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<\/a><\/p>\nIt was a defining moment of an election that ended John Howard\u2019s 11-year reign as prime minister.<\/p>\n
But a year after Rudd\u2019s address, he and treasurer Wayne Swan were battling the biggest financial crisis since the Great Depression. Spending restraint effectively died as the world came face-to-face with a disaster that reverberated through the global economy for another decade.<\/p>\n
Government debt \u2013 which was just $54 billion when Howard left office, the lowest since 1990 and the smallest share of GDP since World War I \u2013 would grow $50 billion in 2008-09.<\/p>\n
It marked the start of the long march that Treasurer Jim Chalmers, in his May 12 budget, will reveal will reach $1 trillion early in the new financial year.<\/p>\n
It prompts two linked questions: how did we accrue $1 trillion in debts, and what have we got to show for it?<\/p>\n
The long debt march<\/p>\n
Rudd and Swan ran into the global financial crisis, which both forced up spending \u2013 more than $50 billion alone in stimulus-related measures \u2013 and reduced tax revenues.<\/p>\n
Government revenue fell for two consecutive years \u2013 the first time since the 1930s.<\/p>\n
While Australia was just one of three countries to avoid a recession<\/a>, the economy slowed. The hit to tax collections and the increase in expenses such as unemployment benefits was around $100 billion within two years.<\/p>\n A little over a decade later, gross government debt had climbed to $542 billion under Scott Morrison and his treasurer Josh Frydenberg.<\/p>\n Then the world was gripped by the COVID pandemic. Gross debt climbed by $350 billion in three years. In 2019-20 alone, it jumped by a record $142 billion.<\/p>\n Again, tax receipts fell (by $17 billion) but the drop was not as severe as the 2008-10 period. This time, the ramp-up in spending did the most damage to the budget bottom line.<\/p>\n Programs such as JobKeeper<\/a> and the huge expense of providing health services to protect Australians from a deadly new virus meant government spending soared by $176 billion in just two years. That spending was financed largely by debt.<\/p>\n Independent economist and keen budget watcher Chris Richardson said the financial crisis and pandemic were the key drivers of the explosion in debt.<\/p>\n<\/p>\n But over time, state and federal governments have made increasingly expensive decisions on everything from new train lines<\/a> to health services<\/a> while running budget deficits<\/a>.<\/p>\n \u201cOne trillion sounds bad, but then look around to see how the economy would have been without it. You may not have inner-city metro rail lines, may not have much of a health service or less in the way of aged care,\u201d Richardson said.<\/p>\n \u201cAt any one point in time, state and federal governments have to make a decision on spending money either for today or for tomorrow. Over the years, they\u2019ve increasingly decided to focus on today, at the cost of tomorrow.\u201d<\/p>\n One sharp critic of the situation is Robert Carling, a senior fellow at the right-leaning Centre for Independent Studies.<\/p>\n \u201cSadly, there\u2019s not a lot to show for $1 trillion in debt,\u201d he said.<\/p>\n Carling agrees the two big crises since 2006 have played a part, saying that an increase in overall debt was inevitable.<\/p>\n \u201cBut if you believe in the budget being a macroeconomic stabilisation tool, then you have deficits but you also run surpluses in better economic times,\u201d he said.<\/p>\n \u201cThere have only been three budget surplus years since 2006-07. So this is a structural problem, not a cyclical one.\u201d<\/p>\n According to Carling, the increase in spending on services such as the NDIS, aged care, education and childcare have been the biggest factors in the run-up in debt.<\/p>\n Tax revenue as a share of the economy has varied little, he said, dismissing some criticism that tax cuts had contributed to the $1 trillion debt pile.<\/p>\n All the extra spending and debt, while providing more services, had come at a steep macroeconomic cost to the country.<\/p>\n \u201cThe steady accumulation of debt and deficits has meant higher interest rates and an exchange rate than would otherwise have been,\u201d he said.<\/p>\n The interest bill coming for all taxpayers<\/p>\n As Carling notes, the NDIS is a huge weight on the budget<\/a>. Spending on people with disabilities \u2013 which includes the NDIS and income support for those with disabilities \u2013 has climbed almost 600 per cent since 2007.<\/p>\n Some of that is due to the federal government taking over spending that used to be done by the states and territories.