National

Finance Department chief Jane Halton says public service cuts won't save budget

The woman in charge of reining in government spending says it is a myth that further cuts to the bureaucracy will create a surplus.

Finance Department secretary Jane Halton with her minister, Mathias Cormann.
Finance Department secretary Jane Halton with her minister, Mathias Cormann. Photo: Andrew Meares

Finance Department secretary Jane Halton also challenged public servants to help the government explain to the public why tough policy choices must be made to stop Australia spiralling into a debt crisis.

Ms Halton told a group of business leaders, economists and policymakers on Friday that Australia's ageing population was pushing the federal budget deeper into the red and, unless the government significantly reduced existing programs, it would be unlikely to post a surplus in the foreseeable future.

The belief that simply making the public service more efficient could "fix" the budget was misplaced.

"It's important for me to actually make a point about this because, in fact, evidence suggests that this [inefficiency] is not the major source and major driver of growth in government outlays," she told the Committee for Economic Development of Australia.

Departmental expenses - the government's running costs - were on track to fall to 6 per cent of total spending by 2017-18, down from 9 per cent a decade earlier, she said.

"So I think it is important to debunk what is a bit of a myth ... 'actually, if we just get efficiency of government working well, we could actually manage all of this'.

"We're actually a relatively small proportion of the spend," she said, referring to the public service.

Nor would a stronger economy in itself be enough to repair the structural budget deficit, Ms Halton said, because the ageing population was shrinking the relative size of the workforce too quickly.

And while efforts to encourage Australians to work longer would help, they, too, would be insufficient to counter rising costs.

Ms Halton, a former head of the federal Health Department, said tough decisions would need to be made on health spending and pensions in particular.

"We know that, for people over the age of 85, we spend about 20 times more in healthcare than we do on people aged five to 14," she said.

"There are also non-demographic factors driving this growth. Advances in medical technology: we can now treat and, indeed, cure things that we had not a hope of even five or 20 years ago.

"But it also means the maintenance of care of older people increases in cost.

"The reality is our lifestyles are driving an increase in cancer rates. And that means, if we can treat them, we should be able to give you a longer life, but it's going to cost us money."

Ms Halton said the tough policy changes needed to make Commonwealth spending sustainable would require "engagement and discussion with the community".

"We in the public sector have quite a lot to do, I think, in assisting government in producing an explanation to the community about why the circumstances are as they are, and why, if we don't address current issues around the structure of the budget, we will all pay in the longer term."