Deficit to dwarf Kevin Rudd excess if nothing done

THE budget deficit will rise to almost 6 per cent of GDP by 2054 if the government gives up on its budget savings.

THE budget deficit will rise ­inexorably to almost 6 per cent of GDP by 2054 — more than double this year’s $40 billion deficit and larger than Kevin Rudd’s record 2009 deficit — if the government gives up on its unpopular and unlegislated budget savings.

A business-as-usual scenario — even assuming not a single new policy that boosts net spending — would see government net debt rise from 15 per cent today to ­almost 60 per cent of GDP, more than $2.6 trillion in today’s dollars. This would make Australia’s ­government significantly more indebted than those of Canada or New Zealand.

“If no changes are made to payment levels ... taxes would need to rise and remain at a sustained level of around 26 per cent of GDP,” the report said, noting the previous high was 24.2 per cent.

But if the government can pass its array of savings, including deregulating university fees and shaving the growth in social security payments, the budget will break even by the early 2020s and reach a peak budget surplus of 1.4 per cent of GDP in 2039.

INTERACTIVE: The InterGenerational Report

“This strong budget position would offer the government the fiscal space to prudently allow for future tax relief, over and above the relief from the negative impacts of income-tax bracket creep on workforce participation already allowed for,” the report said.

Even under the IGR’s more frugal scenario, the overall tax burden is assumed to rise to 23.9 per cent of GDP by 2021 — the average level between 2001 and 2008 — “largely” through bracket creep.

Within two years, workers on average full-time incomes (projected to be a little less than $80,000 a year) will have entered the second-top income tax bracket of 39 per cent.

The report also projects the average income tax rate for someone on the equivalent of $75,000 a year will increase from 22.7 per cent to 27.4 per cent by 2023.

Without further reform, spending as a share of GDP will exceed 31 per cent of GDP by 2054, exceeding the post-World War II high of 27.6 per cent.