Australia’s long-standing reputation as a relatively low-debt economy may be under pressure, with new analysis warning that government debt levels are on track to reach heights not seen since World War II.

A report by the e61 Institute finds that combined federal, state and territory gross debt in 2028 will exceed historical levels when measured as a share of the economy.

The warning raises fresh questions about the sustainability of public finances in the years ahead.

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Debt Levels Not Seen Since World War II

Measured as a Share of the Economy

The report assesses gross debt relative to GDP — a standard metric used to gauge a country’s fiscal position. By that measure, projected debt levels in 2028 are expected to surpass those recorded in the post-war period.

While Australia still compares favorably with many advanced economies, the trajectory signals a significant shift from its traditionally cautious fiscal stance.

For decades, Australia has prided itself on relatively modest public debt compared with peers. That advantage may be narrowing.

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What’s Driving the Increase?

Aging Population and Structural Pressures

Part of the increase in spending is attributed to demographic change. As Australia’s population ages, demand rises for healthcare, pensions and aged care services.

These structural pressures naturally expand government outlays.

Loosening Fiscal Restraint

However, the report argues that demographic factors alone do not explain the trend. According to the e61 Institute, governments at all levels have gradually loosened fiscal restraint over the past 30 years.

Spending growth has outpaced revenue growth in many areas, contributing to rising debt levels over time.

The report suggests that without policy adjustments, this pattern could intensify.

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Why the ‘Low-Debt’ Label Matters

Australia’s relatively low public debt has historically provided:

• Greater fiscal flexibility during economic downturns
• Lower interest costs compared with heavily indebted nations
• Stronger investor confidence

If debt continues to climb, that buffer may shrink, limiting the government’s ability to respond to future crises such as recessions or global shocks.

Higher debt also increases vulnerability to rising interest rates, as servicing costs consume a larger share of the budget.

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The Political and Economic Implications

Managing public finances is one of the central challenges for the federal government led by Anthony Albanese, as well as for state and territory administrations.

Balancing competing priorities — from healthcare and education to infrastructure and defense — requires difficult trade-offs.

Efforts to reduce spending can be politically unpopular, while raising taxes presents its own challenges.

The report does not prescribe a single solution but stresses the importance of long-term planning and fiscal discipline.

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What Happens Next?

The e61 Institute warns that growing government spending could place an increasing burden on future taxpayers if left unchecked.

Possible responses could include:

• Structural reforms to slow expenditure growth
• Adjustments to tax settings to strengthen revenue
• Tighter budget controls across federal and state governments

As debt approaches historically high levels relative to the economy, the debate over fiscal sustainability is likely to intensify.

Australia’s reputation as a low-debt nation has been a point of pride and economic strength. Whether it can maintain that status in the coming decade will depend on policy choices made now.