Prelude – is there a fiscal emergency?
Was the pre-Budget hype about a fiscal emergency justified? I think ‘emergency’ was an overstatement, but there is a serious forthcoming problem that needs addressing.
As Treasury Secretary Martin Parkinson set out in a landmark speech on 2 April – pre-Budget – there is a Federal fiscal problem, and the Budget needs to improve its sustainability. He showed that under the 2013-14 Mid-Year Economic and Fiscal Outlook (December 2013), the Budget deficits were projected to continue until 2023-24, thus making it 16 deficits in a row.
And the outlook for the economy is hardly likely to equal that of the past two decades of strong continual growth and favourable terms of trade which flooded the Federal coffers.
Further, we have surging social program budgetary costs. Parkinson pointed to health rising from $64.7 billion in 2013-14 to $116 billion in 2023-24, the National Disability Insurance Scheme will cost $11.3 billion (up from $3.1 billion), and pension increases will add $39 billion (due to both indexation and baby boomers reaching pension age). We face some very big ticket item costs, not necessarily immediately, but just a few years hence.
And unlike in 2008, we have no ‘war chest’ in the guise of a surplus to draw upon if the world economy turns sour as it did in the global financial crisis.