What to do with a surplus? Pay down some debt

What to do with a surplus? Pay down some debt

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Treasurer Jim Chalmers will use the federal budget’s first surplus in 15 years to pay down government debt rather than sock it away in the Future Fund.

In his budget this week, Chalmers forecast a surplus of $4.2 billion for 2022-23. If delivered, it would be the first surplus since 2007-08.

Jim Chalmers will use the first budget surplus since 2007-08 to pay down government debt.Credit: Alex Ellinghausen

In the 15 years since that $19.8 billion surplus, the Rudd, Gillard, Abbott, Turnbull and Morrison governments recorded cumulative deficits of $612.7 billion. Over that same period, gross government debt has climbed from $55.4 billion to $897 billion.

Chalmers said the budget would not have got close to a surplus if not for banking 82 per cent of the upward revisions in revenue and finding $17.8 billion of savings and spending that could be reprioritised.

“We inherited a trillion dollars of Liberal debt, and structural problems in the budget that persist,” he told this masthead.

“The modest surplus that this budget forecasts will help to address the debt left behind by our predecessors and will help to ease the cost of servicing the debt, which has become one of the fastest-growing costs on the budget.”

When created, then-treasurer Peter Costello said the Future Fund would be used to cover the outstanding superannuation costs of the nation’s federal public service. An initial $18 billion, saved from past budget surpluses and asset sales, was injected into the fund.

“The government will also contribute future realised surpluses and proceeds from asset sales to the fund,” he said at the time.

The last transfer to the Future Fund was made by then-treasurer Wayne Swan in November 2008, when 35 million Telstra shares worth $141 million at that time were credited to the agency.

Between 2006 and 2008, more than $60 billion was moved from the federal government to the Future Fund.

Between 2008 and mid-2022, the fund’s total balance swelled to $194 billion thanks to its strong returns on its investments.

Chalmers’ decision will help reduce the interest bill on outstanding government debt.

The budget revealed gross debt is expected to climb to $923 billion in 2023-24. In his October budget, Chalmers forecast gross debt to breach the $1 trillion mark in the coming financial year.

The interest bill on that debt in 2023-24 has been forecast down by $1.7 billion to $19.8 billion. In October, Chalmers warned interest costs would reach $31.7 billion by 2025-26 but this week he revised that down to $27.1 billion, with an expected fall the following year.

Despite the lower debt, the Australian Office of Financial Management – which oversees the federal government’s debt holdings – expects to sell about $75 billion in debt in the coming financial year. That would be a drop on the $80 billion issued in 2022-23.

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