Overview

Australian Government spending grew 27 per cent faster in real terms than the annual rate of growth of real GDP over the decade 2002-03 to 2012-13. Spending growth averaged 3.8 per cent annually while GDP growth averaged 3.0 per cent annually.

In the first half of the decade, from 2002-03 to 2007-08, government spending grew in real terms by 13 per cent more than the annual rate of growth of real GDP. Growth in spending averaged 4.0 per cent annually while GDP growth averaged 3.6 per cent annually.

The rate of spending growth in the second half of the decade initially accelerated due to the fiscal stimulus measures adopted to combat the effects of the global financial crisis. These measures had been withdrawn by 2012-13.

While growth in real GDP slowed to 2.4 per cent annually over the period 2007-08 to 2012-13, underlying spending grew in real terms by 3.6 per cent annually or 47 per cent faster than the annual rate of growth of real GDP.

The largest contributors to growth in spending over the period from 2002-03 to 2012-13 were social security and welfare, and health. Together, spending on these items accounted for over one half of the growth in total spending over the period.

Social security and welfare spending contributed one third of spending growth and contained four of the major program contributors to overall spending growth over the period: the Age Pension, the Disability Support Pension (DSP), Family Tax Benefit, and Aged Care.

Health spending contributed a further 19 per cent of total spending growth due mainly to higher spending on the Medicare Benefits Schedule, and increased payments to the States and Territories for public hospital services under the National Health Reform payment.

Ten programs accounted for more than half of the real growth in spending over the decade.

The Age Pension made the largest contribution accounting for 11 per cent of total spending growth, mainly due to increases in the pension rate and growing pensioner numbers.

Payments under the Medicare Benefits Schedule contributed over 6 per cent of total growth, driven by the increased demand for and cost of Medicare services.

Goods and Services Tax (GST) payments to the States and Territories, despite the slow growth in GST revenue, contributed 6 per cent of total spending growth due to the large size of this program.

Public debt interest accounted for over 5 per cent of the growth in total spending, due to the budget deficits accumulated from 2008-09, as well as the financing of equity investments in government corporations such as NBN Co and the Clean Energy Finance Corporation.

The DSP contributed 5 per cent of the total spending growth driven by increases in the rate of the pension and increases in the number of recipients.

Defence spending, including net capital investment, accounted for almost 5 per cent of total spending growth, driven mainly by long term funding commitments arising from Defence white papers.

Aged care contributed over 4 per cent of total growth driven largely by increases in the number of government subsidised aged care places, and increases in the cost of care.

Family Tax Benefit accounted for almost 4 per cent of total spending growth due largely to increases in benefit levels.

Government superannuation benefits contributed more than 3 per cent of total spending growth. This was mainly due to the impact of lower discount rates used to value the superannuation liability, reflecting lower bond yields, particularly in 2012-13.

The National Health Reform payment accounted for 3 per cent of total spending growth driven by increased base funding by the Commonwealth and the impact of indexation factors.

Government spending includes funding provided to the States and Territories. Over the decade this funding grew in real terms by 2.8 per cent annually, slower than annual growth in real GDP of 3.0 per cent, and slower than Commonwealth own-purpose spending which grew at 4.1 per cent annually.

The composition of the funding provided to the States and Territories changed over the period. The proportion of funding provided as general revenue assistance declined from 64 per cent in 2002-03 to 56 per cent in 2012-13, reflecting a reduction in the proportion of flexible funding and an increase in the proportion of funding provided under specific agreements with the Commonwealth Government.

Download the full report above.