The Organisation for Economic Co-operation and Development has issued a stern warning that Australia’s public debt trajectory could steeply deteriorate in the absence of meaningful budget discipline and structural reform.

In an updated economic outlook report, the OECD cautioned that without measures to slow spending growth, broaden the tax base and strengthen fiscal frameworks, national debt levels could rise rapidly in the medium term, placing pressure on future budgets and public services.

The assessment underscores that while the Australian economy has shown resilience, underlying fiscal pressures remain as government expenditure outpaces revenue in an environment of slower growth and demographic change. 

The report highlights that supportive macroeconomic policies and solid financial conditions have helped cushion recent global economic headwinds, but it emphasises that fiscal consolidation is needed to ensure long-term sustainability.

It calls on the Australian government to consider comprehensive tax reform — including more transparent treatment of commodity revenue — and tighter spending rules to secure a credible fiscal trajectory.

Without such reforms, the OECD projects that deficits and debt could persist at elevated levels, increasing the risk profile of Australia’s public finances compared with other advanced economies. 

Australia’s net debt has already risen from historic lows during the pandemic to levels that now represent a significant share of gross domestic product, and forecasts suggest this upward trend could continue as structural cost pressures mount.

Independent forecasts show that rising government spending on health, aged care and social services is outpacing revenue growth, while demographic shifts toward an ageing population will further strain public finances.

The OECD stresses that establishing credible fiscal rules — such as expenditure caps or targets linked to potential growth — would bolster confidence in the government’s ability to manage future deficits and debt.

This fiscal call to action comes amid ongoing political debate in Canberra over how best to balance support for households and economic growth with durable budget sustainability.

Forecasts from Australia’s Parliamentary Budget Office also indicate that sustained deficits and higher debt levels may extend well into the next decade without policy adjustments. 

Treasury officials and economic policymakers in Australia acknowledge the concerns raised by the OECD, noting that future budgets will need to reconcile spending priorities with fiscal consolidation imperatives.

While short-term budget results have shown some improvement and deficits have narrowed slightly, analysts note that long-term challenges are structural and will require enduring policy responses.

The OECD’s assessment reinforces that prudent fiscal management and targeted reforms will be critical to safeguarding Australia’s creditworthiness and economic stability in the years ahead.