Treasurer Jim Chalmers will have to find up to $31 billion in budget savings over the coming decade to offset the medium-term cost of the government’s planned fleet of nuclear-powered submarines while also making space for the surging expense of other programs.
The headline total cost of the 32-year plan, at between $268 billion and $368 billion, dwarfs the size of most spending programs or major infrastructure projects. The initial shock of this huge figure, however, abates once you consider the long period over which the submarines are to be built.
The government estimates that over the budget forward estimates – between 2023-24 and 2026-27 – the project will cost $9 billion. Of that, it says it has already offset $6 billion, as it is not proceeding with the abandoned French Attack-class submarine project.
The remaining $3 billion, Deputy Prime Minister Richard Marles confirmed on Tuesday, will come out of the Defence Department’s long-term investment program.
But over the decade to 2032-33, the budget space gets tougher.
The government estimates the project will cost between $50 billion and $58 billion out to 2032-33. Of that, it has saved $24 billion by not going ahead with the French submarines (the cost of which had already been baked into the budget).
Treasurer Jim Chalmers and Finance Minister Katy Gallagher will need to find up to $31bn in savings in the medium term to pay for submarines.Credit:James Brickwood
Factor in the $3 billion from the Defence budget, it leaves Chalmers and Finance Minister Katy Gallagher having to find between $23 billion and $31 billion in savings between now and the early 2030s.
While substantial at $58 billion over the coming decade, and considering the notorious difficulty of bringing a Defence project in on budget, the submarines will be well short of the government’s costliest programs.
The age pension is forecast to cost a cumulative $800 billion over the coming decade, with the National Disability Insurance Scheme not far behind at $695 billion. The interest bill on the federal government’s gross debt is forecast to cost more than $500 billion over the coming decade.
Annual health costs are expected to increase by 58 per cent with the cumulative bill for Medicare and the Pharmaceutical Benefits Scheme for the next decade is $660 billion.
The annual cost of aged care services is expected to climb by 83 per cent to more than $54 billion by 2032-33, school funding is tipped to rise by 46 per cent while public hospital costs are expected to lift by 75 per cent. One of the slowest growing areas is foreign aid, which long-term budget forecasts are expecting to reach $5 billion a year in 2032-33, a 25 per cent increase from this year.
The NDIS is the government’s fastest-growing expense. Its annual costs are expected to grow by 185 per cent over the coming decade to almost $100 billion by 2032-33. The second-fastest growing expense is the budget’s interest bill, which is on track to grow by 175 per cent to almost $72 billion in a decade’s time.
Economist Chris Richardson, a respected budget watcher, said the submarine project just added to the issues facing the budget.
He said defence, along with services such as aged and health care, would all put pressure on the government to find both further savings and new revenue sources.
“It’s a very deep hole, and we’ve only got a pretty small spade to fill it in,” he said.
“The cost of running Australia has gone up. We know the social costs have increased, and we’re getting on top of that, and we also now know the cost of protecting it has gone up.”
While the submarines, along with all these other programs are expensive, the government is also collecting an ever-increasing pot of revenue. The two biggest sources of tax are from individuals and companies.
Economist Chris Richardson says the budget is in a deep hole and the government only has a small spade to fill it.Credit:Alex Ellinghausen
This year, the nation’s workers will pay about $286 billion in income tax and, over the coming decade, will funnel an estimated $4.2 trillion in revenue to Canberra’s coffers including $500 billion in 2032-33. Those forecasts include the $254 billion, 10-year stage three tax cuts to which Chalmers said the government remained committed.
If personal income tax collections grow in line with expectations, by the early 2050s Australians will be handing over almost $2 trillion a year to the ATO.
Company tax collections over the decade are roughly forecast to deliver a cumulative $1.5 trillion in revenue.
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