‘Last thing Australia needs’: Pre-election cash splash stirs budget concerns

skynews
17 Mar

Pre-election “sweeteners” and Australia’s forecasted long term budget hole have stirred concern for the nation’s fiscal position as a leading economist has warned “ineffective spending is the last thing Australia needs”.

After posting back-to-back surpluses, Labor is expected to reveal a deficit of $26.1b in the coming budget and revenue downgrades of $11.3b over the coming four years, according to Deloitte Access Economics.

The major consulting firm predicts the coming deficit is an $800m better result than Labor’s mid-year economic forecast as it has been forecasted the nation will not return to surplus for a decade.

But Australia’s bottom line is set to suffer as spending pressures across key areas like aged care, the NDIS and defence escalate, leading to a $13.1b blow out over the coming four years.

Announcements of big spending in the lead up to the election have stirred concerns. Picture: NewsWire / Nicholas Eagar

This would push net debt to 23.9 per cent of gross domestic product in 2027-28 from about 19.6 per cent during this financial year.

Deloitte’s report points to pre-election spending sprees from either party in bids to woo voters in a battle likely to result in a minority government.

Stephen Smith, a partner at Deloitte Access Economics and co-author of the report, warned structural challenges in the economy cannot be solved with quick fixes and called for careful spending.

“It is critical that each new dollar of spending is delivering value for money. Unfortunately, in the lead up to a federal election, that is not the case,” Mr Smith said.

“Value for money can be hard to come by in election years. But the long-term budget projections show deficits as far as the eye can see, and ineffective spending is the last thing Australia needs.”

Labor has announced it will put forward $16b to wipe 20 per cent off all current HECS debts if elected, while it has pledged $8.5b for Medicare, $7.2b for the Bruce Highway, $2.4b for the Whyalla Steelworks and an extra $4.8b for NSW Public Schools over 10 years.

The Coalition has exceeded Labor’s Medicare pledge by $500m, while it has matched the Whyalla bailout and Bruce Highway upgrades and announced $3b for fighter jets.

Cathryn Lee, a partner at Deloitte Access Economics and co-author of the report, stressed ongoing financial challenges plaguing the government will be inherited by a future government and hoped this would spark “meaningful proposals to put Australia on a firmer fiscal footing”.

“Unfortunately, the election is more likely to put an outsized focus on flashy proposals designed to woo voters who are focused on their day to day,” Ms Lee said.

“This will distract from a pressing policy issue facing the nation: the fiscal holes in Australia’s medium-term budget outlook are getting bigger, not smaller.

“And no politician is putting forward a credible plan to plug those holes.”

She said the path back to surplus will “require hard decisions” such as how to pay for the litany of costly election promises.

“Today, the Australian conversation about the right level of revenue and the right mix of taxes is barely a murmur,” Ms Lee said.

“It’s an increasingly important conversation for the nation’s future, and the volume needs to be turned all the way up.”

Concerns about budget blow outs come as Treasurer Jim Chalmers warned ex-tropical Cyclone Alfred will cost the Australian economy at least $1.2 billion.

The hit will further compound pressures on inflation and the federal budget in the lead-up to election, to be held on or before May 17.

Mr Chalmers revealed the substantial blow to the nation's economy at a press conference in Brisbane on Monday.

“We have been primarily focused throughout on the human cost of these natural disasters, but there will be a very substantial economic cost as well,” Mr Chalmers said.

“Recovering and rebuilding from natural disasters will be a key influence on the budget that (Finance Minister) Katy Gallagher and I will hand down in eight days' time.

“Treasury expects there will be about a $1.2 billion hit to economic output, just as a consequence of ex-TC Alfred.”

Join the conversation

Add your comment to this story

To join the conversation, please log in. Don't have an account? Register

Join the conversation, you are commenting as Logout

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Most Discussed

  1. 1
     
     
     
     
  2. 2
     
     
     
     
  3. 3
     
     
     
     
  4. 4
     
     
     
     
  5. 5
     
     
     
     
  6. 6
     
     
     
     
  7. 7
     
     
     
     
  8. 8
     
     
     
     
  9. 9
     
     
     
     
  10. 10