Australia has a budget problem. No need for panic: there is zero possibility that we will default on our debts or require International Monetary Fund intervention any time soon. We are not in poverty. MP Clive Palmer has observed, correctly, that our debt is low by the standards of other advanced countries. The problem is that our budget position is getting worse, while that of other countries is improving. Even more worrying is that without policy changes our downhill slide will accelerate with each passing year.
As the Federal Treasury has been warning now for at least five years, the pincer of rising demands for government services coupled with revenues growing more slowly than needed to meet those demands creates a widening gap. We borrow to fund the deficit between spending and revenue. Debt repayments are the first call on spending — we repay debt before we spend anything else. All countries, except those that default, do this; otherwise lenders would stop lending. What it means is that as debt rises, spending on repayments rises, as a result increasing the deficit. It’s a vicious cycle that worsens over time. The Commission of Audit report has a compelling analysis of the problem (its proposed solutions are where the disputes arise).