Australian Government is now debt free

The Government has eliminated net debt for the first time in three decades, from a peak of 18.5 per cent of GDP ($96 billion) in 1995‑96. Strong economic management saw Australia's AAA credit rating restored in 2003.

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Good management helps eliminate net debt

The Government has eliminated net debt for the first time in 30 years.

This means that the Government is no longer a net borrower, and we can start to save for some of the big challenges of the future.

Australia is now amongst a small and select group of OECD countries that have eliminated net debt. The average net debt to GDP ratio in the OECD is around 48 per cent; for Australia it is below zero.

This places Australia in a much better position than most countries to respond to economic shocks and emerging pressures. We can now plan for the future with greater certainty and confidence in our financial position.

Eliminating net debt has resulted in net interest payments falling from a peak of $8.4 billion (1.5 per cent of GDP) in 1996‑97 to $0.5 billion (around zero per cent of GDP) in 2006‑07.

If we were still spending 1.5 per cent of GDP on interest payments, Australia's fiscal position would be $14 billion a year worse off.

By eliminating net debt, the Government has freed up resources to meet other priorities. The ageing of the population together with rising health costs will open a gap between revenue and expenditures over the decades to come. A strong financial position allows the Government to prepare now for these future pressures.

The Future Fund

The Government has established the Future Fund with an initial capital injection of $18 billion, reflecting its commitment to long‑term sustainable government finances.

Graph: Sound fiscal management resulting in the elimination of government net debt

Sound fiscal management resulting in the elimination of government net debt

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6 2006‑07 Budget Overview