Treasurer Joe Hockey has foreshadowed a shocking new report on Australia’s economic future.
The five-yearly Intergenerational Report will reveal the challenges of the next 40 years, including an ageing population that will need better health and aged care.
In a speech on Thursday, Mr Hockey warned Australians would “fall of their chairs” when the report is handed down.
The Abbott government has consistently argued that paying down the nation’s debt is crucial to a sustainable future.
With the next May budget just 12 weeks away, Treasurer Hockey is under intense pressure to strike an acceptable balance between unpopular cost cutting measures and stimulating a sluggish economy.
It will have to be a budget that doesn’t upset voters too much given the slump in consumer sentiment after his first effort last year.
His backbench will also be closely watching his every move given its recent unrest over the government’s leadership.
Now one of the world’s leading credit rating agencies has thrown its thoughts into the mix.
US financial services company Standard & Poor’s has warned that Australia’s national debt must not continue to grow.
In an interview with the Wall Street Journal, S&P sovereign analyst Craig Michaels expected government debt to rise above 20 per cent of gross domestic product in coming years.
He warned Australia’s AAA credit rating would come under “direct pressure” if debt moved closer to 30 per cent.
In December’s mid-year budget review, Mr Hockey estimated government debt at 23 per cent of GDP in 2014/15, rising to 26.1 per cent by 2016/17, then 26 per cent in 2017/18.
However, JP Morgan strategist Sally Auld estimated the budget was already in a worse position than envisaged in December.
“Still declining commodity prices mean government revenues are under pressure,” Ms Auld said in a note to clients.
A difficult political environment has also hampered the government’s ability to legislate cost savings.
Mr Michaels said there was a “bit of wriggle room” from a ratings perspective given that debt is still relatively low.
“But we will still be looking to see ongoing restraint in spending growth,” he said.
Reserve Bank governor Glenn Stevens also warned last week that Australia faces a “significant problem” should debt growth continue on its current trajectory.