Chart of the Month - January 2026

Government interest payments on public debt will be a hot topic in 2026. As the income tax cuts from Trump’s Big Beautiful Bill Act come into force, attention will again turn to the sustainability of US debt. Japanese interest payments will also garner attention as rising interest rates push interest payments higher. The UK scraped through budget season, but only by pushing needed tax rises and spending cuts down the road. And remember France? Back in November, French Prime Minister Sebastien Lecornu delayed an increase in the retirement age after saying that it would be fiscally irresponsible to do so. Is France in a slow-motion debt crisis? In contrast, Australia’s government interest payments look like a dream (see chart below). How did Australia get into such a good position?

Australia’s low public debt

Australian government debt interest payments are low because Australia has a low level of public debt and low interest rates (see chart below). Australia is more like a frugal Germany than a spendthrift US.

Like many other developed countries, the Australian government worked hard to bring down public debt during the 1980s and early 1990s by running fiscal surpluses (see chart below).

Australia also diversified its tax base by introducing a VAT (called the “Goods and Services Tax”) in 2000.

The fiscal surpluses of the early 2000s were largely driven by bumper tax revenue from the first wave of the China-mining boom (see chart below). However, as the boom continued, mining companies got better at managing their tax liabilities!

The NDIS

Since the mining boom, the next most important structural fiscal development has been the introduction of the National Disability Insurance Scheme (NDIS) in 2013. The scheme provides public funding to support people with disabilities under the age of 65.

The NDIS has had its teething problems, but overall has had an enormous positive impact on the lives of disabled Australians and their families. Participants and families can now tailor their own support and programs.

Of course, the NDIS has had a fiscal impact (see chart below), but most commentators would argue that it is a net-positive for Australian society.

Stage 3 Tax cuts

In 2024, the Albanese government delivered the “stage 3” tax cuts introduced by the Scott Morrison-led conservative government in 2019. A further cut takes effect in July this year (see chart on the LHS below).

The aim of the tax cuts is to reduce the tax burden on individuals from “bracket creep”. Australia’s personal income tax is a regressive system with five brackets. These brackets are not indexed to inflation or wage growth so over time as wages increase, individuals end up moving into higher tax brackets.

While the tax cuts will initially see a drop in overall tax revenue, the tax to GDP ratio will continue to rise over time and will surpass levels before the cut relatively quickly (see chart on the RHS below). This, combined with Australia’s healthier fiscal and debt position, makes these tax cuts far less controversial than the cuts to be enacted this year in the US from the Big Beautiful Bill Act.

Final thoughts

Rising public debt and public debt interest payments are becoming too big to ignore for many countries, but Australia is not one of them. Decades of economic growth and fiscal prudence mean Australia is in an enviable fiscal and overall economic position.