The Australian Parliamentary Budget Office (PBO) has recently released the report, Fiscal sustainability: Long-term budget scenarios. The report examines the sustainability of the Australian Government’s fiscal position by calculating future paths for debt under various scenarios for GDP growth, interest rates and the budget balance. The report modelled scenarios for future debt for the 25 years after 2030-31 to assess if the fiscal position is sustainable.

Findings include:

  • The COVID-19 pandemic and the associated policy response will result in the largest Commonwealth Government debt since the Second World War, over 50 per cent of GDP.
  • With 27 different combinations of three factors (GDP growth; interest rates; and the budget balance), the modelling shows that the fiscal position is sustainable, with debt reducing in time, although this will require governments to continue to increase revenue and/or contain spending to return the budget balance to the average levels recorded over time.
  • Under the ‘middle’ scenario, debt steadily falls after 2030-31. The ‘best case’ scenario (low interest rates, high GDP growth and small budget surpluses) results in the debt being largely eliminated. The ‘worst case’ scenario (high interest rates, low GDP growth and a higher-than-average budget deficit) results in debt falling before slightly increasing later.

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