That’s the forecast from Janus Henderson, a leading global asset manager, which warned that Australian government debt per person will double by 2025 – an unsurprising result following the federal government’s pandemic spending spree.
In its second annual Sovereign Debt Index, Janus Henderson offered a bleak but sobering prediction of how Australians will fare as the Commonwealth’s gargantuan fiscal stimulus bill comes due, breaking it down to each individual owing $68,805 by 2025, a stunning two-fold gain from 2021.
Essentially, that’s almost an annual salary for many Australians, and given the government’s track record in spending more than it claws back in revenue, it’s a long and bumpy road ahead for taxpayers hoping for reprieve.
According to Janus Henderson, Australia’s enormous debt has ballooned by 68 per cent, or $639 billion, over the last five years.
In 2021 alone, Australian government debt jumped by $147 billion to $1.462 trillion – more than all of APAC combined excluding Japan, raising the country’s debt burden by 11.2 per cent, well ahead of the rest of the world.
The government also borrowed more debt valued at more than a fifth of Australia’s GDP, or 22 per cent, to pursue a COVID-Zero policy that proved largely futile as the pandemic became increasingly endemic.
The release of these figures illustrates a difficult and painful long-term outlook for Australians reeling from an arduous post-pandemic recovery and feeling increasingly pressured to tighten their belts – and comes off the heels of the annual budget and a controversial decision from the Reserve Bank of Australia (RBA) to hold interest rates at 0.1 per cent.
Despite the worrying outlook for Australian taxpayers, the Janus Henderson report found a diamond in the rough in the form of potential opportunities for investors – specifically divergence strategies and potential interest rate hikes that will benefit shorter-dated bonds, which are less vulnerable to volatile market conditions.
Bethany Payne, portfolio manager of global bonds at Janus Henderson, said the pandemic has had a huge impact on government borrowing – and the after-effects are set to continue for some time yet.
Alluding to the tragedy unfolding in Ukraine, Ms Payne said it’s likely that Western governments will be pressured into borrowing more to fund increased defence spending.
Regarding the bond market, Ms Payne said shorter-dated bonds will look more attractive now compared to riskier long-term ones.
“When inflation and interest rates are rising, it is easy to dismiss fixed income as an asset class, particularly since bond valuations are relatively high by historical standards,” Ms Payne said.
“But the valuation of many other assets classes is even higher and investor weightings to government bonds are relatively low, so there is a benefit in diversifying”
Additionally, she said the markets have largely adjusted for higher inflation expectations, so bonds bought today benefit from higher yields than a few months ago, meaning they are “better value”.