<\/p>\n Expenditure on non-government schools has also soared, up almost 260 per cent. Hospital spending is up 240 per cent.<\/p>\n There are long-forgotten decisions that have fed into the current situation. Joe Hockey borrowed $9 billion in early 2014 to give to the Reserve Bank \u2013 an institution that can print its own money \u2013 to help repair its bottom line, which had been damaged by the financial crisis.<\/p>\n Related Article There was no thought of repeating that policy during COVID when the RBA suffered a record-breaking $36.7 billion loss in 2021-22.<\/p>\n But the single largest cost increase is due solely to the run-up in debt.<\/p>\n The interest bill on government debt is expected to reach a record $29.4 billion in 2026-27, a near-eightfold increase on 2006-07. Taxpayers will, within two years, spend more on interest than on helping the states run the nation\u2019s hospitals.<\/p>\n This cost is growing so quickly due to the size of government debt and the sharp increase in global interest rates. During the depths of the pandemic, the interest rate on a 10-year government bond slumped to less than 0.6 per cent.<\/p>\n Over the past week, the 10-year rate climbed over 5 per cent.<\/p>\n<\/p>\n What\u2019s changed since 2006?<\/p>\n The ultra-low debt level left by the Howard government was due to three key factors.<\/p>\n Spending restraint, and generally favourable economic conditions, had improved the budget bottom line since John Howard took office in 1996.<\/p>\n But in the early 2000s mining boom, considered by the Reserve Bank to be the largest commodity boom since the 1850s gold rushes, flooded the government\u2019s coffers with hundreds of billions in extra cash.<\/p>\n Howard privatised Telstra, raising more than $45 billion, which was used for various programs and to pay down government debt.<\/p>\n Perhaps more importantly, Howard and Costello left office before the demographic tidal wave that was the mass retirement of baby boomers from 2010 onwards.<\/p>\n In 2006-07, the age pension \u2013 the second-largest budget expense \u2013 cost federal taxpayers $24.4 billion. In the coming financial year, it will cost about $68 billion.<\/p>\n The 189 per cent increase is one of the largest within the budget.<\/p>\n Since 2006-07, taxpayers have spent more than $935 billion financially supporting older Australians. Total budget expenditure over the same period is around $10.3 trillion.<\/p>\n Not only do older Australians need income support. As they age, they need increased care.<\/p>\n That was highlighted by the 2018-2021 royal commission into aged care that revealed a system that needed a huge funding injection.<\/p>\n Related Article It\u2019s an issue that both the Morrison and now the Albanese governments have been forced to confront. Spending on aged care has more than doubled since those low-debt days.<\/p>\n The aged care royal commission is just one of four that have forced governments to increase spending in particular areas.<\/p>\n The inquiries into violence and abuse against people with disabilities, into institutional child sexual abuse and into the treatment of veterans all prompted expensive responses.<\/p>\n Dealing with the backlog of claims for assistance by veterans is costing taxpayers an additional $13 billion alone.<\/p>\n EY Australia chief economist Cherelle Murphy said while government revenue had increased by about 0.6 per cent of GDP over the past 20 years, government spending had jumped by 2.4 per cent of GDP.<\/p>\n While spending had gone up, the government\u2019s collection of assets had also increased. Everything from the NBN to new roads and railways meant the increase in net debt \u2013 which takes assets into account \u2013 was much smaller than in gross debt.<\/p>\n Murphy notes while the quantity of government debt is a significant issue, so too is the quality of spending.<\/p>\n \u201cThese benefits have stretched beyond what we understand to be traditional welfare. It means households can consume more, and for many, it has meant an improvement to their standard of living,\u201d she said.<\/p>\n \u201cMuch additional government spending is needed and has created improved standards of living beyond what the productivity numbers tell us. But ensuring value for taxpayer money is critical to ensure there is less waste and debt levels aren\u2019t higher than needed.\u201d<\/p>\n The rise of the megaproject<\/p>\n Value for money has been a particular issue when it comes to government infrastructure since 2007.<\/p>\n During the global financial crisis, the Rudd government sank cash into projects with the twin aims of providing economic stimulus while improving the nation\u2019s productive capacity. Examples include Melbourne\u2019s regional rail link ($3.2 billion) and the Hunter expressway ($1.5 billion) in NSW.