Australian Economy Expected to Be Overshadowed by Budget Deficits for the Next Four Decades

Australia will unlikely see a budget surplus in the next 40 years due to increasing government spending and slow economic growth, the latest Intergenerational Report (IGR) has found.

The Treasury Department released the 2023 IGR (pdf), which provides a snapshot of how the Australian economy and government’s budget are expected to evolve over the next four decades.

While there are positive economic prospects, such as higher income and fewer working hours for the population, deficits would become a “budget feature” for a long time, raising concerns about the economy’s sustainability.

According to the report, Australia would see a budget surplus of less than one percent of the total GDP (gross domestic product) in the 2022-2023 financial year before reporting a deficit of around 0.5 percent of GDP in 2023-2024.

The deficit will then rise to over one percent of GDP in the following year and hover at or below this level for the next two decades.

From the 2040s, the deficit is predicted to widen until it reaches around 2.6 percent of GDP by 2062-2063.

Gene Tunny, the director of the economic consulting firm Adept Economics told The Epoch Times that in general, budget deficits were not necessarily a bad thing if they were relatively small and the government was using borrowed money to invest in productive infrastructure.

However, he noted that the characterisation of the projected deficits in the report was concerning.

“First, persistent deficits are the starting point. We are starting out with a structural budget deficit,” he said.

“Once you consider the huge amounts of debt governments accumulate during recessions and the tendency for governments to find new things to spend money on, you start worrying that we’ll end up with much larger deficits and debt than the report is projecting.

“In that case, the growing interest cost of the debt could start to cause trouble for future governments and taxpayers.”

Mr. Tunny also pointed out that the growing deficits from around the mid-2030s would be unsustainable if the government allowed it to continue indefinitely.

This would cause future governments to impose spending restraints or tax increases, he added.

Rising Government Spending

High government spending is a major reason for the upcoming decades of budget deficits.

The report showed that government expenditures would grow by 3.8 percent points over the next 40 years to 28.6 percent of GDP by 2062-2063.

The five areas that will see the most significant increases in government spending are health, aged care, the NDIS (National Disability Insurance Scheme), interest on government debt, and defence.

Specifically, health spending will rise by two percent of GDP, followed by aged care at around 1.4 percent, the NDIS at 1.2 percent, interest payment at 0.7 percent, and defence at 0.4 percent.

When combined, these payment categories will account for half of the total government expenditures by 2062-2063, up from the current 33 percent.

Meanwhile, the spending increases in health, aged care, and the NDIS reflect the impact of the aging population on the economy.

The report projected that the Australian population would continue to grow older, with the number of people aged 65 and above to double in the next four decades.

Additionally, the percentage of over-85s and those older



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