It may be misleading to suggest there is nothing to show for past deficits. A good part of Australia’s public debt supports Australian infrastructure. The budget papers give estimates for the capital works undertaken by the Commonwealth – $12.8 billion in 2022-23 and capital grants of $19.2 billion, a total of $32 billion. This is roughly the size of the government budget deficit, $36.9 billion.

Those capital works represent permanent increases in Australia’s real wealth. This should be weighed against debt figures to give a better feel for the Government’s net worth.

In addition, other Commonwealth spending ends up as capital works. For example, a lot of the special purpose payments to the states and territories go towards funding state public works. Hence a lot of the borrowing at the federal level is matched by state assets yet these grants are treated as recurrent spending.

This point was made explicit in the 2017-18 budget papers, which remarked that “This spending creates a financial liability (debt) on the Commonwealth’s balance sheet, while contributing to physical assets on the States’ balance sheets.” So spending and resulting deficits by the Federal Government result in assets that are the property of the states and local governments. That year was the first time the budget papers referred to “capital grants expenses”.

So while the grants are made by the Federal Government the assets become the property of the states and local governments.

In the present budget capital investment will be $12.8 billion in 2022-23 and capital grants will be $19.2 billion which together are $32 billion almost match the deficit. What this means is that in addition to more debt Australia will forever have more capital works than it would have otherwise had. For the public sector as a whole, this year’s Federal Budget means public sector borrowing (the deficit) goes up $36.9 billion and physical assets increase by $32.0 billion.