How sustainable is sub-national public debt in Australia?
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Since the Global Financial Crisis the public indebtedness of Australia's States and Territories has risen significantly due to sizeable fiscal deficits. This paper examines the stability of sub-national governments' indebtedness before gauging the fiscal effort needed to scale back public debt to GSP ratios to ten-year average levels. To do this, we first derive key debt sustainability formulae which are then applied to relevant sub-national data. The analysis reveals that under macroeconomic conditions and fiscal settings in 2012-13, debt levels were unstable for all State and Territory general governments. Moreover, virtually all sub-national governments in Australia need to turn existing primary budget deficits into substantial surpluses to restore public debt to levels experienced on average over the previous decade. This is not in prospect without even more substantial fiscal consolidation than currently envisaged in State and Territory budgets.
Economic Analysis and Policy
© 2014 Economic Society of Australia, Queensland. Published by Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Licence (http://creativecommons.org/licenses/by-nc-nd/4.0/) which permits unrestricted, non-commercial use, distribution and reproduction in any medium, providing that the work is properly cited.
Economics not elsewhere classified