A string of deficits is likely to plague Australian governments for 20 straight years, says a new report.
That’s the finding of the report from non-partisan economic researchers e61 Institute and the non-profit McKinnon organisation.
And finding ways to fix it will require hard choices, they warn.
The report (click here for the PDF document) found the total fiscal deficit (combining federal, state and territory budgets) is currently greater than 3% of GDP and larger than in the years before the COVID-19 pandemic.
As a share of GDP, spending rose from 34.7% in the early 2000s to 38.2% in 2024, it notes.
“Over the past two decades, Australia’s financial position has become increasingly fragile,” e61 Institute CEO Michael Brennan says.
“Governments have been running combined deficits every year since the Global Financial Crisis (GFC) in 2008.
“Debt is higher after two global shocks and governments have struggled to rebuild fiscal buffers for the next one,” he says.
“There is no imminent debt crisis but with renewed pressures ahead (like an ageing population and slow productivity growth), Australia’s fiscal options are narrowing.”
HEALTH BOOSTS DEFICITS
The report found the biggest spending pressure is coming from health which grew from 5.5% of GDP in 1999 to 7.1% today.
Education spending is constant at around 5% of GDP despite the population share of school-age children shrinking.
“Much of the recent growth in spending is explained by our aging population which demands more labour-intensive services such as health, aged care, and disability support,” Brennan says.
He says politicians are increasing spending on education and in-kind services like childcare and NDIS often without a clear picture of the value of these decisions.
INCOME TAX
“Over time, this will build pressure to raise more revenue, including from income tax … income tax is by far the largest single source of tax revenue across all tiers of government,” Brennan says.
The report notes that even if spending remains at current levels, the Federal Government will need a big increase in income tax rates over the next 10 years just to balance the budget.
“With the tax system as it stands, we will be asking workers to pay a larger share of their income to fund a fiscal gap that has been building for two decades,” he says.
“That’s before any new spending commitments are added to the ledger.”
Brennan says tax reform will be needed to avoid any cuts to public spending.
These reforms could include cutting back on more state services, greater means testing “and, inevitably, hard choices about priorities”, he says.
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