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Economy

Australia has a structural budget problem: Secretary to the Treasury

“We are at a juncture where our decisions over the next few years can help shape our future for the next decade and beyond,” Secretary to the Treasury, Dr Martin Parkinson PSM, told a CEDA audience.

Speaking for the final time in Melbourne as the Secretary to the Treasury, Dr Parkinson said: “We have the opportunity with the reviews of our tax system, our workplace relations system, the ‘root and branch’ reviews of our financial markets and competition framework, and the review of the functioning of the federation, to make decisions that improve our productivity growth and to position ourselves to reap the most from these opportunities.

“Australia has a structural budget problem. It requires a sustained and measured approach.

“This year’s Budget contained measures to improve fiscal balance and reduce the negative impacts of some programs on economic growth.

“From a growth perspective, focusing on reducing government spending is generally preferable to raising the overall tax burden.

“It’s not feasible to materially reduce spending growth without looking at the largest spending categories. For the Commonwealth, this is health, welfare and higher education.

“Public sector reform will also be important.

“With the ageing of the population and the growing size of our services industries as a proportion of the economy, how well the public sector delivers or contracts services like health and aged care will have a significant bearing on budget outcomes, as well as on national productivity growth.

“It is important that we start the process of fiscal consolidation now.

“Australia has recorded 23 consecutive years of growth. Yet the budget projections are based on an assumption that we will continue around trend growth for another decade. That is, 33 years of uninterrupted economic growth, which is without precedent, domestically or globally.

“Yet even on this assumption, we know the Budget will remain in deficit for each and every one of the next 10 years unless we take action.”