A new approach to budget policy is now required to ensure Australia’s long-term budget sustainability, according to the Committee for Economic Development of Australia (CEDA).
The think tank argued that given the unwinding of COVID-19 stimulus and future headwinds, including climate change, reform would be necessary ahead of next year’s budget.
“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 in a supply constrained economy,” said CEDA chief economist Jarrod Ball.
“As Australia faces the challenges of weak productivity and an ageing population, spending taxpayer dollars well to deliver high-quality services and build productive capacity in the economy is more important than ever.”
CEDA said that strict quantitative budget targets were “blunt tools” that constrain choice and throw the focus on short-term savings rather than long-term budget sustainability.
The think tank pointed out that Australia had recorded back-to-back budget deficits over the past 14 years.
“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,” Mr Ball said.
The comprehensive budget reset proposed by CEDA would include a whole of federation intergenerational report, undertaken by the Parliamentary Budget Office, which would provide a complete picture of the nation’s finances.
CEDA also called for a review of the 25-year-old Charter of Budget Honesty Act to increase scrutiny and transparency.
Additionally, CEDA said that a reset of the medium-term fiscal strategy would be necessary to stabilise and reduce net debt while facilitating investments that boost the productive capacity of the economy.
“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,” Mr Ball concluded.
