Australia risks a debt crisis similar to Europe unless efforts are made to bring the budget deficit under control, the head of the first national audit of government spending in 18 years said Thursday.
Tony Shepherd, chair of the National Commission of Audit, recommended gradual cuts worth up to Aus$60-70 billion (US$55.8-65.1 billion) per year within the decade to improve efficiency and productivity across all areas of spending.
“If we kick the can down the road and leave it too late to make this correction, the correction will be sudden,” Shepherd told reporters.
“It will be difficult and it will be painful, and that has been the European and the UK experience.”
Australia has enjoyed 22 years of annual growth, sidestepping the worst of the global financial crisis due to a mining boom fuelled by Asian demand.
Revenues have dropped in the past two years as investment in the resources sector has slowed, but the country has maintained moderate unemployment and contained inflation.
Last May, the then Labor government unveiled an Aus$18 billion deficit for 2013/14 but within months said this had ballooned to Aus$30 billion as the Asia-led mining investment boom slowed.
Since its election last September the conservative government of Prime Minister Tony Abbott has repeatedly warned that budget problems lie ahead and has said Australia is facing a deficit of Aus$47 billion this financial year.
Abbott tasked the audit commission with advising on how to bring the budget back to a surplus equal to 1.0 percent of gross domestic product before 2023/24.
It recommended a raft of spending cuts to government services and payments, including childcare, healthcare, education and pensions.
“If we don’t fix the budget, Australia will have little or no buffer to meet future economic and financial shocks,” Shepherd said in a statement as his report also recommended privatising some agencies.
“History has shown that a strong budget is an essential foundation for a strong economy.
“The choices are to continue to believe in luck and hope that we can achieve past record levels of growth and productivity or hope that the global economy will recover or some other miracle will save the day.”
Shepherd urged the government to move “carefully, incrementally and fairly” to put fiscal policy back on its traditional sustainable path while the economy was still in reasonable shape.
He said the commission was not asked to examine tax revenues.
“We assumed that taxation revenue would return over time to 24 percent of GDP which was the average for the period from 2000 to the global financial crisis,” he said
The Abbott government hands downs its first budget on May 13.
COMMENTS
Please let us know if you're having issues with commenting.