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FactCheck: is our debt and deficit going the way of the disasters in Europe?

“Mr Rudd can stand up and show us his chart and demonstrate that by comparison with some other countries, Australia’s debt and deficit position is not so bad. But it’s not what we’ve done, it’s where we’ve…

Kevin Rudd with a chart showing our net debt per capita. AAP Image/Lukas Coch

“Mr Rudd can stand up and show us his chart and demonstrate that by comparison with some other countries, Australia’s debt and deficit position is not so bad. But it’s not what we’ve done, it’s where we’ve started that makes the difference and this is where Mr Rudd’s deterioration in the fiscal position has been on a scale to match the disasters of Europe.” - Opposition leader Tony Abbott, press conference, 4 August.

Firstly, it’s clear the Prime Minister’s charts comparing Australia’s debt and deficit with other developed countries – like the ones he showed at the National Press Club last month – generally show that our position is not so bad. According to the Organisation for Economic Co-operation and Development (OECD), the ratio of gross public debt to Gross Domestic Product in Australia was 32.4% in 2012, compared with the OECD average debt level of 108.8%.

In 2011, eight countries had a public debt ratio above 100%. The only countries with a lower debt to GDP ratio were Estonia and Luxembourg. Gross public debt represents the current stock of debt owed by the government, and the ratio of this debt to GDP reflects the size of this debt to a country’s income. As with an individual, if the debt to income level becomes too high then the country eventually will get into difficulty, as has been the case with Greece in recent years.

On the annual deficits Australia’s position is also strong. The 2012 government deficit was 3.3% of GDP, compared with an OECD average of 5.7%. Both Spain and Greece had a deficit greater than 10% of GDP, while the US deficit was 8.7% of GDP.

But Mr Abbott’s statement comes down to the question of how these variables have moved in the past six or seven years. Figure 1 presents the increase in the deficit to GDP ratio between 2007 and 2013 for thirty countries in the OECD. In Australia in 2007 the budget was in surplus, with the surplus equal to 1.8% of GDP. It is interesting that during that year fifteen of the thirty OECD economies were running budget surpluses.


Since 2007, the Australian budget position has deteriorated by 3.6% of GDP. Fifteen countries in the OECD have had a smaller deterioration in their starting position since 2007. Interestingly, Figure 1 shows that with regard to deficits, evidence to support Abbott’s statement is mixed. The deterioration in the deficit to GDP ratio has been much worse in Spain and Ireland; however in many other European countries the deficit to GDP ratio has moved less than in Australia. It is notable that the deficit to GDP ratio has actually improved in Greece and Hungary, though this shows the poor state of public finances in those countries in 2007 as much as anything else.

Moving on to public debt, Figure 2 shows that the public debt position in Australia has increased by 19.1% of GDP since 2007. Within the OECD ten countries have seen smaller increases in their public debt ratios since 2007. If we go back to 2007 Australia’s public debt to GDP ratio was 14.6%, compared with an OECD average debt ratio of 74.3%.

*Greece, Iceland, Ireland, Japan, Portugal, and the UK have had increases in their debt to GDP ratios greater than 60%. Note that the scale on this graph is truncated at 60%.

Within the OECD at that time, only Estonia and Luxembourg had lower debt to GDP ratios. Notably, the increase in the public debt ratio in the PIGS (Portugal, Ireland, Greece and Spain) has been greater than 50%. Quite clearly in this case the deterioration in our debt position has been nowhere near as bad as in the “disasters of Europe” though once again Mr Abbott’s point that we started from a much better position is correct.


Tony Abbott’s statement is mostly false. While it is correct that Australia’s starting position was stronger than almost all countries with regard to public debt in 2007, the deterioration in that debt has been nowhere near the scale of “the disasters of Europe”.

Similarly, the picture with regard to the deterioration in our annual budget position is mixed with compared with European countries, or other countries in the OECD. There is plenty to complain about with regard to fiscal management in the past decade, but we can be thankful that we’re not in Greece!


