Editorial: Parkinson’s warning over government spending and debt rings alarm bells

The Albanese Government’s rhetoric about its Budget was heavily focused on helping young homebuyers.

Prime Minister Anthony Albanese and Treasurer Jim Chalmers moved to justify breaking promises made before the Budget about negative gearing and the capital gains tax by declaring changes were needed in the interests of creating “intergenerational equity”.

Homebuyers — including young buyers — had already been slugged by the Reserve Bank of Australia with three cash rate hikes this year when the Budget was handed down in May, which flowed through to higher mortgage interest rates.

There are still some fears that might not be the end of it.

The Reserve Bank has pulled the cash rate lever in a bid to take some of the heat out of the economy and rein in inflation.

Bank governor Michele Bullock has made it clear that one of the factors driving inflation is the impact of government spending.

There is another longer-term consequence too.

Government debt just keeps going up, pushing more and more of the payment burden onto future generations.

We were given another reminder of this on Monday by one of the nation’s most respected voices on the economy.

Martin Parkinson, who has held posts including Treasury secretary and secretary of the Department of Prime Minister and Cabinet, and served both Labor and coalition administrations, issued a blunt warning about the nation’s finances and the dangers of excessive spending and persistent deficits.

“I’m quite concerned about the approach to fiscal sustainability by all sides of politics,” Dr Parkinson said in an interview.

“It’s almost like debt is not an issue for anybody any more because the concern dissipated during the COVID crisis and nobody’s ever re-focused on it.

“Where we are in the economic cycle, we should be running significant structural surpluses, and yet we’ve got a structural, and headline, deficit.”

Dr Parkinson — chancellor of Macquarie University — said there was “a limited amount of real resources in the economy at any point in time”.

“If government spending, Commonwealth and State together, is increasing, then unless you’ve got unemployed resources in other parts of the economy, inevitably it has to force up prices, whether that’s of labour or materials.”

He expressed concern that the Federal Budget may not ever return to surplus unless changes were made.

“If we take the Budget papers as correct, it takes a decade to get back to a headline surplus,” he said.

“Even then, we get a surplus in part because of the assumptions on terminating expiring programs. But we know terminating programs don’t always terminate.”

Future generations would be left with the problem.

“We know we’ve got an ageing population . . . the tax burden per worker is going to go up if we want to avoid a fiscal crisis,” he said.

“So that means we are consuming today, and our children are going to pay for it with their tax burden,” Dr Parkinson said.

It is not the kind of future we would wish for our children.

The implications of Dr Parkinson’s warnings look a long way away from intergenerational equity.