Speaking ahead of the December update, Chalmers said the biggest impact on the mid-year budget would be an increase in borrowing costs driven by rising bond yields globally and in Australia. The federal government now holds more than A$1 trillion in debt.
Chalmers emphasised that the MYEFO “won’t be anything like a mini budget” with major new measures, but rather the “big, problematic influence” would be the extra billions needed to service debt. He argued Australia is “better placed than other countries” because its debt is a fraction of what others carry, and the government has reduced the debt trajectory from the one it inherited.
The warning comes after the release of Australia’s seventh Intergenerational Report, which projected mixed long-term outcomes. An ageing population and sluggish economic growth are expected to pressure a budget stuck in deficit, but the report also highlighted Australia’s relative strengths. Chalmers maintained there are good reasons to be “overwhelmingly” optimistic about the nation’s future.
The Financial Review reported that the mid-year update will show that surging bond yields have “punched a hole” in the government’s finances. Chalmers singled out rising global bond yields as the most significant factor, noting that “if you read the international economic commentary, the biggest thing that’s going on right now is the way that bond yields… are going up around the world and quite substantially. And here in Australia as well.”