Organisation for Economic Co-operation and Development Secretary-General Mathias Cormann has warned the Albanese government not to abandon “fiscal rules” as he sounded the alarm over Australia’s mounting debt.
A recent report from the OECD called on Labor to confront the growing pressures on the federal budget’s bottom line, declaring “longer-term fiscal pressures need to be addressed”.
The global economic forum suggested greater means testing should be implemented on several government programs, with the affordability of the National Disability Insurance Scheme also flagged as a major concern.
Speaking to The Australian, Mr Cormann – a former finance minister in three Coalition governments – said the report showed Labor needed to take action to rein in debt, while he also cautioned against widespread and ineffective subsidies through the government’s Future Made in Australia plans.
“Strong revenues from commodities, the revenue upside of population growth, as well as the positive revenue impact of bracket creep have helped Australia control its debt trajectory without severe austerity measures,” he said.
“However, looking forward, spending pressures on health and welfare continue to grow and debt servicing costs have risen.”
The soaring cost of the NDIS has sparked warnings from economists over its potential to worsen existing deficits and force future governments to divert resources away from other areas.
According to the OECD, a lack of means testing across the scheme, as well as for Labor’s first-home buyer support, energy bill rebates and universal student debt relief, meant government spending would likely continue to “balloon”.
In his mid-year economic update, Treasurer Jim Chalmers was forced to revise spending on existing programs upward by $47.8 billion as a result of cost blowouts for the NDIS, Labor’s home batteries scheme and childcare subsidies.
Speaking to media in the wake of the revisions, Mr Chalmers insisted “or focus is on the advice that we received overnight from the OECD”, although the Treasurer is yet to announce the introduction of further means testing across any of those programs.
In addition to concerns over means testing, Mr Cormann urged caution over the government’s plans to subsidise companies through its Future Made in Australia initiative.
Echoing warnings from critics of the policy about the dangers of trying to pick winners in the economy, the OECD boss said any handouts needed to be carefully considered.
“It is important that any such subsidies are well designed and don’t just distort competition, crowding out unsubsidised competitors, while causing a costly misallocation of limited resources funded by the taxpayer,” he said.
The government has already faced warnings from some economists over sluggish private sector growth, with poor subsidy allocation risking both further stalling growth as well as increasing pressure on the budget’s bottom line.