A stark financial warning has been issued for Australian state governments as they continue COVID-level expenditure patterns, accumulating unprecedented public debt levels. According to a recent analysis by credit rating agency S&P Global, state governments have amassed approximately $660 billion in collective debt, representing 24% of state GDP.
Martin Foo, a leading analyst at S&P Global, characterized the situation as governments “spending like they’re still in pandemic lockdown,” despite the end of COVID restrictions. The agency reports that combined state cash deficits have ballooned to approximately 16% of revenue in 2025, matching the pandemic lows of 2021.
The debt trajectory shows alarming growth, with projections indicating state government debt will have roughly tripled between 2019 and 2027. Credit ratings have deteriorated to their lowest point in 25 years, with both New South Wales and Queensland receiving negative outlooks for 2026. The Australian Capital Territory and Tasmania have already been downgraded to AA’ in 2025.
Foo identified several structural challenges contributing to the fiscal crisis, including contentious public-sector wage negotiations, increasing community demands for entitlement spending, and political resistance to tax increases or economic reforms. While the average state government rating remains at AA+, S&P Global warns of continuing decline without significant fiscal policy adjustments.
The Northern Territory was notably excluded from these calculations, suggesting the overall Australian state debt situation might be even more substantial than reported. This developing fiscal crisis poses significant challenges for economic stability and future governance across Australia’s states and territories.