Federal budget will take another 15 years to return to surplus

Australia’s massive debt bill is unlikely to be paid back until 2056-57, but it’s not all bad news for the budget bottom line.

Australia’s budget bottom line has improved by about $20bn in just three months.

Australia’s budget bottom line has improved by about $20bn in just three months, according to a PwC analysis that shows it will still take another 15 years to return to surplus.

The modelling, commissioned by the Herald Sun, also reveals the federal government will need to cut taxes by about $8bn every year until 2027 to keep the total tax take under the strict limit the Coalition has set.

In the mid-year budget update, released in December, this year’s deficit was expected to be $99.2bn — a $7.4bn improvement since the budget was handed down last May.

PwC chief economist Jeremy Thorpe’s analysis shows that has now improved to about $80bn off the back of the unemployment rate falling to 4.2 per cent.

“That means you’ve got lower welfare payments and you’re getting higher income tax receipts, so it’s a force multiplier,” he said.

Australia’s budget bottom line has improved off the back of the unemployment rate falling to 4.2 per cent.

Mr Thorpe’s analysis — which did not factor in any new spending or savings measures — found the budget was not expected to return to surplus until 2036-37, with deficits of at least $20bn persisting for most of that time.

It also showed Australia’s massive debt bill would not be repaid until 2056-57. The mid-year budget update forecast net debt would hit $914m in 2024-25.

Mr Thorpe said Australia’s debt levels were not as problematic as those in other ­advanced economies, and if growth was strong enough in the years to come, the number would become “trivial and not even worth worrying about”.

“Our priority needs to be growing the economy,” he said, adding that while there was no need to rush back to surpluses, the government did need to outline “a trajectory to normalise the budget”.

Treasurer Josh Frydenberg will deliver a major speech on Friday outlining his fiscal strategy and the government’s long-term plans for budget ­repair ahead of its release on March 29.

Mr Thorpe also examined the government’s commitment to collect taxes only up to a cap of 23.9 per cent of the size of the economy, finding that limit would be exceeded by 2026-27 unless taxes were reduced by about $8bn a year.

He questioned whether the “artificially imposed target” was a good idea. “I’m not advocating more spending, but things that constrain flexibility unduly generally aren’t great things,” Mr Thorpe said.

A recent PwC survey of community attitudes found the most popular path voters wanted to see in the budget was for economic growth driven by lower taxes and extra government spending.

Originally published as Federal budget will take another 15 years to return to surplus