The federal government’s specialist debt office, which manages close to $1 trillion in bonds on behalf of Treasury, is under formal review as concerns grow over staff turnover, internal tensions and the way it now raises and parks cash. The agency operates with a relatively small workforce of fewer than 50 people yet almost half have left in just over a year and internal surveys suggest frustration with leadership and unease about integrity risks inside the organisation.
The review will focus on whether the Australian Office of Financial Management is set up to handle nearly $1 trillion in securities, sell new bonds at value for money rates and manage financial risks in a world of higher interest rates. The agency currently issues long dated bonds that can cost almost 5% in interest for new 10 year debt while at the same time building a large cash buffer on deposit at the central bank. Former insiders say this is a shift from its earlier, more flexible approach of constantly fine tuning the mix of short and long term debt to minimise costs as interest rates move.
The numbers behind that change are starting to attract attention. In the past financial year the agency held an average cash balance of about $65 billion with the central bank, even though its own liquidity buffer target is closer to $30 billion. A large share of that cash is financed by both long term bonds and shorter term Treasury notes. Because the government now borrows at higher long term rates and then earns a lower return on these deposits, the term premium, which is the gap between what it pays and what it earns, sits at around 0.8 percentage points. Once the funding mix is taken into account this strategy appears to add more than $200 million a year in net interest costs, based on recent figures. Supporters argue the extra cost buys protection against market shocks and funding disruptions while critics see a willingness to prioritise liquidity over disciplined cost control.
This independent review appears to be a pivotal moment for a small but crucial arm of Treasury that quietly connects global investors with the federal budget. It follows a national audit office assessment that found the agency broadly effective but urged tougher testing of whether the debt portfolio is structured at the lowest possible cost, and it also follows the organisation being drawn into a major bank bond trading case that ended in a nine figure penalty for the bank involved. The review will not directly examine workplace culture or unproven corruption concerns raised in staff surveys, but its findings could still reshape governance, staffing and how the agency balances safety, flexibility and cost as the government’s debt load and global market risks continue to grow.
