Products – The Centre for Independent Studies

States of Debt

Robert Carling
20 March 2014 | T30.07
States of Debt

While Commonwealth government debt has been the focus of attention recently, this report takes a broader view by bringing state debt into the picture.

State debt, like that of the federal government, has also risen dramatically since 2007, when net debt was negative. In the six years to 2013, states added $70 billion to their general government net debt, to reach a positive level of $43 billion.

By 2016–17, combined Commonwealth and state general government (GG) net debt will exceed $350 billion—almost 20% of GDP, or more meaningfully, more than 50% of general government revenue.

For the broader non-financial public sector (which includes non-financial public corporations), state net debt was much higher at $127 billion in 2013. Combined with the Commonwealth, total non-financial public sector net debt was $283 billion, already 50% of the sector’s revenue.

At current levels aggregate state debt is manageable, but the upward trend is of concern. The above figures exclude non-debt financial liabilities such as unfunded superannuation and long-service leave liabilities, which loom large in state finances.

The states’ financial position has deteriorated because their net operating surpluses have shrunk while capital (‘infrastructure’) spending soared, resulting in large cash deficits.

All states have experienced this deterioration. They have curbed the growth of operating expenditure, but they will need to persevere in the face of sluggish revenue if they are to rebuild operating surpluses and avoid sharp cuts in capital expenditure.

Robert Carling is a Senior Fellow at The Centre for Independent Studies.


Latest Publications

Fairer Paid Parental Leave
Matthew Taylor
07 July 2014 | T30.11

Australia spends just under $1.4 billion (2012–13) on statutory Paid Parental Leave (PPL) to provide more than 130,000 parents with up to 18 weeks of parental leave paid at the full-time minimum wage. The Abbott government proposes to pay primary carers at their pre-birth wages up to a cap of $100,000 for up to 26 weeks. This policy would dramatically…

Withholding Dividends: Better ways to make the public sector efficient
Alexander Philipatos
29 May 2014 | T30.10

As the commission of audit has uncovered, the government must make significant cuts to spending to get the budget back into surplus. In the quest to find savings, the government cannot ignore the public service. For almost 25 years the government has turned to the efficiency dividend to find budget savings and improve efficiency in the public service. But the…

School Funding on a Budget
Jennifer Buckingham
30 April 2014 | T30.09

Government expenditure on schools has more than doubled in real terms in the last 25 years, while student numbers have only grown by 18%. Funding for school education was 3.1% of GDP in 2012–13, and is projected to reach 3.4% by 2025 under current predictions of economic growth. Large increases in real per-student expenditure have not been accompanied by improved…

Submission to the National Commission of Audit
Alexander Philipatos, Jennifer Buckingham, Jeremy Sammut, Robert Carling, Simon Cowan, Stephen Kirchner, Trisha Jha
01 April 2014 | T30.08

The federal government’s Commission of Audit (CoA) was established in 2013 to review the performance and role of government. This publication is an edited version of the CIS submission to the CoA listing practical solutions aimed at cutting government expenditure. The government should adopt a dual approach to its review of spending. First, spending cuts can save the federal government…

Strengthening Australia’s Fiscal Institutions
Stephen Kirchner
12 December 2013 | T30.06

The deterioration in the federal government’s fiscal position reflects a failure to adhere to a rules-based framework for fiscal policy to guide spending and tax decisions. Fiscal policy has been distracted by the pursuit of macroeconomic stabilisation objectives that are inconsistent with the institutional design of Australia’s overall macroeconomic policy framework. An independent central bank pursuing an inflation target, combined…