Debt deadline looms large in Treasury Secretary’s mind as poll spendathon spirals

The nation’s most senior finance official has warned that government spending is creating “long term pressures on the budget”, that will require “difficult trade offs” if the country is to remain resilient in an era of increasing political instability.

Treasury Secretary Steven Kennedy’s comments to Senate estimates come as uncosted election promises mount up, including an additional $8.5 billion for Medicare Sunday and today’s $3.3b for Victorian roads and rail. That is in top of the $2.4b commitment to save the Whyalla steel works last week.

So far in this quasi campaign, $32b in unaccounted for new spending has been promised, potentially contributing to a growing pile of debt that will surpass $1 trillion by 2026.

It’s piling deficits on to budget that is deteriorating by an extra $25b due “unavoidable and automatic” payments such as indexation to the aged and veterans pension, higher than expected uptake for childcare services, and further funding commitments for the Pharmaceutical Benefits Scheme and National Disability Insurance Scheme.

Big ticket promises that sound great in elections have a problematic habit of costing much more than intended. Dr Kennedy voiced concerns the National Disability Insurance Scheme and aged care were becoming long-term pressures.

“It’s important that we also continue to think about the growth rates of those areas, because those spending pressures are going to be important in taking pressure off the budget more broadly,” he said.

According to the most recent Annual Financial Sustainability Report, the NDIS was forecast to cost $210.3b over the four years to 2028, with the growth rate slowing from 23 per cent in 2022, to eight per cent by 2028. At that rate however, the NDIS was expected to nearly double in size in terms of new participants to one million patients and balloon is costs from from $58b a year in 2028 to $92b by 2034. In an admission that would surprise absolutely no-one, the report found the projected costs have regularly underestimated final payments.

An ageing population will also take a toll on the budget. The number of people aged 70 years and over in Australia will increase by around one million people every decade, and with growing lifespans, there will be 1.3 million people over the age of 85 in the next 20 years.

Government support for aged care sector is expected to almost double as a percentage of GDP in the coming decades according to the latest Intergenerational Report. Spending on health is expected to be 50 per cent larger.

The aged pension, according to the report at least, won’t grow a rapidly as health and aged care due to an increased use of superannuation.

Dr Kennedy warned it was time to face up to the spending cliff, but his plea will fall on deaf ears with the election on a tightrope.

“We may well be entering a period where the country has to focus on those expenditures, and to do that will require difficult trade-offs,” he said.

That was echoed by Australian Chamber of Commerce and Industry chief executive Andrew McKellar who declared that no one side of politics was “standing out more than the other” on spending and warned that “there has to be an accounting” for election promises.

“We may not get to the budget on the 25th of March as scheduled, but when we come out the other side of the election campaign, then we’re already in a situation where there’s a lot of pressure on the budget,” Mr McKellar told Sky News.

“If we get that wrong, it can only mean higher taxes in the future. It can only mean more pressure on interest rates.”

Both Dr Kennedy and Mr McKellar were talking about a future under the existing status quo.

But that is not the world we are entering into.

As Dr Kennedy’s boss, Jim Chalmers pressed the flesh in Washington, he warned that the rising geopolitical tensions caused by Donald Trump’s tariffs, as well his u-turn on US foreign policy would create a vastly more unstable world.

He warned of “profound economic consequences” for the Australian economy that “may dampen business investment, which will pose risks to both growth and employment.”

Then there is our largest trading partner, China. On Tuesday, the same committee heard Reserve Bank economist Sarah Hunter warn that China’s growth would increasingly slow as its population ages.

In the nearer term, just when the budget could do with a lift from Chinese spending, Dr Kennedy warned “US tariffs exacerbated existing concerns about how weak Chinese domestic demand and the ongoing property downturn in China could flow through to an already weak Chinese demand for Australian exports.”

Dr Kennedy also fretted about the impact Mr Trump’s embrace of Vladimir Putin, at the expense of Ukraine would have on Australia’s defensive capabilities, referencing the British Government’s decision to up defence spending by $27b (13.4GBP) a year by 2027.

“We have seen comments in the press from the UK Prime Minister about focus on defence. We may well be entering a period where the country has to focus on those expenditures,” Dr Kennedy said.

Dr Kennedy’s prophetic and alarming warning came amid an estimates hearing that was primarily devoted to pre-election point scoring from both parties. Often devolving into chaotic interjections, mud-slinging and occasional shouting, the hearing made for great Canberra theatre.

A pity, because the real battle is about to take place on a global stage.

“Looking around the world at the moment, one could hardly feel relaxed about the prospect for more shocks, even conflicts,” Dr Kennedy said.

Part of our resilience to these global shocks, he advised, is “ongoing fiscal sustainability.”