Budget pressures are piling up: Treasury boss
The senior treasury official said compounding challenges, such as climate change, an aging population and geopolitical tensions, are putting pressure on public finances and risk lowering living standards.
Treasury Secretary Stephen Kennedy said the budget was under pressure on several fronts, with productivity expected to decline, revenue sources unstable and spending only expected to rise.
He flagged climate change as a major challenge.
“We will have to make, particularly in this country but in others, the most significant energy transition we have seen in generations,” he told a Parliamentary Budget Office conference in Canberra on Thursday. .
Dr Kennedy said adapting to climate change would also strain the economy and the public purse.
“And mitigation won’t just mean a few better bridges and a few better roads, it will mean building community resilience to adapt to being constantly challenged by a more energetic climate system,” he said.
He also said geopolitical conflicts and tensions are also causing economic turmoil, with the war in Ukraine being largely responsible for the spike in the cost of living.
“It’s hard to remember when electricity prices were supposed to go up 50% over two years,” Dr Kennedy said.
Australia’s aging population is also driving demand for government services.
“I have never seen so many requests for government services as I see today.”
He said this was reflected in the budget, with spending at Commonwealth level standing at around 27% of GDP – more than the 25% of GDP usually collected from taxes.
He said this raises questions about how much taxpayers should contribute to fund these services and the scope of these services.
Over the past few months, the budget result has received an unexpected boost thanks to soaring commodity prices.
The trend continues, with iron ore and gas exports pushing Australia’s trade surplus to $12.4 billion higher than expected in September.
The goods and services balance increased by $3.8 billion, as exports rose 7%. Imports remained stable, increasing by only 0.4%.
In August, the trade surplus was $8.3 billion, as measured by the Australian Bureau of Statistics.
The rise in exports was led by the other mineral fuels category, including liquefied natural gas, which rose 19% for the month.
“LNG contracts are typically pegged to Brent Crude prices with a three-month lag, so September strength mirrors the June oil price rally,” said JP Morgan’s Jack Stinson.
He said lower crude Brent prices would likely lead to lower LNG exports in the coming months.
The data also revealed more Australians traveling overseas than tourists arriving in Australia, with tourism exports up 12% and tourism imports up 3.4% for the month.
Craig James of CommSec described Australia’s trade performance as “a nice problem to have”.
“Demand for our commodities is soaring and our trade surplus remains large,” he said.
“Dollars are pumping into the economy at a time when the Reserve Bank is trying to slow growth in activity, income and spending,” he added, meaning interest rates will have to work harder to slow activity and bring inflation under control.
The growth in imports also suggested liberalization of supply chains and higher prices.
“Overall, the business situation is good news. Another reason the Reserve Bank Governor wouldn’t want to be in charge of another country’s central bank,” Mr James said.