Australia's $1trillion debt disaster: How Labor and the Coalition blew the nation's fortune - and have left young Aussies to pay the staggering bill for decades: Peter van Onselen

Published: 07:50, 20 August 2026 | Updated: 07:50, 20 August 2026 One trillion dollars used to be a number large enough to induce a cold sweat. In Canberra, it now barely raises a shrug. Australia’s Commonwealth gross debt has officially crashed through the $1,000,000,000,000 threshold for the first time, and the political class is, by and large, unfazed by the milestone. Debt is only going one way for the foreseeable future, and that’s up. The May Budget forecasts gross debt to reach $1.051 trillion by next June and eclipse $1.2 trillion before the decade is out. And that’s only federal government debt. Just wait until we factor in the debt state governments are also accumulating. Add that in, and the combined general government figure is already about $1.65 trillion. Total public sector debt across the Commonwealth and the states is forecast to exceed $2.2 trillion by 2030. But the real scandal is the bipartisan cowardice that’s allowed it to accumulate this much. The Coalition can’t use this week’s milestone as a campaign prop and pretend the fiscal rot began under Labor. It inherited federal gross debt of about $273 billion in 2013 and left office nursing nearly $895 billion. COVID accounts for much of that increase, but nowhere near all of it. Anthony Albanese and Jim Chalmers will inevitably point to their two surpluses, boasting that this year’s gross debt is forecast to be $173 billion lower than the Morrison-era trajectory they inherited - it’s a mirage, writes Peter van Onselen  Tony Abbott deserves a sliver of credit for being the last PM to treat budget repair as a first-order objective. Pity he went about it with all the political honesty of a used car salesman. By ambushing voters with cuts in his first budget that he expressly promised not to make before the election, Abbott didn’t just destroy his own prime ministership. He made sensible spending restraint politically nigh impossible for more than a decade. Then came COVID. Much of the pandemic spending was justified to prevent an economic disaster, but it taught Canberra a lethal lesson: government expenditure can ratchet up without ever coming back down. Labor took office in 2022 just as the emergency sirens faded. It had the opportunity (and responsibility) to restore normal fiscal settings. Instead, it chose the path of least resistance. Anthony Albanese and Jim Chalmers will inevitably point to their two surpluses, boasting that this year’s gross debt is forecast to be $173 billion lower than the Morrison-era trajectory they inherited. The reality is that commodity windfalls, inflation and the silent theft of bracket creep did much of the heavy lifting. Commonwealth spending is now devouring 26.8 per cent of GDP, its highest non-pandemic level in 40 years. The latest Budget bakes in another $150.5 billion in cumulative deficits through to 2030. And that’s before you even consider the off-budget build-up of debt to fund blatant electoral bribes such as the forgiving of HECS debts. Let’s be very clear about one thing: the Coalition has zero credibility screeching about debt unless it identifies real savings with an alternative government manifesto, instead of merely promising cheaper everything if it wins, writes Peter van Onselen  The promised return to a balanced budget in 2034-35 relies on enormous, still-unproven NDIS savings, squeezing more blood from workers through bracket creep and the laughable assumption that ‘temporary’ programs will actually end. Oh, and it’s built off the back of economic growth numbers that we’re almost certain to fall short of. Being marginally less reckless than the Coalition’s own debt trajectory isn’t a legacy. It’s an alibi. And in the here and now, it’s not even true. Australia’s failure to rein in debt and spending is a bipartisan one. Both major parties are equally to blame. Former Treasury secretaries Martin Parkinson and Ken Henry aren’t partisan bomb throwers. Far from it. Parkinson’s assessment is brutal: ‘It’s almost like debt is not an issue for anybody any more.’ He rightly echoes Henry’s diagnosis of the current political consensus: ‘intergenerational bastardy’. With an ageing population, fewer workers relative to dependants will be forced to carry the can for health, aged care and the NDIS. We can’t even rely on Paul Keating’s old prescription of growing the economic pie to make the debt slice look smaller. Deloitte Access Economics warns Australia faces its longest stretch of sub-two per cent growth since the early 1990s recession. Rapid population growth is flattering the headline numbers while growth per person flatlines. Which is why Australia continues to linger around the per capita recession mark. The Coalition can’t use this week’s milestone as a campaign prop and pretend the fiscal rot began under Labor. It inherited federal gross debt of about $273 billion in 2013 and left office nursing nearly $895 billion. COVID spending under Morrison accounts for much of that increase, but nowhere near all of it Nor is inflation a free pass to future prosperity. It might erode the real value of debt, but it also forces interest rates higher, which makes servicing the debt more expensive each and every year. As cheap pandemic-era bonds mature, they are being refinanced at punishing rates. The Parliamentary Budget Office forecasts the combined Commonwealth and state public debt interest bill will reach almost $69 billion a year by 2028-29. That money buys exactly zero hospital beds, builds no submarines and funds no tax cuts whatsoever. It’s simply the annual subscription fee for years of political cowardice. Apologists will whine that our government debt remains lower than many comparable nations. So what? Bragging that we’re the tallest dwarf in a room of fiscal basket cases is hardly an achievement, especially when Australian households are carrying debt equivalent to around 180 per cent of disposable income. That’s right, when you add together Commonwealth, state and private debt, we are world leaders at borrowing beyond our means. The same younger Australians expected to pay off Canberra’s trillion-dollar credit card via higher and higher taxes are already being crushed by unaffordable housing, enormous rents or mortgages and stagnant living standards. Fixing this doesn’t require slash-and-burn austerity. We just have to insist that Canberra kicks its addiction to spending beyond the nation’s means. Permanent spending needs permanent funding. It’s that simple. Temporary programs must actually be terminated after they’ve run their course, not get baked into long-term extra spending. State budgetary problems are currently shared between the major parties running each jurisdiction. Federally, Labor is in power now and for the foreseeable future, so the heavy lifting rests with Albo and Chalmers. After more than four years in office, the debt they inherited is no longer an excuse for failing to get on top of it. But let’s be very clear about one thing: the Coalition has zero credibility screeching about debt unless it identifies real savings with an alternative government manifesto, instead of merely promising cheaper everything if it wins. That would be as vacuous (and untrue) as Albo’s pre-2022 election promise to make electricity prices cheaper.