Australia’s debt would hit A$667 billion – more than a quarter of GDP – in a decade on present projections, according to the mid year update that also shows the federal budget has deteriorated by A$101 billion over the forward estimates since May.
In a grim outlook, the budget update revises down Australia’s growth and presents a more pessimistic forecast for long-term unemployment.
The economy will move more slowly than forecast in the pre-election fiscal outlook from a resources-investment led growth to broader sources of growth.
“While the fall in resources investment is expected to be sharper than previously forecast, the recovery in the non-resources sector is expected to be more gradual,” it says.
“As a result, real GDP is forecast to grow at a slower rate of 2.5% in 2014-15,” compared to 3% in the pre-election outlook.
While previously unemployment, now 5.8%, was forecast to rise to 6.25% in 2014-15 and then fall, today’s update has it remaining at 6.25% from 2014-15 to 2016-17.
The update contains a tough message to the community: “living within our means requires the elimination of waste, but it will also require people to adjust to reductions in some spending to which they have become accustomed.”
The deficit for this financial year is predicted to reach A$47 billion, and A$123 billion cumulatively over the forward estimates: gross debt over the forward estimates would hit A$460 billion without policy changes.
While the government has not loaded an extensive program of cuts into the mid-year update, a net saving of $1.1 billion will be made from not going ahead with various uncommitted grants and spending announced by Labor.
Addressing a National Press Club lunch, Treasurer Joe Hockey said: “The current budget outlook is not sustainable. Doing nothing is not an option for Australia.”
He said the “heavy lifting” of reducing the deficit would have to come from spending restraint rather than from a raft of new taxes. “One thing is for sure, no country has ever taxed its way to prosperity.”
He said much of the projected growth in spending was from social programs including welfare, education and health. “Spending reform will inevitably require difficult choices about the policies that Australians need now and in the years to come.”
He said more than half of the fiscal deterioration since the pre-election update had been driven by a softer economy. There were also revisions to the methodologies of forecasting. As well, the deterioration in the budget position reflected “prudent decisions the Coalition has taken to address unresolved issues inherited from the former government.”
The Treasurer said the government was “angry” that its early attempts to repair the government were already being opposed by Labor.