The Australian Newspaper today has provided a useful breakdown of longer-term major spending commitments by both major parties – i.e. commitments beyond the Budget’s current forward estimates:
As you can see above, the Coalition has promised nearly $89 billion in commitments between 2017-18 to 2020-21, requiring more than $20 billion of savings each year just to keep the Budget on an even keel. By contrast, the ALP has promised just over $56 billion of commitments over the same timeframe.
While the above table is only an estimate of current commitments, and is subject to change as new policies are announced or underlying economic circumstances change, it does highlight the increasing unlikelihood of the Budget returning to surplus anytime soon.
The fact is the Budget is already facing stiff headwinds as the once-in-a-century mining boom unwinds, from both falling terms-of-trade (which impacts amongst other things company tax receipts) as well as the prospect of rising unemployment from lower mining investment. Added to this, the dependency ratio is worsening as the large Baby Boomer generation exits the workforce, meaning that a smaller proportion of workers (taxpayers) will be required to fund a growing share of retirees, lowering both the Budget’s tax take and increasing outlays.
And while these headwinds build, both sides have committed to long-term spending initiatives that worsen the Budget bottom-line over the longer-term. The Coalition’s paid parental scheme is especially bad as it offers minimal (if any) productivity pay-off, and is largely a direct fiscal transfer to the better-off.
The type of spending that could be justified on economic and financial grounds is investment in productivity enhancing infrastructure undertaken only after rigorous cost-benefit analysis, rather than for political purposes. This, at least, offers the prospect of boosting Australia’s longer-term productivity, making the extra debt self liquidating from the higher productivity and growth that the investment produces. Unfortunately, to date we have seen few commitments in this area from either side.
