ANU research shows that subnational debt has surged to record highs in the years following the pandemic. While this debt is fiscally sustainable, it exposes structural limitations that delay states and territories’ ability to respond swiftly to crises.

Key takeaways: 

1. Between 2011 and 2022, Australia recorded the largest subnational debt growth in its federal history. ANU experts have analysed this rise to understand its causes and implications.
2. With no legal borrowing caps and limited revenue-raising powers under Australia’s fiscal federalism, states and territories had to borrow substantial amounts of cash to respond to the economic impacts of the pandemic.
3. Despite a record debt, Australia’s fiscal position remains sustainable, with capacity for additional state borrowing. As the need to invest in climate change and disaster preparedness grows, public aversion to debt accumulation could decrease.

Read more here.

This article first appeared in ANU Policy Brief