Australia’s debt burden is expected to cross the $1 trillion mark for the first time as welfare costs rise.
The Treasury budget documents have warned that rising national disability insurance and the cost of old pensions pose a particular challenge, with Social Security and Social Security spending making up a third of government spending.
Most of Australia’s pandemic spending was made when interest rates were low, but rising rates mean an increase in net interest payments on federal government debt.
Treasury noted higher recurring expenses on the NDIS and the retirement pension would be a particular burden on the budget for the next three years and beyond.
“The structural budget balance has deteriorated since the start of the pandemic, with a deficit expected to persist above forecasts and over the medium term,” it said.
Australia’s debt burden is expected to cross $1 trillion for the first time as welfare costs rise (pictured is treasurer Jim Chalmers)
‘This reflects the large investments in essential services that the government has made in recent years in areas such as NDIS and elderly care.’
The NDIS now supports more than 500,000 Australians with over 280,000 having recently joined the care program.
The plan, designed when Labor was last in government more than a decade ago, was expected to cost $166.6 billion over four years – an increase of $8.8 billion.
“This will provide funding for the expected growth in participants’ plans,” Treasury said.
With more people joining the NDIS, Labor has pledged to spend $158.2 million to hire 380 new permanent employees.
Treasurer Jim Chalmers told parliament that the government wants to make the NDIS more sustainable.
“We choose dignity for Australians with disabilities,” he said.
“This budget begins the task of repairing the NDIS and securing its future.”
The Treasury Budget documents have warned that rising national disability insurance and old pension costs have been a particular challenge, with social security and welfare spending making up a third of government spending (pictured is a Sydney nursing home)
Total disability expenditures were expected to increase by 9.6 percent between 2022-23 and 2025-26 as the cost for each individual on the NDIS increased by 18.6 percent.
“These increases largely reflect an increasing number of people with disabilities entering the NDIS,” Treasury said.
Treasury also expects increased demand for old age pensions to make up the bulk of new social spending over the next three years, with fewer Australians now needing unemployment benefits and pandemic leave.
Social Security and welfare spending was expected to cost $221.7 billion in 2022-23, representing about one-third or 35 percent of total government spending of $628.5 billion.
Since the start of the pandemic in March 2020, the federal government has borrowed $360 billion by issuing new government bonds through the Australian Office of Financial Management.
Australia’s gross government debt is expected to reach $1.004 billion in 2023-24, representing 40.8 percent of gross domestic product or economic output.
This was expected to rise to $1.091 trillion in 2024-25, accounting for 42.5 percent of GDP, and $1.159 billion in 2025-26, accounting for 43.1 percent of the economy.
Rising interest rates also mean it is more expensive for the government to pay off its debt.
Since the start of the pandemic in March 2020, the federal government has borrowed $360 billion by issuing new government bonds through the Australian Office of Financial Management (pictured is a cafe in Sydney)
An increase in interest payments also contributes to the higher payment profile in the medium term, due to the increased debt accumulated as a result of the pandemic, the Treasury said.
Net interest payments were expected to rise from 0.7 percent of GDP in 2024-25 to 0.9 percent of GDP in 2024-25, which Treasury said was manageable.
“Despite the significant fiscal costs of responding to Covid-19, the Australian government’s debt burden remains manageable and Australia still has lower debt as part of its economy than many other advanced economies,” he said.
“Australia is one of only nine countries with an AAA rating from all three major rating agencies.”
Labor’s Budget aims for $28.5 billion in savings or revenue improvements over four years.
“This budget begins the difficult task of restoring the budget and ensuring that fiscal policy does not increase inflationary pressures,” Treasury said.
In a bid to save money, Labor is abolishing the Australian Building and Construction Commission, a body created by a previous coalition government that unions have hated (pictured is a construction worker from Sydney)
This includes cutting $3.6 billion in outsourced outside contractors to the public service, raising $952.8 million over four years by cracking down on non-tax multinationals, and finding another $3.7 billion by tackling tax avoidance among Australians.
In an effort to save money, Labor is abolishing the Australian Building and Construction Commission, a body created by a previous coalition government that unions have hated.
This is expected to save $130.9 billion from 2022-23 to 2025-26.
From July 2023, Australians will no longer be allowed to self-assess ‘intangible’ depreciating assets on their annual tax returns, saving the government $550 million over four years from 2022-23.