The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Wayne Swan

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

1 February 2010

NO.008

Intergenerational Report Highlights Fiscal Pressures

The Australia to 2050: Future Challenges reportshows that population ageing and escalating pressures on our heath system will put major pressures on the federal budget over the next 40 years.

Population ageing will place greater demands on government services, while escalating health costs driven by better technology and demands for higher quality health services over longer lifespans will add to these pressures.

Taking modest steps today to manage these pressures will avoid the need for much larger and more painful adjustments to the budget in the future.

Ageing and health pressures are projected to result in an increase in total government spending from 22.4 per cent of GDP in 2015-16 to 27.1 per cent of GDP by 2049-50. Rising health costs are by far the biggest contributor to these growing fiscal pressures, accounting for more than two‑thirds of the projected increase in spending.

At the same time, a slower rate of economic growth associated with an ageing population will reduce the capacity of Australia to fund these increased costs.

As a consequence, spending is projected to exceed revenue by 2¾ per cent of GDP in 2049-50. If further steps were not taken to close this fiscal gap over time, the budget would be in deficit by 3¾per cent of GDP in 2049-50 and net debt would grow to around 20 per cent of GDP.

The fiscal pressures outlined in this report add to a structural spending base which has already expanded significantly over the past decade, increasing the size of the adjustments required. Real growth in total government spending over the 2000s exceeded the spending growth experienced in any previous expansion. This locked in permanent increases in spending, compounding the fiscal pressures of an ageing population.

The Rudd Government has already started tackling key areas of long-term fiscal pressure, including changes to improve the sustainability of the Age Pension and family payment systems, as well as means-testing of the private health insurance rebate.

In total, the Government has delivered $56 billion in savings over two budgets.

The Government's fiscal strategy will also play a key role in meeting the fiscal challenges of an ageing population. Implementing this fiscal strategy will result in a permanent structural improvement in spending of around 1 per cent of GDP and help place the budget on a more sustainable footing. This is a significant first step in delivering the structural adjustments needed to ensure long‑term fiscal sustainability.

Demonstrating the strength of this commitment, without the Government's fiscal strategy, the fiscal gap would grow to around 3¾ per cent of GDP in 2049‑50 (rather than 2¾ per cent of GDP), and the budget would be in deficit by around 7¼ per cent of GDP (rather than 3¾ per cent of GDP).

Australia to 2050: Future Challenges shows clearly that Australia faces serious long-term fiscal challenges. That's why the Rudd Government is so determined to implement our fiscal strategy so that we can leave a stronger, more sustainable economy to future generations.

CANBERRA
1 February 2010