Economy at risk without budget action: PBO

Parliamentary Budget Officer Phil Bowen says the economy is at risk unless the federal budget can be brought under control.

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Mr Bowen on Monday gave evidence before a Senate estimates hearing in Canberra on the medium and long-term risks for the Australian economy.

“The requirement for fiscal consolidation certainly exists,” Mr Bowen said.

“This is not a situation we can continue to live with over the longer term.

“Increasing debt risks crowding out private sector investment and negatively impacting economic growth.”

He said the international economic outlook was “at the very least, uncertain” and a further fall in the terms of trade would affect the budget.

Labour productivity was also a concern, given that over the past 30 years it had rarely risen above the long-term average of 1.5 per cent.

He said the mid-year fiscal and economic outlook projection of payments falling to 24.7 per cent of GDP assumed there would be no new net spending over the next decade.

But this ran counter to “public expectations of continuing improvements in government services”.

Over the past 13 years, policy decisions by government have on average added two per cent of GDP annually to payments.

Mr Bowen said payments projections included unlegislated savings amounting to $18.9 billion in 2024/25.

If the savings were not achieved, projected net debt in 2024/25 would rise from 4.7 per cent projected in MYEFO to 9.5 per cent of GDP.

“The medium-term outlook is vulnerable and history shows that significant economic downturns can impact quite quickly and materially on the budget and have fairly long-lasting impacts,” Mr Bowen said.

He said there was “little or no fiscal buffer” for the government and any downturn would put further pressure on debt.

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