Australia’s consolidated government accounts bring together federal, state and local governments spending and revenue statistics, removing internal grants and transfers. This gives the most complete picture of the nation’s fiscal position. The spending trends outlined in this report highlight that Australia’s fiscal system is inconsistent and inflexible. It is arguably ill-suited to meet the fiscal challenges ahead. The challenge is not the prospect of an imminent debt crisis, but instead a question of efficiency and fairness. 

Australia needs a fiscal system that is resilient to shocks and flexible to changing circumstances. To achieve this requires an engaged public and credible independent analysis of the stance of fiscal policy. Without change, consolidated debt could reach levels far higher than today, limiting fiscal space. However, with reform, Australia can preserve its strong starting position, safeguard equity across generations and maintain the high-quality services that underpin its long-run prosperity.

The analysis in this report points to six potential issues in current policy setting processes: poorly understood baselines, incomplete fiscal rules, short-termism, piecemeal approaches to progressivity, value for money challenges, and the need for greater responsibilities among independent fiscal institutions.

The report is provided with insights from consolidated government accounts and an appendix.

Key findings

• Australia’s fiscal challenges are getting harder. Over two decades, the overall budget position – state and federal – has slipped into sustained deficit. 
• Debt is higher after two global shocks, and governments have struggled to rebuild fiscal buffers for the next one.
• With renewed pressures ahead, Australia’s fiscal options are narrowing. The nation’s capacity to weather future shocks, and fairly share burdens across generations, is at risk.
• On a consolidated basis, Australian governments have been running a combined deficit in the fiscal balance every year since the Global Financial Crisis in 2008.
• Persistent consolidated deficits highlight the importance of including states, territories and local governments in the discussion around fiscal sustainability.
• Persistently weak productivity growth and population ageing are set to continue to drive up government expenditure as a share of national income unless something changes.