The federal government's Intergenerational Reports (IGR) have attracted plenty of attention in the past, but nothing like the drum-roll heralding the imminent 2015 update.
That a set of 40-year budget projections is stirring as much public interest as an annual budget says something about the country's fiscal predicament.
As we await the ugly picture foreshadowed by Treasurer Joe Hockey, it is instructive to take a 40-year glance in the rearview mirror. Since 1974-75 the federal budget has been in deficit more often than not – 25 years out of 40 – resulting in an average deficit a smidgen under 1% of GDP.
Commonwealth net debt went from negative 3% of GDP to plus 12.5%. It would have risen much more but for privatisations such as the Commonwealth Bank, Qantas, Telstra and airports.
The budget environment was generally benign despite two nasty recessions: demographic trends were favourable; there were two resources booms (one of them being the mother of all); and average economic and productivity growth was reasonable. What produced an average budget deficit was the propensity of governments of all colours to think up new ways to spend more money (new program commitments). This, above all, is why federal spending grew faster than the economy and claimed 6% more of GDP in 2013-14 than forty years earlier.
We already know from past IGRs that fiscal discipline will be harder to achieve in the next forty years. The message threaded through those IGRs was that demographic trends will be increasingly adverse and economic and productivity growth at past rates harder to eke out. This is why the last IGR projected a sizeable fiscal gap (excess of spending over revenue), and the broad story will be the same in the 2015 update, even though the exact numbers will change.
The IGR is not a policy document like the annual budget. It assumes all existing and announced spending and tax policies remain in place for 40 years. But policies will be critical, and hopefully the IGR will help set the stage for an improved policy debate and outcomes.
The 40-year view is telling us not just that there is no room for new spending commitments, but that existing programs will need to be reformed to lower the growth path of expenses. This represents a drastic change from the last 40 years.
If Australia cannot make this change, we will follow the examples of countries such as the United States (36 deficits in the last 40 years; net debt 82% of GDP) and France (40 deficits out of 40; net debt 85% of GDP).
Robert Carling is a Senior Fellow at the Centre for Independent Studies.
Home > Commentary > Opinion > 40 years of budgets in the rearview mirror
40 years of budgets in the rearview mirror
That a set of 40-year budget projections is stirring as much public interest as an annual budget says something about the country's fiscal predicament.
As we await the ugly picture foreshadowed by Treasurer Joe Hockey, it is instructive to take a 40-year glance in the rearview mirror. Since 1974-75 the federal budget has been in deficit more often than not – 25 years out of 40 – resulting in an average deficit a smidgen under 1% of GDP.
Commonwealth net debt went from negative 3% of GDP to plus 12.5%. It would have risen much more but for privatisations such as the Commonwealth Bank, Qantas, Telstra and airports.
The budget environment was generally benign despite two nasty recessions: demographic trends were favourable; there were two resources booms (one of them being the mother of all); and average economic and productivity growth was reasonable. What produced an average budget deficit was the propensity of governments of all colours to think up new ways to spend more money (new program commitments). This, above all, is why federal spending grew faster than the economy and claimed 6% more of GDP in 2013-14 than forty years earlier.
We already know from past IGRs that fiscal discipline will be harder to achieve in the next forty years. The message threaded through those IGRs was that demographic trends will be increasingly adverse and economic and productivity growth at past rates harder to eke out. This is why the last IGR projected a sizeable fiscal gap (excess of spending over revenue), and the broad story will be the same in the 2015 update, even though the exact numbers will change.
The IGR is not a policy document like the annual budget. It assumes all existing and announced spending and tax policies remain in place for 40 years. But policies will be critical, and hopefully the IGR will help set the stage for an improved policy debate and outcomes.
The 40-year view is telling us not just that there is no room for new spending commitments, but that existing programs will need to be reformed to lower the growth path of expenses. This represents a drastic change from the last 40 years.
If Australia cannot make this change, we will follow the examples of countries such as the United States (36 deficits in the last 40 years; net debt 82% of GDP) and France (40 deficits out of 40; net debt 85% of GDP).
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