<\/p>\n Both continue to deliver benefits to their respective communities. But these, and others, were not finished until well after the crisis. The rail link, which added almost 50 kilometres of rail through Melbourne\u2019s western suburbs, was not completed until 2015.<\/p>\n Into the 2010s, state and federal governments started rolling out \u201cmegaprojects\u201d, with both levels of government often sinking cash into the same works.<\/p>\n<\/p>\n These include the $31 billion inland rail link between Brisbane and Melbourne that is currently under construction. It was expected to cost $4.7 billion.<\/p>\n The North-East Link currently being built across Melbourne\u2019s northern suburbs was first costed at $16 billion. It is now tipped to cost more than $26 billion.<\/p>\n Brisbane\u2019s cross-river rail was approved in 2017 with a price tag of $5.4 billion with trains running by 2024. It is not expected to be operational until 2029 at a cost of $19 billion.<\/p>\n State-only financed megaprojects have suffered huge blowouts. Sydneysiders adore their new metro, ignoring its $9 billion cost overrun.<\/p>\n The run-up in infrastructure spending is partly due to the federal and state governments not investing enough during the late 1990s and early 2000s. A catch-up was necessary and the projects either will or should improve our major cities.<\/p>\n Taking on debt to finance long-lived infrastructure makes economic sense.<\/p>\n But if debt is just used to cover annual costs, then it becomes much harder to justify.<\/p>\n Independent economist Saul Eslake \u2013 who noted that defence spending and the bipartisan deal to placate angry West Australians over their share of GST had also added to the nation\u2019s debt issues \u2013 said many of the decisions taken by governments since 2006 were justifiable.<\/p>\n But carrying so much debt will ultimately cost future taxpayers.<\/p>\n \u201cSuccessive governments have been unwilling to ask Australians to pay for these new or expanded services, or for unavoidable increases in existing ones,\u201d he said.<\/p>\n \u201cInstead, it\u2019s been \u2018put on the tab\u2019. Hence, the resulting increase in debt.\u201d<\/p>\n Federal debt is not the only issue<\/p>\n If the thought of $1 trillion in debt is troubling, don\u2019t look at the levels of debt being carried by the states and territories.<\/p>\n Their combined debt level is forecast to climb from $270 billion in 2019 to $820 billion by 2028.<\/p>\n<\/p>\n Analysis by S&P Global shows that infrastructure spending by the states and territories has climbed from $52 billion in 2020 to almost $100 billion in 2025.<\/p>\n S&P senior analyst Anthony Walker warns state government level spending, most of which will be supported by debt, is unlikely to drop.<\/p>\n \u201cIt is common practice for politicians to withhold announcements of key capital projects until closer to elections. Further, governments have struggled to contain the cost of major projects, particularly rail and roads, which mean the cost of delivering these projects are usually well above original budgets,\u201d he said.<\/p>\n![\"Gross](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/04\/6f5e145a3c7a3e2f94da0fff5d24f52ecd408916.jpeg\")
Gross government debt climbed to $542 billion under Scott Morrison and his treasurer Josh Frydenberg.Alex Ellinghausen<\/p>\n![\"Economist](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/04\/5cb4c9f380f335259921d598209401ddee6cb51d.jpeg\")
Economist Robert Carling says Australia has little to show for its $1 trillion in debt.Chris Pearce<\/p>\n![\"The](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/04\/c907b3a065cd5d85fb59dbf7ddd2b7883748f9100ea947edaa83d043d5acf43a.jpeg\")
<\/a><\/p>\n![\"Aged](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/04\/c5ce78eca3a2b0df3e89a3b81e29e9a86eae5e3f.jpeg\")
Aged care and support for older Australians has contributed to the lift in government debt.<\/p>\n![\"A](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/04\/af57e5ca74fce4c21b8a50dea15c8e5952fe5841.jpeg\")
<\/a><\/p>\n![\"EY](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/04\/e33f50b33ee99802a4bc52773209b8721c1d025b.jpeg\")
EY chief economist Cherelle Murphy says living standards have improved as government spending has increased.Alex Ellinghausen<\/p>\n![\"Economist](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/04\/8d2cb96a13622a59136a87b0974037010feda5d1.jpeg\")
Economist Saul Eslake says governments have continually put planned spending \u201con the tab\u201d.Alex Ellinghausen<\/p>\n
![\"Geoffrey](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/02\/b80b400a6fc619ecb800ae2fb8c722c71321fb0128401958414ed4e7bf33c93d.jpeg\")
<\/a><\/p>\n