Australian government debt approaching $A1 trillion – who cares? Everybody it seems but me

The neoliberal era has made humanity progressively crazy when it comes to currency matters. At the moment, this trend seems to have reached new heights of absurdity. I note that the US government is now buying up its own debt with more debt as a cover for the stupidity that its President and his lackeys have launched on the World. By substituting longer-term debt with short-term Treasury bills, the composition of bond demand changes (higher demand for long-term debt – government induced), which lowers the yields. But the debt level overall remains unchanged. This is different to quantitative easing because the Treasury buyback scheme is not facilitated through the central bank creating new bank reserves, but it equally as absurd. And in Australia, the media is going crazy about the ‘journey to $A1 trillion debt’ as the August bond auctions issued $A4 billion in new issuance in early August. Frothing lines quoting that this means every man, woman, and child (and I presume those who have other gender affiliations) owe $A36,000 up from $A35,700 and that ‘taxpayers’ have to spend about $A30 billion a year now servicing the debt abound. The Australian government responds – buying into the horror story line – that the debt might be a trillion but it is still much lower than that of other English-speaking nations. As if that matters. And, last time I checked, I didn’t owe any money on outstanding federal government bond liabilities and I certainly have never paid any ‘debt servicing’ charges, but I am a taxpayer. The problem is that these fantastical media stories and actions by the crazies in the US government send a signal of impending doom to the public which then complies with all sorts of bad policy moves.

The commentators are having conniptions about the level of federal Australian debt going above the $A1 trillion mark for the ‘first time in our nation’s history’ on August 20, 2026.

What makes this level any different to a smaller or larger $A figure is beyond me – but apparently it marks a sort of line in the sand, beyond which who knows what pestilence will follow.

As at August 21, 2026, total outstanding Australian government securities on issue totalled $A994.8 billion.

– Treasury Bonds $A920.5 billion

– Treasury Indexed Bonds $A41.3 billion

– Treasury Notes $A33 billion

The upcoming auctions for the rest of August are:

August 25, 2026 – Treasury Bond tender (maturity November 2031) = $A1.2 billion

August 26, 2026 – Treasury Note tender various maturities ranging between November 13, 2026 to May 14, 2027 = $A6.0 billion

August 27, 2026 – Treasury Bond tender (maturity December 2035) = $A0.2 billion

The reason that the level has dropped below the $A1 trillion mark is because on August 21, 2026, there was a $A6 billion maturity of Treasury notes which reduced the outstanding debt below the $A1 trillion level.

There are no further maturities this month, which means that by the end of the month, the debt will be above $A1 trillion.

The ABC finance journalist was quoting from William Shakespeare’s Hamlet the other day in his report (August 21, 2026) – Australia’s national debt has hit $1 trillion but it pales in comparison to the US – where he bemoaned the rising trend in the “dirty D word” and the population’s apparent indifference.

He assured his readers that in passing the $A1 trillion threshold, this strike “a chord” with all of us.

I am not sure about that.

He quoted some economist claiming that “You’d rather be here in Australia in regards to public debt”.

Perhaps one would rather be here because the sun shines more and we are approaching the football finals and we don’t have Donald Trump.

But our locational preferences are surely removed from the level of debt the Australian government is liable to repay.

Apparently, we are all about to be hit with ever higher interest rates because of this rising federal government debt level.

Really.

The central bank sets the interest rates, which then feed into the term structure (across the other financial assets short and long).

It claims it sets rates based on the local inflation rate outlook.

It has never said that it will raise rates because outstanding federal government debt is rising.

The economist who was quoted also claimed that there was ill-discipline by government because:

While it was right to go into debt during COVID, we shouldn’t be running deficits, as we are doing, when the economy is close to full employment.

That one again.

I examined that proposition in this recent blog post – A shift to fiscal surplus in Australia would amount to a criminal act by government (August 3, 2026).

The point these characters never acknowledge is that if the nation was close to full employment (which, currently with 10.8 per cent of available labour not working in one way or another, it is not), then the conclusion would be that the current fiscal position is the correct one, given the spending and saving preferences of the non-government sector.

Thus trying to cut the fiscal deficit from that position would only cause rising unemployment and push the economy towards recession.

Context matters and the relevant context is the juxtaposition between the fiscal balance, the private domestic balance and the external balance.

If the latter two balances are such that the external sector is in deficit and the private domestic sector is exhibiting a desire to net save overall, then to fill the domestic spending gap, there has to be a fiscal deficit to maintain the current level of output (and employment).

Whether the composition of the fiscal deficit is desirable is a separate issue to the overall net public spending level.

We might prefer fiscal deficits that result from public spending on education, health, dealing with climate change, public housing, between public transport to deficits that buy military weapons.

But at the macro level, it is the level of net public spending that must fill any spending gap arising from the overall net saving desire of the non-government sector.

Of course, in Australia, with 10.8 per cent broad labour wastage at present, the actual fiscal deficit is too small and needs to be larger to get us back towards full employment.

The article also, without fully comprehending that the journalist was actually undermining his early warnings about public debt, wrote:

Australian household debt is at an eye-watering 190 per cent of household income … Mostly attached to real estate, that debt exposure makes Australians more vulnerable to interest rate movements than most other countries.

Yes, but remember that if we run fiscal surpluses, either the external sector has to be in offsetting surplus (to fill the domestic spending gap left by the fiscal surplus) or the private domestic sector has to be in offsetting deficit – or some combination.

