Why government debt must grow forever

Even as the federal budget returns to surplus, government debt will have to rise to maintain the liquidity of Australia's AAA bond market at around 12-14 per cent of GDP.

Here's something to think about next time you hear someone bang on about the growing level of gross government debt in Australia – over the next five and probably 10 years, the Australian government will continue to borrow money, thereby boosting the level of gross government debt, whether it needs the money or not.

Why borrow money if you are running a budget surplus?

This is because there is a requirement for Australia to have a high grade, liquid and tradeable government bond market that grows in size over time, in proportion to the size of the economy.

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