Australians can expect higher taxes and service cuts if the Albanian government does not find a solution to its chronic debt problem.
The federal economy is expected to be $21.8 billion worse off over the next four years than previously forecast, according to the mid-year economic and budget outlook.
With spending rising due to challenges such as an aging population and tax revenues falling due to sluggish economic growth, Australia is not expected to return to surplus until 2034/35.
Public finances have been in structural decline for some time, but nothing is being done to reverse this, EY chief economist Cherelle Murphy warned.
The deficit reductions are expected to add an additional $49 billion to government debt by 2027/2028, meaning more money will have to be spent on interest payments.
That meant less flexibility to solve the problems of the future, Ms. Murphy said.
“The government has failed to find a path to increasing the prosperity of the Australian people and working its way out of debt burden,” she said.
‘We need a plan to boost our productivity through major reforms – including, importantly, to our tax system, trade and education – or we will face higher taxes and cuts to essential services in the future. ‘
EY chief economist Cherelle Murphy (pictured) warned that public finances have been in structural decline for some time, but nothing is being done to reverse this
Treasurer Jim Chalmers (pictured) said the government had not ignored the structural pressures on the budget
The six-month update included increases in spending on items such as childcare, the PBS and infrastructure cost overruns, which the government labeled as ‘unavoidable’ expenditure.
Independent economist Saul Eslake didn’t believe that.
“I’m not saying they’re ‘bad’ decisions, but they’re not decisions that absolutely needed to be made,” he said.
“What the government has avoided is making decisions about how to pay for this additional expenditure.”
Mr Eslake said that government spending is now permanently at a higher level, at about 26.5 percent of GDP, which is about 1.75 percentage points of GDP higher than the average between the mid-1970s and early 2000s. the COVID-19 pandemic.
This is the result of increased spending on health care, elderly care, disability care, childcare and defense, and higher interest payments.
One way to reduce spending would be to scrap the ‘No Worse Off’ GST deal with Western Australia, which will leave the federal budget $21.1 billion worse off in the four years to 2027/2028.
Moreover, politically acceptable cuts are much harder to find, Eslake said.
Independent economist Saul Eslake (pictured) said: ‘What the government has avoided is making decisions on how to pay for this extra spending’
Prime Minister Anthony Albanese is under pressure ahead of next year’s elections
“Neither side of Australian politics is willing to have a ‘grown up conversation’ with the Australian people about how to pay for all this extra spending,” Eslake said.
Without structural changes, the burden will fall disproportionately on the shoulders of younger generations, who will fall victim to ever-higher income taxes and be forced to pay off larger budget deficits.
Treasurer Jim Chalmers said the government had not ignored the structural pressures on the budget.
It had made previous upward revisions to revenues, made modest but meaningful changes to the tax system, found $92 billion in savings and reprioritized spending since the election, he argued.
But shadow treasurer Angus Taylor said Australians are experiencing lower living standards due to higher government spending and promised to reintroduce fiscal guardrails that would cap tax collections at 23.9 percent of GDP if elected.
“What we see in this update is red ink as far as the eye can see,” he said.