Australia's on track for a decade of deficits

Analysis from the Grattan Institute shows Australian governments are heading for budget deficits of around 4 per cent of GDP by 2023, unless they can save $60 billion a year in today’s terms.

Structural changes in the economy are likely to leave governments across Australia facing budget deficits of around 4 per cent of GDP for at least the next decade, according to research released today.

The Grattan Institute paper, Budget pressures on Australian governments, suggests it could be a long time before Australian governments post a collective surplus.  

While the budgets of the Commonwealth and the states are forecast to be close to balanced within the next few years, our research shows flagging revenues and continued spending pressures have put them on track to post annual deficits of around 4 per cent of GDP within a decade.

The greatest pressure comes from sustained increases in health spending. Over the past decade, in real terms, governments spent an additional $43 billion on health. At this rate, government spending on health will rise by 2 per cent of GDP over the next decade. Contrary to popular belief, this is not primarily because of the ageing population but is driven by changes to the practice of medicine. Australians of all ages are seeing doctors more often, having more tests and operations, and taking more prescription drugs. They are living longer, better lives, but someone has to pay for it.

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