Extra spending will weigh on budget for years

The Morrison government will be spending tens of billions of dollars more than it had planned years after the end of the coronavirus recession, despite its promises to limit expenditure to protect the nation’s finances.

A breakdown of expected budget spending between this year’s mid-year budget update and the 2019-20 update, compiled by the independent Parliamentary Budget Office, shows total expenditure settling at much higher levels than had been anticipated.

Treasurer Josh Frydenberg releasing the 2020-21 budget. New analysis points to spending remaining elevated well after the end of the coronavirus recession.Credit:Alex Ellinghausen

This week, Treasury secretary Steven Kennedy said the economic recovery from the recession was “locked in” even as government support measures are coming to an end.

Despite the reduction in support, total payments, including for programs such as the JobKeeper wage subsidy and expenditure on aged care and health, are forecast to be $295 billion higher over the five years to 2023-24 than had been predicted in the 2019-20 mid-year budget update.

Of that $295 billion, $148 billion occurs in the current budget year, with JobKeeper, which is due to end late next month, the single largest expense.

But the expenditure increase relative to what Treasurer Josh Frydenberg had expected in the 2019-20 mid-year budget update continues well into this decade.

In 2021-22, payments are forecast to be $36 billion higher than had been planned just a year earlier and up by $20.6 billion in 2022-23. Even in 2023-24, government spending is expected to be a step level above previous forecasts.

While spending is up, revenue is down, with the biggest hit to personal income tax collections. Higher unemployment, lower wage and population growth plus the recession have stripped $84 billion from forecast tax collections out to 2022-23.

Policy decisions by the government, including bringing forward income tax cuts, have cost the budget another $23 billion.

The data was released as the Australian Office of Financial Management reported gross government debt this week reached a record high of $815 billion. The office sold another $1 billion of federal debt on Friday, to be repaid in 2029, with an interest rate of 0.93 per cent.

Finance Minister Simon Birmingham said the government’s “number one priority” remained the nation’s economic recovery from the virus, but stressed it was also focused on eventually repairing the budget bottom line.

“We must get economic and employment recovery before we worry about the true path back to budget repair,” he said. “But we do nonetheless need to be mindful that every spending decision has to be about the quality of the spending decision.”

The government has said it will look to stabilise gross and net debt once unemployment is “comfortably” under 6 per cent.

Senator Birmingham, who replaced the long-serving Mathias Cormann as finance minister last month, said the government had to show spending restraint.



“You grow employment and the economy in ways that give you fewer levels, and lower rates, of welfare dependency and higher numbers of taxpayers. But it [will] take time and it’s not going to happen quickly,” he said.

The budget is expected to show a deficit of $198 billion this financial year and $108.5 billion in 2021-22. The budget is due for release on May 11.

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