The Intergenerational Report is prepared by the Treasury, on behalf of the Commonwealth Treasurer, every three years. Taken at face value, the report is intended to assess the sustainability and equity of government budgets.
It assists in the reduction of fiscal pressures over the longer term by identifying and addressing areas of unsustainable rates of growth in expenditure and government debt - or so Treasury claims.
The latest IGR, released yesterday, makes the case for implementation of the 2014-15 budget measures proposed by the Abbott Government - a plan that Treasurer Joe Hockey asserted will get the Budget on track to a sustainable surplus, if fully implemented.
The report sets out three policy scenarios and their projected impacts on the Budget, net debt and spending growth:
- The 'previous policy' scenario is the 'worst case' option, and shows projections based on the policy settings in place prior to the 2014-15 Budget. Under this scenario, the underlying cash deficit would reach 11.7 per cent of GDP in 2054-55, and net debt would reach almost 122 per cent of GDP ($5.6 trillion in today's dollars).
- The 'currently legislated' scenario shows a set of projections on the basis of laws currently passed by Parliament but without the implementation of still pending legislation from last year's budget. Under this scenario, the underlying cash balance is projected to remain in deficit, deteriorating to almost six per cent of GDP by 2054‑55. Net debt is projected to reach almost 60 per cent of GDP ($2.6 trillion in today's dollars) by the end of the projection period.
- The 'proposed policy' scenario is based on a full implementation of the government's proposed policies. Under this scenario, the underlying cash balance would improve to a surplus of 1.4 per cent of GDP in 2039-40, and then moderate to a surplus of around 0.5 per cent of GDP in 2054-55. Net debt is projected to be fully paid off by around 2031-32.
The first two scenarios, respectively, project major deteriorations in the Budget position.
The third scenario shows that the Government's current set of policies would bring the Budget back to a sustainable path over the medium to long term. However, as commentators such as ANZ senior economist Cherelle Murphy have noted, this scenario is now unfeasible, given some of the 2014-15 Budget and MYEFO measures have been watered down or abandoned after a political and community backlash.
The government, nevertheless, said it was "open to alternative measures to bring the Budget back to surplus".