Budget pressures piling up: Treasury boss

November 03, 2022 03:11 PM AEDT | By AAPNEWS
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Treasury's top official says compounding challenges, such as climate change, an ageing population and geopolitical tensions, are putting pressure on government finances and risk pushing living standards backwards.

Treasury secretary Stephen Kennedy said the budget was under pressure on multiple fronts, with productivity expected to decline, revenue sources unstable and spending only expected to grow.

He flagged climate change as one major challenge.

"We will have to do, particularly in this country but in others, the most significant transition of energy we have seen in generations," he said at a Parliamentary Budget Office conference in Canberra on Thursday.

Dr Kennedy said adapting to climate change would also drag on the economy and the public purse.

"And mitigation won't simply mean a few better bridges and a few better roads, it will mean building resilience in the community to adapt to constantly being challenged by a more energetic climate system," he said.

He also said conflict and geopolitical tension was also driving economic turmoil, with the war in Ukraine largely responsible for the soaring cost of living. 

"It's hard to remember when electricity prices were being forecast to rise by 50 per cent across the course of two years," Dr Kennedy said.

Australia's ageing population is also driving demand for government services.

"I have never seen as many demands for the services of government that I see today."

He said that was reflected in the budget, with spending at the Commonwealth level settling at about 27 per cent of GDP - more than the 25 per cent of GDP usually collected from taxes.

He said this was raising questions about how much taxpayers should be contributing to funding these services, and how extensive these services should be.

In the past few months, the budget bottom line has been enjoying an unexpected boost from soaring commodity prices.

The trend continues, with iron ore and gas exports driving Australia's trade surplus to a higher-than-expected $12.4 billion in September

The balance on goods and services lifted by $3.8 billion, with exports soaring by seven per cent. Imports remained flat, lifting only 0.4 per cent.

In August, the trade surplus was $8.3 billion, as measured by the Australian Bureau of Statistics.

The export lift was led by the other mineral fuels category, including liquefied natural gas, which rose by 19 per cent for the month.

"LNG contracts are typically tied to Brent Crude prices with a three-month lag, so that September's strength reflects the rise in petroleum prices in June," JP Morgan's Jack Stinson said.

He said lower Brent Crude prices would likely drag LNG exports down in coming months. 

The data also revealed more Australians travelling overseas than tourists arriving in Australia, with tourism exports up 12 per cent and tourism imports up 3.4 per cent for the month. 

CommSec's Craig James described Australia's trade performance as "a nice problem to have".

"Demand for our commodities is soaring and our trade surplus remains significant," he said

"Dollars are being injected into the economy at a time when the Reserve Bank is trying to slow growth in activity, income and spending," he added, meaning interest rates will have to work harder to slow activity and tame inflation.

The growth in imports also suggested supply chains freeing up and higher prices feeding through.

"Overall, the trade situation is good news. Another reason why the Reserve Bank governor wouldn't want to be in charge of any other country's central bank," Mr James said.


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