Australia’s current fiscal policy is “on the wrong path” and changes are needed to ensure public debt remains manageable, according to HSBC.
A new HSBC report authored by chief economist Paul Bloxham and economist Daniel Smith noted that Australia’s public debt has risen from a net asset position of 4 per cent to 18 per cent over the last eight years.
“Although public debt is still much lower than the advanced economy average of around 75 per cent of GDP, it has risen by more than in any of the nine countries with triple-A ratings, despite the Australian economy outperforming the rest,” the study said.
This could be put down partially to budget deficits, with the government debt’s current trajectory becoming “worrisome”.
Additionally, tax revenues have been consistently lower since the global financial crisis than their pre-2008 levels, HSBC noted, adding that public spending has remained high over the same period.
“The fiscal boost following the global financial crisis proved to be more permanent than anticipated and spending on health and other social benefits has increased,” the bank said.
HSBC pointed to the recent downgrade to Australia’s credit outlook by global ratings agency Standard & Poor’s from ‘stable’ to ‘negative’.
Current government projections indicate an ageing population and subsequently increased public expenditure on health and pensions, and HSBC said reform is needed to support spending and the economy.
“To get back to a sustained budget surplus, policy changes are needed that would deliver more tax revenue or reduce the government’s medium-term spending commitments.”