A rising private domestic deficit to offset a shift to a fiscal surplus means rising private sector indebtedness, exactly the problem this journalist is warning us against, except he does get that with an external sector in deficit (historically around 3 to 4 per cent of GDP), a nation cannot reduce the private indebtedness by moving towards and into fiscal surplus.

I am amazed that these financial commentators who command national audiences don’t understand these elementary analytical facts.

Another commentator with a national audience also went blind last week over the federal debt level.

He invoked the ‘spreadsheet twins’.

Late last week (August 21, 2026), the Age newspapers economics correspondent published this article – How did we get here? The 20-year journey to $1 trillion in debt – which is one of many that have gone crazy about the recent bond market auctions that saw outstanding federal government debt rise above the almost ‘mythical’ and ‘terrifying’ level of $A1 trillion.

The journalist has historically convened the ‘Age Economics Panel’, which provided forecasts from all the known economists in Australia.

I was on that panel for some years but eventually wrote to the journalist telling him that I was no longer prepared to participate because he never used my qualitative comments that accompanied by forecasts and, instead, skewed the reporting to the mainstream ‘anti fiscal deficit’ type comments.

The article in question here is terrible.

He wrote:

1. “When John Howard lost the 2007 election, he could proudly and correctly claim the nation’s finances had never been in better condition. Budget surpluses and government policy such as the sale of Telstra had dramatically improved the nation’s books.”

Reality: the fiscal surpluses were only possible because household debt rose from around 60 per cent of disposable income to close to 200 per cent on the back of a massive private credit binge facilitated by the financial market deregulation.

The end result of that binge was the GFC!

Further, the sale of Telstra (formerly the publicly-owned telecommunications company) has been an unmitigated disaster with respect to reliability of the network (another major outage recently) and the cost of communications for ordinary citizens.

2. He cites the GFC, COVID-19 and an ageing population (increased demand for public health care and aged pensions) as driving up the outstanding federal debt – “So that’s how we got here”.

Then, harking back to the misinformation of the GFC, he quotes the ‘spreadsheet twins’ (Reinhart and Rogoff) who achieved notoriety in that period when they published their doom forecasts claiming the threshold where a government ran out of money had been passed.

Not only was their work based on faulty spreadsheet analysis (deliberate or just a dumb mistake!), their predictions didn’t come to pass.

Wheeling them out again is like a bad dream.

He uses the example that the ‘twins’ invoked to prove their point – Newfoundland and Labrador, which endured a major crisis in 1931 after its fishing revenue collapsed during the Great Depression.

It was a self-governing part of the British empire having broken the colonial yoke in 1907.

It eventually joined the Canadian federation in 1949.

The government had run up significant public debt as a result of development expenditures (a public rail network) and military outlays during WW1.

The military outlays were really a demonstration that the colonial bind had never disappeared as the small nation sent a large number of troops and equipment to support the British in WW1.

They suffered massive losses in the Gallipoli and the Somme as did other British empire nations such as Australia.

In 1931, even though it had its own currency, the nation sought British aid.

Canada chipped in for a while but ultimately pulled out.

Many untruthfully claim that Newfoundland defaulted on its outstanding debt.

That did not happen.

What happened was the Great Depression caused such havoc that the bond markets (in Montreal) would no longer buy the Newfoundland government’s debt.

As a result of the Great Depression crisis, the government handed over administration to the British-appointed Commission of Government, which was a technocratic body of public servants who were ‘managed’ by the British government.

In effect, the elected government gave up and this technocratic body took over day-to-day rule under the control of the British government.

It was back to being a colony.

The British government, in turn, provided Newfoundland with fiscal grants but the crisis only ended (as it did everywhere) when the American and Canadian governments spent up big prosecuting WW2.

After the War, a referendum saw Newfoundland join Canada.

Using this example as one that might befall the Australian government is intellectually dishonest or just plain ignorant.

The reality was that virtually 100 per cent of the debt that the government of Newfoundland issued was denominated in foreign currencies:

1. About 75 per cent in sterling borrowed on the London bond market.

2. About 20 per cent floated in New York bond markets in USD.

3. The rest borrowed in Canadian dollars from Canadian banks.

The local currency, the Newfoundland dollar, was pegged to the Canadian dollar in 1895.

Its debt servicing capacity thus relied on export revenue, principally its fishing exports.

The peg made things worse.

In September 1931, the British government abandoned the gold standard as a result of its own Great Depression crisis, and sterling depreciated significantly against the USD and the Canadian dollar as a result.

The peg meant that overnight Newfoundland’s sterling-denominated debt servicing costs went through the roof and the foreign investors went awol.

I know that the spreadsheet twins love to trawl through historical examples like this that journalists then think they are clever quoting but the specific example above provides ZERO read 0 information that is useful in assessing the financial situation of the Australian government in 2026.

The journalists parting paragraph on Newfoundland – “The inability to repay its debt led the small nation down a road to nowhere. Australia doesn’t want to take that ride” – is ridiculous.

The reality is:

1. The AUD floats and is not pegged to another currency.

2. The Australian government has virtually no foreign-currency denominated debt.

3. The Australian government issues its own currency and can always honour liabilities in that currency without exception.

Conclusion

None of this is to say that the shift across the $A1 trillion line matters a skerrick.

It doesn’t matter at all.

My message to the journalist – if you are claiming to be the ‘senior economics correspondent of the Age and Sydney Morning Herald’ please at least get the historical facts correct.

That is enough for today!

(c) Copyright 2026 William Mitchell. All Rights Reserved.