The winner of the upcoming federal election must consider a different approach to ensure long-term budget sustainability, a leading independent think tank has declared.
The Committee for Economic Development of Australia (CEDA) is calling for wholesale budget reform in the face of future headwinds, such as an ageing population and the costs of climate change.
The think tank says strict budget targets are blunt tools that constrain choices, leading policymakers to impose efficiency dividends, levies and other short-term savings that don’t improve value for money or budget sustainability over the long term.
“The community then bears the burden of arbitrary caps and artificial constraints through inadequate services in the longer term,” CEDA chief economist Jarrod Ball says in a new report.
“This has been seen all too painfully in areas such as the aged care system, hospital funding and higher education.”
He says the arbitrary budget targets and narrow focus on budget surpluses that have underpinned Australia’s budget approach do not guarantee budget sustainability and will carry significant economic costs.
“Several targets in the current fiscal strategy have been there in one form or another since the early 2000s, despite being unmet, unsound, or inappropriate in the economic environment,” Ball says.
Australia has now posted 14 consecutive deficits stretching back to the 2008-2009 global financial crisis.
The Government now faces a complex juggling act of unwinding the stimulus required during the pandemic and investing in long-term programs, such as aged care.
Other challenges to the budget are the growing financial risks of climate change.
In NSW alone, the State Government is projecting up to $17.2 billion of economic costs from natural disasters on average each year by 2060.
“Now is the time for Government to change its approach to ensure Australia’s long-term budget sustainability,” Ball says.
“This includes moving to a whole-of-federation overview of Australia’s finances through a national Intergenerational Report.”
CEDA wants to task the independent Parliamentary Budget Office with compiling such a report, rather than Treasury.
Among its to-do list it is also calling for a review of the 25-year old Charter of Budget Honesty Act to increase scrutiny and transparency of the budget, while establishing a rolling schedule to evaluate government programs.
Such a budget reset would complement the bipartisan agreement to review the operations of the Reserve Bank of Australia after the election.
“Governments must now focus all of their policy levers on lifting Australia’s capacity to grow into the future and deliver the services that will underpin Australians’ health and wellbeing,” Ball says.
