Australia’s $300 billion coronavirus deficit has been called 'eye-watering' and may take decades to pay back, but who exactly is Australia in debt to? The government's latest economic update shows Australia going from a $5 billion surplus to $86 billion in deficit. The coronavirus pandemic alone knocked $33 billion off budget revenues last financial year, and another $56 billion is projected for this fiscal year. But the cost of the emergency measures is even higher: $58 billion last financial year and $118 billion this fiscal year. The result? A $90 billion budget deterioration in 2019-20 followed by a $190 billion decline in 2020-21,totalling almost $300 billionin debt, that will need to be repaid. The Treasurer described the numbers as "eye-watering", and it could take decades for Australia to clear and younger generations could be saddled with financial hardship as a result. Numbers aside, exactly who does Australia now owe money to, and what does this mean for future generations? First, it is essential to understand how government debt works. The government borrows money by issuing treasuries, which can be short- and long-term. Investors buy these treasuries – effectively lending the government money in return for receiving the principal and interest back, explains. While the precise repayments vary between the different types of treasuries, these treasury securities trade in what's called the 'secondary' market where investors buy and sell them after issue, explains A/Prof. Humphery-Jenner. The Reserve Bank of Australia (RBA) can also hold government bonds, and would typically buy bonds in the secondary market. But more precise information on other lenders is challenging to come by and is generally opaque, A/Prof. Humphery-Jenner explains. "Further, data is relatively opaque on who buys the government bonds at issue versus who buys them in the secondary market," he says. "The government notes this is partly because two-thirds of treasuries are owned through 'custodial' accounts, which hold the treasuries on behalf of investors, and these custodians often need not disclose the identity of the ultimate investors." Two-thirds of Australian government debt isheld by non-resident investors– a share that has risen since 2009 and remains historically high. But it's difficult to say precisely who these investors are, though the largest bondholders often include central banks and commercial banks. In April, the Australian government issued a record $13 billion in new bonds on a single day. Reportedly, more than two-thirds of the interest in the government bond deal came fromdomestic banks. Prime Minister Scott Morrison said it reflected confidence the Australian economy could pay off its debt. According to reports, offshore buyers took home the rest, with Asia (excluding Japan) buying the second-biggest portion of government bonds (at 17.6 per cent), followed by the UK (7.2 per cent), North America (5.1 per cent), Europe (1.9 per cent) and Japan (0.2 per cent). The four largest investor groups were: banks (50 per cent); asset managers (25 per cent) including super funds and sovereign wealth funds; hedge funds (17 per cent); and central banks (5 per cent). Central bank buyers comprised the Bank of Japan, European Central Bank, Federal Reserve and the RBA. But precise details around the asset managers and hedge funds which buy Australian government bonds are often not forthcoming, says A/Prof. Humphery-Jenner. According to financial data from Factset, the top three most significant bond funds are from JPMorgan, T Rowe Price and Vanguard. For some fund families, such as JPMorgan, they have multiple different funds with treasury ownership. But concerning precise holders of government debt, there is little information onspecific ownershipand preciselenders, reiterates A/Prof. Humphery-Jenner. The government debt is denominated in Australian dollars, so the Australian government is not beholden to currency fluctuations, nor does Australia bear inflation risk, explains A/Prof. Humphery-Jenner. Further, the lenders cannot force early repayment, nor can they force Australia to buy back the debt. "The main reason the lender might matter is if there were fear lenders might sell the debt (assuming it is listed and/or there is a buyer), which could depress the Australian dollar," he says. "However, this could be self-defeating, as it would require a significant bond dump and would also harm the lender's interests by devaluing the debt they hold." Further, “if Australia systematically relies too much on any one lender or country, Australia could be vulnerable to political machinations when it comes time issue more bonds in the future”, indicates A/Prof. Humphery-Jenner. Thus, “having a diversified lender pool – and a significant number of domestic lenders – can have some advantages”. How the government manages the economic recovery may be the key to ensuring younger generations don't pay too high-a-price for managing the crisis. For the full story, visit theBusinessThinkwebsite.Making sense of government debt
So who exactly are we now in debt to?
More spending to come, so what does this mean for future generations?
