The federal government's debt levels soared 420% over the last 25 years, shifting Australia up two notches on the rankings of an index to 13th place.
According to the inaugural Janus Henderson's Sovereign Debt Index, the federal government slipped further into debt by $211 billion in 2020, ranking it the 13th-most indebted nation in the world based on a long-term study of 50 developed and emerging market countries.
On a per person basis, the Australian government owes $40,068. The this is significantly less than the amounts owed by the US ($76,000) and the UK ($80,230).
In presenting the findings, Janus Henderson head of Australian fixed interest Jay Sivapalan said that in the 1990s, the federal government maintained an artificial bond market - it did not need to borrow money and net debt was close to zero.
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He pointed out that the current debt level excludes state, corporate and household debt.
Treasurer Josh Frydenberg revealed in the October 2020 Budget a record deficit of more than $213.7 billion.
While Australia's economy grew 257% since 1995 off the back of a population boom and its dependence on the rapidly growing Asian market, government debt has skyrocketed 420%, the study found.
This means that the country's debt-to-GDP ratio in 2020 reached 55%, which is still among the lowest in the developed world. Hong Kong and South Korea recorded similar debt-to-GDP levels.
Sivapalan said Australia's 0.76% effective yield on its bonds on issue is much higher than for comparable countries because the economy has been performing strongly.
"Investors have enjoyed superb returns from bonds in recent years, with Australian government bonds particularly strong performers. However, record breaking lows in bond yields within the context of 400+ years of bond market history are now behind us," he said.
Sivapalan predicts risk-free rates will begin to gradually trend upwards gradually over the coming decade as central banks and governments err on the side of creating a slightly higher level of inflation than perhaps they've targeted in the past.
Janus Henderson's index showed the world's government debt tally ended 2020 at a record high of $81 trillion, almost four times its 1995 total.