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For the Financial Times graduate trainee programme.
This is an edited version, for length & clarity, of an original piece written in 2015.


This week saw the release, to intense fanfare, of the 2015 Intergenerational Report on government debt. Its high profile might have surprised connoisseurs of previous Intergenerational Reports, except that there aren’t really any: the 2010 report got almost no coverage at the time of its release.

The difference is that prime minister Tony Abbott and his treasurer, Joe Hockey, think the new IGR (as it’s known) could help them push back against the intense unpopularity of last year’s budget. One hint of that is in the forewords, written by the treasurer of the day. In the 2010 report, Labor’s Wayne Swan fairly neutrally noted the deficit as a challenge “not beyond a nation like ours”. Hockey, by contrast, criticises the previous government and includes a chart on which one projection ominously shows the debt burden approaching Greece’s.

Another is that where previous reports presented a single forecast based on the law of the day, this year’s has an alternative projection showing the benefits of the budget legislation the government is trying to push through.

For all that rhetorical change, however, the projections have barely moved in the last five years. In 2010, federal education spending was expected to grow to 1.9% of GDP on them by 2050; it’s now projected to be 2% in 2055. The story is similar across the board: projections for pension spending have shifted from 3.9% of GDP to 3.6%, for aged care from 1.8% to 1.7%, for healthcare from 7% to 7.1%.

It’s hardly a tale of dramatic change in the budgetary position. The government is highlighting the headline shift: in 2010, total government expenditure was forecast to reach 27.1% of GDP in 2050, and the new figure is notably higher at 31.2% in 2055. That comparison, however, conceals a vital change in method: the 2015 number includes interest payments on government debt, where the 2010 IGR does not.

Close inspection reveals that these interest payments are doing all the work in Joe Hockey’s narrative. The current projection of a government deficit of 5.8% of GDP looks much worse than the 2010 report’s 3.75% overall deficit, but the primary deficit – excluding interest payments – has actually improved modestly, from 2.75% of GDP to only 2.4%.

What’s changed since 2010 is that projected interest payments are higher, because deficits between then and now have been higher than expected. This is not mostly a story about the future, but about the recent past. Those interest payments do matter, but they’re no evidence that the long-term cost of government services is spiralling, or in need of dramatic cuts like those the government has proposed.

If there’s an argument for cuts here, it’s simply that deficits under the last government were too high. That, of course, is the same line Abbott and Hockey have been using for the last five years. Their attempt to present this Intergenerational Report as dramatic new proof boils down to a sleight of hand.