Letter to the Editor: Thursday, November 5, 2026

National Finances
(The Editor, “The Times”)
Dear Editor.– Kenneth King paints our national finances as an “absolute disgrace”, supported by reliance on misleading economic comparisons and populist rhetoric.

To begin with, Budget Paper no. 1, Statement 7 puts the face value of government securities (debt instruments) on issue at just under $1 trillion. Not a small sum, but $500+bn shy of Mr. King’s number.

Secondly, conflating sovereign debt with household debt is like comparing watermelon with peaches…both are fruit and have seeds, but that is the extent of the similarity. A sovereign government such as our federal government that issues its own floating currency and holds taxation authority does not manage its budget like a family paying off a mortgage. When a household takes out a mortgage, borrowing represents a future burden that must be paid back out of future earnings. The mortgage is only discharged when the final payment is made. Government bonds are essentially interest-bearing savings accounts offered to the financial market. They allow the government to manage interest rates and provide a safe asset for institutional investors (like superannuation funds, insurers and banks, including the Reserve Bank) to park cash. Moreover, because these bonds are denominated in Australian dollars – which the federal government itself has the exclusive legal authority to issue – the government can never be forced into involuntary bankruptcy or default on debt so denominated. Investor risk is therefore limited to exchange rate volatility and inflation.
Sovereign debt is routinely rolled over in global bond markets, and Australia’s AAA credit rating reflects international ratings agencies’ confidence in our ability to service that debt. That rating has been retained for at least the last 20 years, despite rising borrowings.

Furthermore, the characterisation of bondholders as mysterious “faceless foreign entities” or “parasites” is unnecessarily pejorative, given that they are simply depositing money with what might be termed the bank of Australia. Bond holders have no step-in rights, or the capacity to influence the disposition of capital raised via those instruments. Further, because of Australia’s premium credit rating, stable and widely traded currency and low inflation rate federal government bonds offer relatively modest yields (a 10-year bond is around 5 per cent per annum); if they were possessed of a strong risk appetite, or parasites investors would be piling into the bonds of emerging countries, some of which have yields in excess of 15%pa.

The banking sector itself has substantial holdings of government bonds primarily for liquidity requirements, like the Liquidity Coverage Ratio (LCR). The LCR was introduced after the global financial crisis, and is intended to ensure that Australian banks maintain enough highly liquid assets to survive a severe 30-day stress scenario. It is worth recalling also that the federal government provides a guarantee of up to $250,000 per depositor, per financial institution to assure confidence in the financial system in the event of a repeat of the global financial crisis (GFC) scenario. That contingency is largely unfunded; if required, it would almost certainly be funded from a bond issue. Would you feel happier losing your life savings, or seeing an uptick in federal government bond raising?

Borrowing is not inherently reckless; it depends entirely on how the capital raised is deployed. Public borrowing funds infrastructure – such as transport networks, hospitals, and schools – that generates long-term economic productivity and supports employment and prosperity for future generations, rather than simply paying for “handouts”. In the last 20 years, Australia has had to cope with both the GFC, and COVID, which have necessitated substantial unbudgeted expenditure on programs that have kept the economy running (eg. The home insulation program), and households sufficiently liquid to avoid widespread mortgage defaults and maintain domestic consumption (eg. JobKeeper).

We are also a physically large country, one that needs extensive widely-distributed road, rail, air, health, ports and defence infrastructure. It is no accident that some of the most publicly indebted countries in the world are also among the largest, such as the US (US$40.25tr, or A$57.5tr), Canada (CAD$2.3tr, or A$2.33tr) and China (about US$22tr, or A$31.4tr). We also happen to be the least populated of any of these comparator nations, and on a per capita basis our share of federal debt is well below that of both the US and Canada. China’s enormous population pushes its per capita number down to about one-third of Australia’s, but it has more than 40 times our head count.

We are indeed feeling the pinch of high interest rates and sticky inflation, and state governments must be held strictly accountable for project blowouts and mis-management of major contracts. The Victorian state government is especially problematic in this regard, and a reckoning is overdue. The vertical fiscal imbalance which sees a disproportionate share of GST receipts granted to Western Australia could also benefit from a re-think. However, descending into hyperbole about “slaves to the monetary system” does nothing to foster an understanding of modern macroeconomics. Informed and respectful financial debate requires dispassionate analysis of the value produced by government spending, transparent and effective governance, and an honest look at how public investment contributes to building our nation’s future.

Yours sincerely,
David Green,
Cape Woolamai.