Australia taxes and spends less than most comparable developed countries, while essential services remain underfunded. Restoring the budget and meeting future needs will require more revenue.

We are living in difficult times, buffeted by stubborn inflation, rising interest rates and a slowing economy.

At present, however, we are relying too heavily on increasing interest rates to get inflation down. With an underlying budget cash deficit of $22.3 billion, or 0.8 per cent of GDP, a clear priority for fiscal policy should be to get the budget back into balance on a structural basis.

That would also spread the burden of fighting inflation more fairly. The present reliance on higher interest rates means that this burden largely falls on the one-third of households with a mortgage and businesses with a loan. The spending power and living standards of the other two-thirds of all households are much less affected.

But that then raises the question of how best to get the budget back into balance. Should we rely on cutting expenditure, or should taxation be increased?

The opposition insists that our economic problems are all due to Labor spending too much. This year, Australian government payments were projected in the most recent budget to represent 26.8 per cent of GDP – the highest level, except for the two Covid years, in the last 40 years.

However, this higher level of government expenditure can be entirely explained by the ageing of the population. For example, if we go back to the first Intergenerational Report released by the Howard government back in 2002, we find that in that report demographic factors were forecast to lift government spending by 2.2 per cent of GDP by 2026-27, and that demographic lift more than accounts for the increase in government spending relative to GDP in........

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