The Commonwealth budget deficit this year and into the future has captured a great deal of attention. The Abbott government says it will first balance the budget and second produce a surplus by the early 2020s.
That may sound like a long-term plan, but Australia (like most countries) also faces a budget problem much further into the future resulting from the fiscal costs of an ageing population and evolving health care technology.
The last estimate of this very long-term fiscal gap was issued by the Commonwealth Treasury in February 2010 (the Intergenerational Report). A great deal of water has flowed under the bridge since then – think of the National Disability Insurance Scheme, for example. The Charter of Budget Honesty obliges the government to issue an updated Intergenerational Report by February 2015, but that is too long to wait.
In February 2010, the Treasury's crystal ball gazing informed us that even if the budget was in surplus in the early 2020s (as was then projected and the Abbott government now proposes) it would not last. A fiscal gap (excess of expenditure over revenue) of 2.7% of GDP would open up over the ensuing thirty years. In today's dollars, that means a permanent deficit of $40 billion a year.
That estimate covers the Commonwealth but not the states which, being at the front line of health care, have their own long-term fiscal gaps. In 2005 a Productivity Commission report put the combined long-term fiscal gap of the Commonwealth and the states at 6.4% of GDP.
It is a little surprising that in the burst of post-election fiscal transparency the Abbott government has not made more of the long-term fiscal gap. We should now expect three things: the government commits to updating and issuing the Intergenerational Report together with or shortly after the May 2014 budget; it explains how its policies to balance the budget in the short to medium term will also help close the very long-term fiscal gap; and it secures a COAG commitment to update the work done by the Productivity Commission in 2005 to estimate the long-term fiscal gap of the Commonwealth and states combined.
Robert Carling is a Senior Fellow at The Centre for Independent Studies.
Home > Commentary > Opinion > The budget deficit in the (very) long term
The budget deficit in the (very) long term
That may sound like a long-term plan, but Australia (like most countries) also faces a budget problem much further into the future resulting from the fiscal costs of an ageing population and evolving health care technology.
The last estimate of this very long-term fiscal gap was issued by the Commonwealth Treasury in February 2010 (the Intergenerational Report). A great deal of water has flowed under the bridge since then – think of the National Disability Insurance Scheme, for example. The Charter of Budget Honesty obliges the government to issue an updated Intergenerational Report by February 2015, but that is too long to wait.
In February 2010, the Treasury's crystal ball gazing informed us that even if the budget was in surplus in the early 2020s (as was then projected and the Abbott government now proposes) it would not last. A fiscal gap (excess of expenditure over revenue) of 2.7% of GDP would open up over the ensuing thirty years. In today's dollars, that means a permanent deficit of $40 billion a year.
That estimate covers the Commonwealth but not the states which, being at the front line of health care, have their own long-term fiscal gaps. In 2005 a Productivity Commission report put the combined long-term fiscal gap of the Commonwealth and the states at 6.4% of GDP.
It is a little surprising that in the burst of post-election fiscal transparency the Abbott government has not made more of the long-term fiscal gap. We should now expect three things: the government commits to updating and issuing the Intergenerational Report together with or shortly after the May 2014 budget; it explains how its policies to balance the budget in the short to medium term will also help close the very long-term fiscal gap; and it secures a COAG commitment to update the work done by the Productivity Commission in 2005 to estimate the long-term fiscal gap of the Commonwealth and states combined.
Robert Carling is a Senior Fellow at The Centre for Independent Studies.
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