FAQs
What does "owe money to the Commonwealth" mean? ›
Generally speaking, a Commonwealth debt is a debt owing to a government department such as Centrelink and Child support or an income tax or business activity statement debt. A HECS-HELP debt relates to study and training support loans to help individual's complete further training and study.
Who does the government owe debt to? ›There are two kinds of national debt: intragovernmental and public. Intragovernmental is debt held by the Federal Reserve and Social Security and other government agencies. Public debt is held by the public: individual investors, institutions, foreign governments.
What is the federal debt of Australia? ›Since the beginning of the pandemic, Australian Government gross debt has increased from $534.4 billion in March 2019 to $894.9 billion as of 28 October 2022.
Where is the government borrowing money from? ›How the Federal Government Borrows Money. The federal government borrows money from the public by issuing securities—bills, notes, and bonds—through the Treasury. Treasury securities are attractive to investors because they are: Backed by the full faith and credit of the United States government.
Who pays for the Commonwealth? ›The short answer is that the member states pay for the Commonwealth of Nations.
Why does the government owe itself money? ›The federal government needs to borrow money to pay its bills when its ongoing spending activities and investments cannot be funded by federal revenues alone. Decreases in federal revenue are largely due to either a decrease in tax rates or individuals or corporations making less money.
Does China owe the US money? ›Among other countries, Japan and China have continued to be the top owners of US debt during the last two decades. Since the dollar is a strong currency that is accepted globally, holding a substantial amount of US debt can be beneficial.
What countries owe the United States money? ›Nearly half of all US foreign-owned debt comes from five countries. All values are adjusted to 2023 dollars. As of January 2023, the five countries owning the most US debt are Japan ($1.1 trillion), China ($859 billion), the United Kingdom ($668 billion), Belgium ($331 billion), and Luxembourg ($318 billion).
Who is America in debt to? ›The public owes 74 percent of the current federal debt. Intragovernmental debt accounts for 26 percent or $5.9 trillion. The public includes foreign investors and foreign governments. These two groups account for 30 percent of the debt.
Why is Australia so in debt? ›Sustained spending on big-ticket infrastructure and other major health, education and defence projects has put total government debt on track to be worth as much $1.75 trillion and 58 per cent of GDP by 2027, according to a Centre for Independent Studies survey on post-pandemic debt.
Which country is not in debt? ›
Singapore is one of Asia's major financial centers. It is also one of the most prosperous countries on the planet. And all this has been achieved without taking on any meaningful public debt. In fact, very much like Norway, Singapore has more assets than debt.
Which country is in the most debt? ›Japan has the highest percentage of national debt in the world at 259.43% of its annual GDP.
How much does the federal government owe for social security? ›As of 2021, the Trust Fund contained (or alternatively, was owed) $2.908 trillion. The Trust Fund is required by law to be invested in non-marketable securities issued and guaranteed by the "full faith and credit" of the federal government. These securities earn a market rate of interest.
Who does the US owe the most money to? ›In total, other territories hold about $7.4 trillion in U.S. debt. Japan owns the most at $1.1 trillion, followed by China, with $859 billion, and the United Kingdom at $668 billion. In isolation, this $7.4 trillion amount is a lot, said Scott Morris, a senior fellow at the Center for Global Development.
Why is China selling US treasuries? ›Selling Treasurys is a fast way to whip up U.S. dollars, and China will sometimes use extra dollars to go out on the global market and buy up their own currency. That artificially pumps up its value. It's like planting someone at an auction to drive up your prices. That's one idea.
What is the meaning of Commonwealth money? ›Commonwealth money refers to money collected and spent by the Australian (Commonwealth) Government. The Budget is the government's annual statement of how it plans to collect and spend this money.
How do I find out if I owe money to the Commonwealth? ›Log into myHELPbalance with your CHESSN (find this number on the Commonwealth Assistance Notice that is emailed to you each semester), your date of birth and your Student ID number.
What does it mean if you're in the Commonwealth? ›Commonwealth member countries benefit from being part of a mutually supportive community of independent and sovereign states, aided by more than 80 Commonwealth organisations. The Commonwealth Secretariat, established in 1965, supports Commonwealth member countries to achieve development, democracy and peace.
What does it mean to belong to the Commonwealth? ›The Commonwealth is a voluntary association of 56 independent countries, almost all of which were formerly under British rule. The origins of the Commonwealth come from Britain's former Empire.