CALF size of gvt.pptx - Grattan Institute

Change in Australian governments' expenditure 2003-2014 ... services. Industry. Debt mgt. Defence. Source: Grattan Institute, Budget .... public service. Welfare.
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Budget repair and the changing size of Australia’s government Crawford Australian Leadership Forum John Daley, Grattan Institute June 2016

Commonwealth expenditure is high relative to history; revenue is typical of last 30 years

27%

Expenditure

Estimate

Commonwealth expenditures and revenues per cent of nominal GDP

25% 23% 21%

Revenue

19% 17% 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 Financial year ended Source: Commonwealth Budget Papers, 2014-15 2

Health has driven the increase in expenditure … Change in Australian governments’ expenditure 2003-2014 $ bn relative to CPI 50

Real growth Growth at GDP

45 40 35 30 25 20 15 10 5 0

Health

Education Welfare

InfraIndustry Defence Governstructure ment Other Social Debt mgt Crim services justice

Source: Grattan Institute, Budget Pressures 2014

3

… as it has in all OECD countries as they got richer (except Iceland) Health spending as proportion of GDP, %

Health spending and GDP, 2000 to 2012 $51k, 16.4%

14 12 n Germa

y

erlan

Switz

d

10 Iceland alia Austr

8

Hung Chile

6

Turkey

4 2

Norway

a ry

Luxembourg

$91k, 6.6%

No GDP growth Health growing faster than GDP Health stable relative to GDP

0 0

Source: OECD

10,000 20,000 30,000 40,000 50,000 60,000 70,000 GDP / capita, PPP

4

Big jump in net transfer to older households also hurt budget balances Average net benefits per household (government payments, less tax) 2010$ $35,000 $30,000 $25,000 $20,000

Increase of ~$10k/household ≈ $20b/yr budget cost

1988-89 1993-94 1998-99 2003-04 2009-10

$15,000 $10,000 $5,000 $0 -$5,000 -$10,000 -$15,000 15-24

25-34

35-44 45-54 55-64 Age of head of household

65+

Notes: Net benefits are social assistance benefits in cash plus support in kind (such as health and education), minus income and sales taxes 5 Source: Grattan Institute, The Wealth of Generations, p.22

Most of the planned structural repair relies on organic increases in tax collections Budget balance 2019-20 budget compared to 2015-16 outcome, $2015 20 9 Denotes improvement in budget balance

-7

23

-19

0

-20

-40

-6

-40

20

7 2016-17 Personal Budget Budget income tax deficit growth 2016-17 measures

Other Spending Initial deficit revenue growth at growth growth below GDP nominal above GDP GDP

Other

Budget deficit 2019-20

6

The planned drift back to surplus isn’t happening Actual and forecast Commonwealth underlying cash balance per cent of GDP Forecast made in May 1 2012 2010 2011 2013 0 2014 -1

2015 2016

-2 -3 Actual -4 -5 2008

2010

2012

Grattan analysis of Commonwealth Budget Papers

2014

2016

2018 2020 Financial year ended 7

Reality undershot as spending rose 2009-14, while revenue has disappointed since 2012 Change in budget outcome from original forecast % of GDP 4 2

Spending policy changes Revenue policy changes

0 Revenue parameter changes

-2 -4

Spending parameter changes

-6

Net change in fiscal balance

-8 2009

2011

2013

2015

2017

2019 8

Belief about what is important drives priorities about taxes and spending What do you care about most? Budget balancing Com