The Intergenerational Report released on March 5th, showed that at the current payment levels, the Australian budget deficit will reach record highs in forty years. The total net debt would be $2.6 trillion by 2054-55. That is 57.2 percent of projected annual incomes, estimated to be $117,300 in 2055. Such a record high debt to GDP ratio translates into record higher taxes for all tax brackets. Reforms proposed by the Coalition government would, if all were implemented, reduce the deficit to null by 2031-32 and actually deliver a budget surplus by 2054-55.
The Intergenerational Report
The Intergenerational Report comes every five years to show how current economic policies will impact financial outcomes over the next forty years in an effort to discourage burdening the future generations with today’s poor fiscal decisions. The report does take into account the growing portion of the population that will be over the age of 65 as well as the extending life span of the average Australian. To help combat the possible future deficit, older Australians are suggested to re-enter or remain in the workforce and continue to work longer to help boost the economy. Another suggested solution would be to raise taxes but this is touted as discouraging to investment and workforce participation that would depress economic growth.
The Coalition government’s treasurer, Joe Hockey, believes that technology and innovation will spur the economy and that a new generation of small business owners along with tax breaks will be the cure to the future of the Australian budget deficit. Rival political parties have said the timing, two months before Joe Hockey is to deliver the federal budget, is a political stunt. Former Labor treasurer, Wayne Swan, was quick to point out that the government only had a deficit of $30.1 billion when he left office.
Australian Budget Deficit
Whether or not the Intergenerational Report is politically geared, the growing Australian budget deficit must be addressed and cutting payments, raising taxes or a combination of the two along with increased workforce participation will be proposed in the coming federal budget. Forty years from now Australians will have to deal with results the current government’s economic policies hand down. A balanced budget can be possible if the Coalition gets its payment cuts implemented but it will not be easy. Hopefully the next Intergenerational Report due in 2020 will paint a better picture for Australia’s future taxpayers.