CEO Update: Smaller deficit welcome, but government spending still needs better targeting

The Federal Government has announced the budget deficit for 2024-25 has shrunk to about $10 billion, due to a resilient jobs market and higher than expected commodity prices. This is $18 billion better than expected when the 2025-26 Budget was released in March.

While this is a very welcome improvement, there is still a need for greater focus on reducing and better targeting government spending, as the budget remains in structural deficit.

At CEDA, we also see potential to strengthen Australia’s social compact by better targeting government programs and payments. A strong social safety net is critical to support those in need and ensure access to quality care and housing.

Given Australia’s ageing population and pressure for spending across many fronts, we need to better target government spending in fast-growing areas such as aged care and the NDIS. Those who can pay more for services will need to do so, with government provision kept for those who need it most.

Federal Opposition Leader Sussan Ley spoke on this very point on the CEDA stage in her first major economic address as opposition leader earlier this month with an emphasis on welfare spending. Although this strong focus on sustained fiscal discipline is welcome, like many, CEDA supports a lift in Jobseeker payments, given inadequacy of current payments.

The key question, of course, is how we can get to a more sustainable fiscal position year in and year out.

In the past we have highlighted that prescriptive and arbitrary fiscal rules such as tax- and spending-to-GDP ratios do not necessarily guarantee good decision-making. They can drive down spending in ways that are unsustainable in the medium term, constrain fiscal policy when it should not be constrained, or simply be ignored.

Instead, what’s needed is fiscal discipline that lasts across political, budget and electoral cycles. One way to achieve this is to focus on the desired outcomes of policy, and ensure there is rigorous evaluation to assess whether government spending achieves these outcomes. Consistent program evaluation is critical to ensure taxpayer funds are used effectively to improve economic and social outcomes.

In addition, CEDA has long called for whole-of-Federation intergenerational reporting and modelling by the Parliamentary Budget Office. This would better enable sustainable budgeting across jurisdictions.

These considerations will shape our analysis of next year’s Federal Budget and the Mid-Year Economic and Fiscal Outlook later this year. 

Those of you reading this in Victoria may have been following the debate about the State Government’s proposed working from home (WFH) legislation. We made a submission to the Government’s consultation on the proposal outlining our view that it is unnecessary and would add to regulatory burden. 

In CEDA’s view, working from home is here to stay, given the relatively stable rates of WFH since the COVID-19 pandemic, coupled with the many clear benefits for both workers and employers from the arrangement. You can read more of our WFH research here. 

I’ll be speaking at the Ageing Australia National Conference 2025 on Thursday, touching on innovation and workforce in a speech on the trends and challenges in aged care. And on the topic of aged care, look out for new CEDA research on how to address chronic worker shortages in the sector next week. 

On the CEDA stage, join us in Adelaide for an exclusive forum featuring some of South Australia’s most influential voices on international trade and economic growth on October 17. Asia-Pacific trade: expanding South Australia’s reach will explore how the state can seize new opportunities in Asia-Pacific markets and overcome trade barriers.  

Hear from international speakers from NVIDIA and Open.ai, as well as federal and Queensland ministers along with a host of leading thinkers, entrepreneurs and academics at our annual AI Leadership Summit in Brisbane on October 21 and 22. This event is organised in partnership with the National AI Centre.  

And hear Productivity Commission Chair Danielle Wood outline her priority reforms to improve Australia’s productivity growth in Perth on October 22 at Driving productivity growth - in conversation with Danielle Wood. 

To finish, I would like to warmly welcome Fujitsu and ServiceNow as new CEDA members joining us this month. 

Melinda Cilento
Chief Executive, CEDA