Treasurer Jim Chalmers says interest rate pain starting to hurt Federal Budget

Interest repayments have surged past the National Disability Insurance Scheme as the fastest-growing spending pressure on the Federal Budget.

The mid-year Budget update, to be released on Wednesday, will show the pain of rising interests rate on households is also being felt on the Government’s bottom line.

The increasing cost of borrowing means the Federal Government now expects to spend an extra $80 billion on interest repayments in the 11 years to 2033-24.

Debt repayments are forecast to increase an average of 11.7 per cent each year in that period, leapfrogging the NDIS (10.1 per cent annual growth) as the fastest-growing area of Government spending.

Hospitals, defence and medical benefits round out the top five spending pressures on the Budget.

The impact of higher borrowing costs will take some of the shine off the improvements to the Federal Government’s debt position.

Gross debt is now forecast to be $909 billion at the end of this financial year, down from the more than $1 trillion that was projected at the time of the last election.

Debt as a share of GDP is expected to peak at 35.4 per cent, roughly one per cent lower than was forecast in the May budget.

The higher borrowing costs mean debt is now forecast to peak in 2027-28, rather than 2025-26.

“Higher interest rates are hurting households and they’re hurting the budget as well, and that’s what our mid-year outlook will show on Wednesday” Treasurer Jim Chalmers said.

“With higher interest rates, the interest on the trillion dollars of debt left to us by the Coalition is costing taxpayers more.

“We’re getting Government debt on a better trajectory, but that debt is getting more expensive to service.”

After delivering the first surplus in 15 years, the Government expects the budget to fall back into the red in 2023-24.

Wednesday’s mid-year update is expected to show a smaller deficit than had been forecast.

Dr Chalmers on Sunday said the update – to be delivered alongside Finance Minister Katy Gallagher – would be defined by “responsible economic management”.