19 Dec 2016

The Federal Government will be saying a silent thank you today to China, for helping to strengthen commodity prices– and especially iron ore and coal – over the past six months.

The significant jump in the terms of trade, which is now forecast to rise by 14% in 2016-17, rather than the Budget time forecast of just 1¼%, has helped to offset the much poorer-than-forecast growth, inflation, employment, wages and participation outcomes. As a result, this year’s Budget deficit comes in a tad better than expected.

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But the good news ends there. The Budget will be $10 billion worse off in the three following years, and the tiniest of surpluses will only be delivered in 2020-21 by a great stroke of luck.

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While talk of a ‘Banana Republic’ is well wide of the mark, Australia faces some tough choices in the years ahead if we are not to head down a path of deeper debt and lower credit ratings.

Cutting expenditure, where this can be done equitably, is one solution, but a difficult one for politicians, particularly given the make-up of this Parliament.

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But the truth is, we already know what we need to do - we just need the political will from governments at all levels to do it.

Stimulating growth through productivity is another sensible measure. At the request of the Government, the Productivity Commission is currently inquiring into ways to improve Australia’s productivity performance as part of what will become a regular 5-year review, much like the Intergenerational Report.

But the truth is, we already know what we need to do. Investment in hard and ‘soft’ infrastructure, removal of duplicative regulations, improving planning and increasing density are just some of the ways to lift productivity – we just need the political will from governments at all levels to do it.

Australians also need to get better at user pays policies. A more transparent tax system might help people to better understand where their tax dollars go – and what they would need to forfeit if we were to cut tax rates.

There is another measure that will help Budget performance over time – that is to make sure that we properly evaluate all policies, programs and investments

Critically, there is also another measure that will help Budget performance over time – for all levels of government. And that is to make sure that we properly evaluate all policies, programs and investments with a robust and transparent framework. This will help governments makes better informed decisions and help them to better articulate the reasons for their actions to the electorate.

Urbis helped design such a framework for infrastructure assessment for the WA PCA – Keep WA moving. We also regularly undertake combined social and economic evaluations and cost benefit and cost effectiveness analyses of programs and investments, to help our clients understand the true financial, social and environmental impacts associated with government spending, as well as what works.

Nicki discussed this topic on CNBC today (19 December). See and watch more here.

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