Five spending pressures to drain half the budget within 40 yearsAugust 19, 2023
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Treasurer Jim Chalmers has issued a warning that half the budget will be swallowed by spending on health, aged care, the NDIS, defence and interest payments on debt within the next 40 years.
The sixth intergenerational report, to be released by Chalmers on Thursday, will show the five key expenditure pressures – which today account for a third of total Commonwealth spending – will grow to half of all spending by the middle of 2063.
Jim Chalmers will use the report to make the case that the pressure on the budget will intensify from 2024.Credit: Alex Ellinghausen
“The main five long‑term spending pressures are health and aged care, the NDIS, defence, and interest payments on government debt. Combined, these spending categories are projected to increase by 5.6 percentage points of GDP over the 40 years from 2022-23 to 2062-63,” the report will say.
In today’s dollars, the 5.6 percentage point increase is about $140 billion, meaning the cost increases will be in the order of hundreds of billions of dollars by 2063.
The report states that the NDIS and interest on government debt are “the fastest growing categories over the next decade, with health and aged care growing most quickly at the end of the projection period as the population ages”.
“While health spending is growing more slowly than NDIS, aged care or interest, it represents a larger share of total spending. As a result, health spending is expected to increase the most as a share of GDP over the next 40 years,” the report states.
Chalmers will use the report to make the case that the pressure on the budget will intensify from next year and will remain under stress in the long term.
“We’ve delivered Australia’s first budget surplus in 15 years – a direct result of our responsible economic and fiscal management – but it will take more than one budget or one term of budgets to undo the decade of damage done by the Coalition,” Chalmers said.
Chalmers has repeatedly claimed that Labor would return 87 per cent of its revenue upgrades across its first two budgets to the bottom line, which he has argued is better than the Coalition’s achievement in the last government of returning 40 per cent of the gains to the budget bottom line.
Finance Minister Katy Gallagher said the report “shows the hard work must continue to keep the budget on a sustainable footing, while ensuring we deliver the services that Australians rely on every day”.
The May federal budget showed that the single biggest program expense was the aged pension at an expected cost of more than $59 billion this financial year, while spending on aged care was forecast at $32.6 billion and the NDIS would edge toward $42 billion.
The report, produced by Treasury, provides a picture of the economy over the next 40 years. It will contain updated forecasts about the labour market, economic growth and the projected population of Australia.
It was released every five years under the Coalition, but Labor intends to release one each term of government. The last intergenerational report, released by then treasurer Josh Frydenberg in 2021, forecast Australia’s population to hit 38.8 million by the middle of 2061.
Thursday’s report will reflect updated forecasts since the post-COVID surge in migration over the past 18 months, which the Coalition have seized on to accuse the Albanese government of presiding over a “big Australia by stealth”.
The 2021 report predicted the budget would never return to surplus. But high commodity prices, a stronger-than-expected jobs market and a lift in wages growth mean Chalmers will next month confirm a budget surplus of more than $20 billion for the 2022-23 financial year.
This financial year is also tipped to show a surplus rather than a forecast deficit of $13.9 billion.
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