Australia is driving debts to a gentian level with no end in sight

“We go into the year 2022 with confidence and a lot of hope. We have one of the highest vaccination rates in the world and now one of the strongest economic recoveries in the world. All Australians can be proud of that. “

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However, Market Economics’ Stephen Koukoulas said any party that wins next year’s general election will have to cope with the huge debt that has been amassed over the past decade.

He said the coalition’s tax cap as a percentage of GDP would impact the rising cost of programs like the national disability insurance system and the government’s own pledge to increase defense spending. Labor had not announced any spending cuts or revenue increases that might be required by the May elections.

“Whoever wins the election has to deal with the budget situation and the debt level. I’m not saying we need an austerity budget, but small spending cuts – maybe a quarter of a percent of GDP – will certainly improve the situation, ”he said.

“The debt level is sustainable, but we have record low interest rates. When rates go up 100 or 200 basis points, the net interest calculation really starts to go up. “

Net interest is projected to hit a record $ 14.8 billion in 2021-22, more than forecast to be spent on the pharmaceutical benefits system this year.

And it’s not just the federal government that ramped up the debt.

Australian households are the second highest in the world according to the IMF, with only Swiss residents having more debt. In relation to GDP, the debt of Australian households is 123.53 percent and that of Switzerland 131.9 percent.

Only five other nations – Norway, Canada, Denmark, the Netherlands and South Korea – have household debt levels above 100 percent.

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Most of the debt is tied up in mortgages, which are the cheapest due to record low interest rates worldwide this century. However, some central banks have already started raising interest rates to meet emerging inflationary pressures, while banking regulators have raised concerns about the sharp rise in house prices in many countries, including Australia.

While the Reserve Bank has announced that it will not hike official interest rates until 2024, financial markets and economists expect the RBA to move in as early as the middle of next year.

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