The article presents a balanced assessment of the opposition leader’s claim. It seems reasonable to interpret the “disasters of Europe” as including Portugal, Ireland, Greece and Spain (PIGS), and it is also useful to provide a comparison to other OECD countries. Since 2007, the increase in gross debt as a percentage of GDP for Australia has been substantially less than for the PIGS.

You get a similar picture when you look at net public debt.

When the budget deficit as a percentage of GDP is used, both Ireland and Spain have experienced significantly larger increases in this variable than Australia. However for Portugal the increase in the deficit to GDP ratio is of a similar magnitude to the increase for Australia, while Greece has actually experienced a decline.

This evidence for the latter two countries is therefore not inconsistent with the opposition leader’s claim. Of course, what the results for Greece suggest is that changes in the budget deficit are only one indicator of the overall performance of an economy. - Glenn Otto.

The Conversation is fact checking political statements in the lead-up to this year’s federal election. Statements are checked by an academic with expertise in the area. A second academic expert reviews an anonymous copy of the article.

Request a check at Please include the statement you would like us to check, the date it was made, and a link if possible.

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25 Comments sorted by

Comments on this article are now closed.

  1. Gordon Comisari

    Resort Manager

    Thanks TC for another balanced article.
    Taking into account all the variables from a wide variety of different sources I am left with the distinct impression that the LNP does not have any answers, vision or policies accept are forced to continue with meaningless political grandstanding.
    Personally I am and always have been in a "party free zone". Most of the information accessible so far coming from the tories has been incomprehensible. To me TA and his cronies are simply un-electable. Full-stop.

    1. Yuri Pannikin


      In reply to Gordon Comisari

      Yes, great article, and I agree with Mr Comisari that the LNP do not seem to have any answers, other than to cut public sector jobs and essential services, and to dismantle labour and environmental constraints on profits.

  2. Michael Guy

    Clinical Psychologist

    The debt issue can be looked at in absolute or relative terms but it is the context that concerns me. The previous Coalition Government handed out too many tax cuts and weakened the budget structurally. The current Government gave out tax cuts on election due to their matching the Coalition's election bribe making the situation worse. We do have a problem and it is both that are at fault.

    The issue is how do you fix the problem. The Coalition are offering austerity while Labor are going…

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  3. Gary Murphy

    Independent Thinker

    FactCheck: As with an individual, if the debt to income level becomes too high then the country eventually will get into difficulty, as has been the case with Greece in recent years.

    Verdict: Mostly false - most countries control the currencies in which their debts are issued. Hence there is no risk for bold holders and no limitations on the amount of debt that can be issued. Eg. USA, UK and Japan.

    The reason European countries are having difficulties obtaining finance is because they gave away control of their currencies.

    1. Rory Cunningham

      Test Analyst

      In reply to Gary Murphy

      I think rampart corruption and misspending are much bigger factors than lack of control over the Euro.

    2. John Armour

      logged in via email

      In reply to Gary Murphy

      It's a bit sad when we have to FactCheck the FactCheckers, but thanks Gary, you are dead right.

      Whenever somebody talks about the EU's budgetry situation and Australia's (or any country that's sovereign in its own country for that matter) in the same context then you know they're talking sh## , or making it up.

      Furthermore, the choice of emotive and value laden words like "deteriorating" in relation to Australia's debt and deficit belies a lack of understanding of what the budget means…

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  4. Mick Shadwick


    What the debate, including in The Conversaton, is missing is that Australia has continued to rack up deficits and accumulate debt despite being the only OECD economy to manage reasonable growth over the past several years and despite not dropping into recession. So the debate is not comparing like with like. The Government should have done better than it has, with regard to debt and deficits, and certainly much better than those countries (ie all developed) that have not experienced our economic growth.

    1. Sarah James


      In reply to Mick Shadwick

      Perhaps one of the most significant reasons we did not fall into recession, and we maintained relatively good employment figures, and we continued to have strong economic growth was precisely because of the additional and well-targeted Government spending.

