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''I want to stay as close to the edge as I can without going over. Out on the edge you see all kinds of things you can't see from the center.''
-Kurt Vonnegut
managing the federal government’s almost $1 trillion
debt will face an independent review by former Reserve
Bank of Australia deputy governor Guy Debelle, following
the exit of an unusually high number of employees over the
past year.
Debelle has been tapped by Treasury Secretary Jenny Wilkinson to conduct a review of the Australian Office of Financial Management’s structure, governance and capabilities, The Australian Financial Review can reveal.
The AOFM has 48 employees, but at least 22 staff have departed in just over the past year, including at least 10 redundancies as part of a major restructure overseen by its chief executive, Anna Hughes.
Australian Office of Financial Management CEO Anna Hughes outside the Treasury building in Canberra in 2023. AFR
More than a quarter of AOFM staff surveyed as part of the Australian Public Service census last year said they wanted to leave within 12 months, and over a third of those said the primary reason was the poor quality of senior leadership.
Separately, some 18 per cent of staff – almost one in five – told the anonymous census held in May and June that in the previous 12 months they had observed a public official engaging in conduct they would consider to be “corrupt”.
The so-called corruption concerns at the AOFM in 2025 were 16 percentage points higher than for the overall public service, and up 9 percentage points for the agency compared with 2024. Participants appear to have used a wider-than-usual definition of corruption, and theFinancial Review is not suggesting any official at the AOFM is accused of corruption.
Treasurer Jim Chalmers said he understood concerns had been raised about the AOFM and they were being taken seriously.
Treasurer Jim Chalmers confirmed that the independent review will take place. Dominic Lorrimer
“That’s why the treasury secretary commissioned an independent review of the AOFM to ensure it has the right structure, governance and capabilities,” Chalmers said. “I’m not going to pre-empt that review.”
“The AOFM plays an important role in government financing and in our financial markets, and we want to ensure it’s as effective as it can be.”
The AOFM is an agency in the Treasury portfolio responsible for raising money from global debt investors to fund the federal government’s widening budget deficit. It sells Australian government bonds and now pays an interest rate of almost 5 per cent on new 10-year debt securities.
Debelle’s appointment will be formally announced this week.
His review will primarily focus on checking that the AOFM is effectively managing the $993 billion of debt securities, is issuing debt at value-for-money for taxpayers, is managing financial risks and that it has staff with the right skills.
Former RBA deputy Guy Debelle will conduct the review. Bloomberg
As a central banker, he led the global effort in 2017 to fix the $US6.5 trillion foreign exchange market, after it was allegedly manipulated by bank traders. He chaired an international committee of central banks, investment banks and institutional investors, which enshrined principles into a code of conduct.
Debelle’s review of the AOFM will not extend to the unproven claims of so-called corruption and other workplace culture matters, which are considerations for other government institutions.
His review is expected to take up to a couple of months. The final report is expected be made public under draft terms of reference being prepared by Treasury and due to be released this week.
Hughes, a former South Australian government official, was appointed chief executive in November 2022 by then Treasury secretary Steven Kennedy, in a move announced by Chalmers.
She has overseen a major restructure of the AOFM since taking over the agency in 2023.
The overhaul includes the installation of former Westpac executive Julia Hendrikson as the chief operating officer in May 2025, and former Lendlease executive Katina Kikitis as deputy CEO in June last year.
A spokesperson for the AOFM said it was focused on its core responsibilities: “issuing debt securities on behalf of the Australian government, managing its cash and debt portfolios, and implementing initiatives related to the Australian securitisation market.
“Recent internal changes at the AOFM are enabling a more agile, contemporary organisation capable of operating in an increasingly complex global financial market. The agency’s diverse, experienced and highly skilled workforce continues to deliver on its key purposes and meet or exceed the performance measures set out in the corporate plan,” the spokesperson said.
“The AOFM takes allegations of corruption, fraud or misconduct seriously and is committed to high standards of integrity, professionalism and accountability, including maintaining a safe and respectful workplace.”
A point of tension between Hughes and current and former officials has been the bond issuance strategy for funding the government’s escalating debt.
Traditionally, the AOFM has devised innovative strategies to reduce interest costs for taxpayers, such as shifting the mix of money borrowed at the short or long end of the yield curve, depending on expected costs for different tenure bonds.
In recent years, former insiders say there has been barely any questioning or change of strategies to borrow when interest rates change.
The AOFM is borrowing much more long-term debt than is needed to fund the government’s operations, even when shorter-term debt becomes relatively cheaper.
Under the current precautionary strategy, the AOFM had an average $65 billion cash balance on deposit at the RBA in 2024-25 – tens of billions more than in the past before the COVID-19 pandemic.
“Now, the AOFM just has to make sure the money’s there when the government needs it, and cost is not even a consideration,” a former insider said.
The AOFM is borrowing long at higher interest rates and parking the excess money to earn a lower interest rate on deposits at the RBA.
The difference in the interest rate for what the government pays for the 10-year debt and then expects to earn on deposit at the RBA over time is known as the term premium, which is about 0.8 of a percentage point, according to the AOFM website.
Taking into account that about half of what the AOFM has deposited at the RBA – around $32 billion last financial year – is funded from short-term Treasury notes, the government is currently paying more than an estimated $200 million extra each year in expected net interest costs under this new strategy.
Hughes told a Senate hearing on December 4 that the AOFM operates a liquidity buffer of about $30 billion, which could help navigate a disruption in funding markets, such as during Donald Trump’s “liberation day” tariffs in April 2025.
“We did have a reasonable amount of cash on hand at that particular point in time because we had a number of maturities coming up this financial year that we need to prepare for,” Hughes said in December.
“We will never go below that $30 billion.”
An audit of the AOFM by the Australian National Audit Office found in February 2024 that the AOFM was “largely effective” at managing costs and financial risks associated with government debt management, but called for stronger scrutiny of the cost of borrowing.
“The AOFM has policies and processes in place to support cost-effective borrowing, but it does not assess whether the government debt portfolio was structured at [the] least cost subject to acceptable risk,” the ANAO said.
The AOFM hired ANZ to oversee a $14 billion government bond sale in April 2023, but became alarmed by market moves when the deal terms were set.
That compelled AOFM officials to seek answers from ANZ, which escalated into a high-stakes investigation by the Australian Securities and Investments Commission.
The probe also uncovered that ANZ had misreported bond trading volumes to the agency.
ANZ, in September, agreed to pay $135 million in penalties relating to the incident, but denied its actions had increased costs to the taxpayer.
Hughes told a parliamentary hearing in December that the agency’s leaders had been working hard on wellbeing, communication and ensuring staff were enjoying their work.
”We actually, for the first time, have a wellbeing policy, and so we have been working really hard over the last 12 months to help improve some of those goals,” she told the Senate committee.
Hughes said she was trying to find out the reasons for the responses in relation to concerns about alleged corruption.
“So we’ve introduced things like anonymous surveys so people who don’t feel comfortable talking to their managers can report things anonymously,” she told the hearing.
“We’ve had a number of additional officers do their public interest disclosure training so that we know what to do if those sorts of things come through. So we’re still trying to work out why that score looked the way it did.”
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John Kehoe is economics editor at Parliament House, Canberra. He writes on economics, politics and business. John was Washington correspondent covering Donald Trump’s first election. He joined the Financial Review in 2008 from Treasury. Connect with John on Twitter. Email John at jkehoe@afr.com
