Foreign debt was nothing new to Australia. London’s burgeoning banking system funded Australia’s public works in the second half of the 19th century through the issue of Colonial Consols.
By the turn of the century, as Australia became a federation, its budget revenues matched its outlays. The nation’s first decade was therefore one free of debt.
With the outbreak of war in 1915, the Commonwealth would need to borrow, resulting in its first ever bond. The war had a profound impact. Australia’s debt as a percentage of GDP rose from 2.2 per cent to 50 per cent, with a third of it financed by loans from London.
World War II took an even greater toll on public finances, as debt to GDP tripled from 40 to 120 per cent. But by that time there were sufficient local savings to shift its financing requirement away from foreign…