Attractive solutions won't buy that much money: John Daley, the Grattan Institute chief executive.
Australia faces a decade of budget deficits with the annual total set to pass $60 billion in 2023 unless governments take tough action to "share the pain", an expert panel has warned.
The Grattan Institute's assessment comes as Treasurer Wayne Swan confirms the budget has taken a $7.5 billion hit since the midyear update in October.
He told the ABC from Washington: "We have seen the terms of trade come down but the dollar didn't move. That's caused a hit, if you like a sledgehammer, to revenues in the budget since the midyear update of something like $7.5 billion. And of course the impact won't just be in this financial year. It will also be across the forward estimates."
Treasurer and Deputy Prime Minister Wayne Swan. Photo: Andrew Meares
The institute says that while notionally on track to surplus now, the combined state and federal budget deficits should reach 4 per cent of gross domestic product by 2023, which is about $60 billion in today's dollars and would be about $100 billion in 10 years' time.
"Initiatives such as the national disability insurance scheme, the education reforms, direct action on climate change and parental leave are only a small part of it," the chief executive John Daley said.
"The big driver, costing $30 billion, is extra spending on health. Contrary to popular belief the extra spending isn't being driven by ageing. It's that compared to 10 years ago, today's 60-year-olds see the doctor more often, have more tests, face more operations and take more drugs. We are getting something out of the extra spending, more people are staying alive, but the question is, who is going to pay for it?"
The institute believes welfare spending will have to rise because the Newstart unemployment allowance is unsustainably low.
It says company tax revenue, mining and carbon tax revenue and general tax takings will slide - as a proportion of the economy - as the price of exports slips.
"The problem is the attractive solutions won't buy that much money," Mr Daley said. "Cutting middle-class welfare won't be enough. Australia doesn't have that much. Even if you axed the baby bonus, the schoolkids bonus and parts of Family Tax Benefit B that go to high earners you'd only make $4 billion.
"Eliminating government waste won't help much either. Axing the Commonwealth departments of education and health might save the wages of 5000 public servants, but that's only around half a billion.''
The institute says the gap can be closed only by higher taxes, meaning the days of "painless" budget fixes are over. "The places to look are company tax and company tax concessions, income tax and goods and services tax. The old idea that you can introduce a change with no losers (at least none earning less than $100,000) won't work.
"Everyone will have to share the pain. Victoria's Kennett showed what could happen in the early 1990s. It was explicit about saying that everybody was going to have to share in bringing the budget back into surplus."
A spokesman for Mr Swan said new spending on schools would be funded by cutbacks in other areas. The government had tackled health spending by means-testing the private health insurance rebate and cutting the dental scheme.
Mr Swan told the ABC he would not use savage cuts to make up for a shortfall in the budget next month. "That would not support jobs and growth and it would lead to higher unemployment," he said.