Back-pocket black hole

Official doubt over Budget’s reliance on wage lift

AUSTRALIA’S persistently low wage growth presents a “downside risk” to the federal government’s hopes of returning the Budget to surplus within four years, according to the independent Parliamentary Budget Office’s latest report.

And the $22 billion-a-year National Disability Insurance Scheme – scheduled to be fully rolled out within three years – risks a cost blowout as it reaches maturity.

The PBO, which was established in 2010 to provide costings for policies on the behest of politicians, also issues reports testing the rigidity of Budget forecasts.

Its report on the May Budget’s medium-term projections, released yesterday, notes that there is a reliance on a “sharp acceleration” in wages growth over coming years to help boost personal income tax receipts.

On Budget night, the government forecast wage growth of 3 per cent in 2018-19, climbing to 3.75 per cent by 2021.

It’s a stance seemingly at odds with Australia’s 1.9 per cent annual growth in pay packets, a record low that has been embedded since the September quarter of last year – a point not lost on the PBO.

“The significant slowdown in wages growth experienced in the past few years suggests that this projected increase is subject to downside risk,” it said yesterday.

The independent body, headed by parliamentary budget officer Phil Bowen, still expects the Budget to achieve a surplus of $6.3 billion by 2020-21 and remain in the black to 2027-28.

But achieving that will also require restraint on the spending side of the ledger, with the PBO’s projections assuming no further spending initiatives beyond those outlined in May.

“Experience over the past decade suggests that the fiscal restraint necessary to containing spending growth has been difficult to achieve,” it said.

By virtue of being in its early stages of inception, the NDIS faces the risk that “longer-term costs associated with the scheme may increase”. Equally, there was a “large degree of uncertainty” surrounding the future listing of drugs on the Pharmaceutical Benefits Scheme and on those due to come off patent, which could affect costs in either direction.