      The fac remains that the australian economy has outperformed pretty much every economy in the world over the last 6 years. And as every single recently elected State and Territory Liberal Governemnt has found out, debt is an essential part of providing the services that underpin a strong economy, and that applies to business, government and households. Tony Abbot will find this out.

    2. Eddie Jensz

      logged in via Facebook

      In reply to Mick Shadwick

      One of the most important reasons for Australia's stability economically is that the government didn't stop spending money but used it's borrowings prudently to maintain growth.

      During the same period there was significant development of the mining sector but as we all know when the pit is empty there will be no more wealth if we do not improve the overall structure of the economy and the manufacturing sector in particular.

      All governments have failed to make the connection between mining…

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    3. Greg North

      Retired Engineer

      In reply to Sarah James

      You have kind of confirmed what Mick has stated Sarah, if in a different manner.
      It seems we have bought economic growth with borrowing and at some stage with a supposedly well performing economy there ought to be a repayment of borrowings just as any business or household ought to do or be in danger of going bankrupt.
      ie. as Mick says, with reasonable growth we should have been doing better with deficits and borrowings.
      You cannot go on forever with borrowings or we will become a basket case of a country and as for for debt being essential, in the instance of it being forever that is only so if you think you can plan to live beyond your means forever.

    4. Mick Shadwick


      In reply to Sarah James

      I appreciate your comments Sarah, and agree that spending stimulus did help. But the stimulus was not totally well targeted, went on for too long and (admittedly in hindsight) was too large.
      The main reasons Australia got through the GFC relatively unscathed were:
      - we went into it in good shape - low deficits and debt, well regulated banks that were in good financial shape and a still fairly flexible and resilient economy. This "good shape" had a lot to do with the efforts of the previous Coalition Government
      - the strength of demand from China
      - the fact that we had a minor pricking of a real estate bubble several years prior, so our asset prices were not too much out of balance, and not not adjust as much as other countries"
      - and strongly proactive monetary policy
      I don't agree that debt is necessary to "underpin a strong economy". Japan and the PIGS are unfortunate examples of that

    5. Stephen H

      In a contemplative fashion...

      In reply to Mick Shadwick

      Yes, because we can ignore the Global Financial Crisis and the previous fifteen years of global growth, and say that everything we don't like is the fault of "the guv'ment".


      Have a look at government spending and revenue as a proportion of GDP if that helps. Of course, if you have already decided then evidence isn't going to tell you a lot.

    6. John Armour

      logged in via email

      In reply to Mick Shadwick

      "we went into it in good shape - low deficits and debt"

      We'd actually had a string of surpluses Mick, which most folk thought was good management.

      The flip side of those surpluses however wasn't "money in the bank", money put away for a "rainy day", because deficits and surpluses are "flows" not "stocks".

      Within the private sector however there was a counter-balancing debt binge without which the economy would've tanked.

      The resulting private sector indebtedness is now most of the problem…

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  5. Charles Kwong


    With a borrowing of $400b, debt servicing cost alone would take away $12b annually (assuming a 3% interest rate) from the federal budget, which equates to 2 "Gonski" (extra $6b each year) or a significant part of the health budget. This is before allowing for any loan repayment.

    Making conclusion based on comparison with the other countries may appear elegant but needs to take into consideration the underlying assumptions. This may include the capacity to raise extra tax revenue without compromising the political position in a potential hung parliament etc...

  6. Greg North

    Retired Engineer

    One thing never considered too much in comparing Australia with other industrialised or developed countries mainly in the northern hemisphere is location and as in real estate, it's location, location, location that can have a huge impact.
    The Northern Hemisphere countries are all closer to oneanother for trading and there is relatively much more in common with the cultures and conditions of employment whereas New Zealand aside, the ability of Australia to trade with our closest countries will always be limited by very different working conditions.
    That will always create particular problems for Australia in attempting to trade our way to a better position.

