland’s performance looks better considering net debt, which accounts for liquid financial assets that can offset gross debt. Queensland still benefits from the historical decision to fully fund the state’s defined benefit superannuation liability. 

Adept Director Gene Tunny published this article on 10 July 2024. Amelie Marsland, who interned at Adept over the Winter break in 2024, prepared the interstate debt analysis. For further information, please email us at or call us at 1300 169 870.

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