This examination of growing off-budget spending by Australian federal and state governments warns that the practice sacrifices transparency and accountability to advance policy objectives. The author argues that by improving the appearance (but not the reality) of the budget position, the practice creates long-term fiscal risks that are not fully appreciated by government.

Off-budget spending involves transactions that don't directly affect the government's underlying cash balance but impact the headline cash balance. These transactions include loans and equity injections into government-owned corporations and investment vehicles. While the operational costs of some of these entities are included in the budget, their financing activities are not.

Key findings

• Australian governments are increasingly using off-budget measures to fund policy objectives.
• Off-budget activities obscure the true financial position of the government and reduce transparency.
• Off-budget spending contributes to higher debt and interest payments, potentially leading to higher taxes, which can reduce
  productivity and living standards. It also may exacerbate inflation.
• Many off-budget activities lack clear market failure justification and may lead to inefficient use of resources.

Key recommendations

• Quantify fiscal risks associated with off-budget activities and include them in budget papers.
• Itemise the components of revaluations affecting the general government sector in budget papers.
• Identify the public debt interest cost of budget measures in budget measure descriptions.
• The Parliamentary Budget Office and Treasury should analyse implications of off-budget activities for public finances.
• Develop a consistent standard for reporting concessional finance across government-owned entities.