  7. Bill Mitchell

    Professor of Economics at Charles Darwin University

    Unfortunately, this article (and the review assessment) perpetuates the myths that abound in the public debate and I am disappointed in my professional colleagues that they have chosen to do so.

    1. It is invalid to compare Australia to any of the Eurozone nations because we operate a different monetary system to the EZ. The EZ countries all use a foreign currency (the euro) and are bound to fund deficits with recourse to borrowing. The bond markets know that these nations carry insolvency (default…

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    1. Dianna Arthur


      In reply to Bill Mitchell

      Thank you Bill

      Here's me thinking the article was about checking on whether Tony Abbott was correct in his description of Australia's financial position.

  8. Nev Norton


    I have a question, why do we measure the governments performance on a ratio of public debt to the countries income. This always seems like a smokescreen figure to me, given that the government only has access to a proportion of the countries income.
    Wouldn't it be more accurate to measure the governments performance on a ratio of the governments actual income (tax take) to public debt.
    Additionally it seems to me, that just because we are doing better than another country, is not in itself a genuine measure of our prosperity or lack there of , and must be weighted against past performance and likely future performance.

  9. Stephanus Cecil Barnard

    Town planner and freelance writer at Kalahariozzie

    The only true judgement we will be able to make, will be in hindsight, which will not really help when you are chin-deep in bubbling guano at that time. As a country, we have kept spending up, but not increased /broaden our base of income, in fact, it seems to be diminishing. Nor do we have an idea of where we are going.
    I sincerely hope Kev and his mates get back in. Let us see them campaign the country through the next three years.

  10. Ted Stead


    This article shows obvious bias. There are references to the deficit and debt being "not so bad", that the "budget position has deteriorated", a "deterioration in our debt position", as well as comparing a country's balance sheet to that of an individual.

    If we compare to Japan (for example) to Australia then according to this article Japan's Debt to GDP is in a much 'worse' state than Australia:

    However, if we compare unemployment then it's fairly obvious that Australia's Debt to GDP is worse than Japan's, because it's too small to reduce unemployment:

    The Debt to GDP figures are just electronic entries in a ledger. Unemployment is real.

  11. John Rutherford


    There are lies,there are damn lies,then there are Govt.Statistics.Debt is debt.But what happens when Income goes down( lower GDP,less taxes ) and interest rates go up ...and don`t think rates can`t go up just because GDP goes down. It will only take one little hiccup and the deck of cards that is the financial system will collapse and a few of the borrowers are beginning to choke on their debt. then the lenders will want a higher rate because of the new assessment of risk in lending to anyone. You cannot cure an inability to repay a debt with more debt as your income is decreasing and regardless of what most " economists " think, govt are no different. I give it 2 months

    1. John Armour

      logged in via email

      In reply to John Rutherford

      " You cannot cure an inability to repay a debt with more debt as your income is decreasing and regardless of what most " economists " think, govt are no different."

      Most “economists” (or at least those spruiking for the banks and think tanks on the telly at night) would seem to be agreeing with you John. I think the ones who wrote this article certainly would.

      Those with a better understanding of how our monetary system actually works would find your beliefs amusing.

  12. Ralph Bennett



    1. Our debt is far worse because it is masked by massive asset sales, which have not been addressed in the article .

    2.It also has to increase because of a massive population growth rate of 1.2 million every 3 years. All of these people on average will be consuming more than they are producing.

    3. The saddest part of this toxic design is the Opportunity Cost . While we have just cut 3 billion dollars from universities and are sacking scientists.......
    because there is " no money", 3 billion dollars was found for new road systems for population growth.

    Time to stabilise by balanced migration ( 80,00 out, 80,000 in ) and phase out Govt incentives for more than 2 children. Our birthrate is double our deathrate ( ABS data) .

    Vote for the Stable Population Party and put the "major party" second . Send a message that wishful thinking and worse lies, are over.


  13. Shane Beck


    Actually the comparison between Australia and Greece might be apt, the middle class families in both countries are handout junkies and the tax system is full of tax cheats.....