2014-15 federal budget overview

Government debt was one of the fiercest topics of debate in the lead-up to the 2013 federal election. While Australia compares favourably with most developed countries in this area, long- term projections raise some cause for concern.

The biggest risk is the trajectory of the federal budget, with rising deficits and slowing economic growth. Large deficits have the potential to raise the level of government debt and threaten the financial security of the nation. This includes the coveted AAA credit rating.

Budget overview

Within the budget, deficits are forecast over the next three financial years. These follow adjustments to government economic forecasts to account for economic weaknesses, including a decline in mining capital expenditure and slower economic growth in China. The 2014-15 federal budget detailed a number of cuts to government programs and increases in some taxes to achieve a lower deficit than in 2013-14.

In addressing the budget situation, the government has aimed to balance changes with the weaker economic forecast for the next few years. This has necessitated more-effective spending programs to stimulate the economy and some controversial tax adjustments to fund the spending and balance the budget. A temporary budget levy of 2.0 per cent on incomes in the top tax bracket is forecast to raise an additional $3.1 billion for the government.

The levy will expire after three years, returning the top tax rate to its current level. An increase in the fuel excise levy is forecast to raise an additional $4.0 billion over the four years through 2017-18.

The levy has been frozen at 38.1 cents per litre for 13 years and will now be indexed to the CPI with biannual increases. Cuts to foreign aid and co-payments for access to some medical professionals and medicines are expected to reduce government expenditure, while an increase in infrastructure funding is anticipated to stimulate the economy.