The Turnbull Government has today announced the Budget will include important changes to improve the way the Commonwealth’s capital and recurrent spending is presented and the impact this will have on government debt.
These changes will define the difference between Commonwealth spending on vital infrastructure and assets that will boost our economy and provide future income, and the debt incurred from everyday spending.
This will be achieved by reporting the net operating balance alongside the underlying cash balance. The underlying cash balance does not differentiate between recurrent spending and investment in productive capital, including infrastructure. The net operating balance helps to make this distinction.
This year’s Budget will also assign the level of Government debt across individual areas of Government spending. This will allow us to better understand what areas of government spending are driving the growth in our public debt.
Currently, when increases in spending are proposed, the public debt implications are considered separately. Our measure will begin the process of changing this spending culture, ensuring portfolios will be held responsible for the debts they are incurring for future generations as a result of their spending.
Australians understand that taking out a mortgage to pay for their home can be a wise investment for their future. But they also know that going into debt by using their credit card to pay for everyday expenses is not a good idea.
The same principles apply to Government.
At the same time, the Government remains committed to investing in a strong economy that can provide jobs and opportunities for Australians. The Turnbull Government’s investments in infrastructure and other important capital will provide returns that will be enjoyed by future generations of Australians. This is why it is important we think about these investments in a different way to recurrent spending.
This change will bring us into line with the States and Territories and key international counterparts like New Zealand and Canada, which report on versions of the net operating balance.
The underlying cash balance will continue to be the key measure reported in the budget papers. It remains the basis for the Turnbull Government’s fiscal strategy of achieving a sustainable budget surplus as soon as possible.
The Government will provide further information on this change in the Budget.