With today’s Mid-Year Economic and Fiscal Outlook expected to reveal a blowout in this year’s budget deficit from around $30 billion to $35-40 billion, the Commonwealth Government is right to be reviewing childcare benefits and the proposed paid parental leave scheme, as reported yesterday (Budget warning: Childcare and family payments explode by $5.6b despite budget cuts). As I’ve noted throughout the year, without major policy changes, there is a big risk the Commonwealth will end up in a state of permanent deficit. The Commonwealth’s spending policies are incompatible with its tax policy settings, which due to income tax cuts in the 2000s generate a smaller tax-to-GDP ratio than previously. To avoid a state of permanent deficit it is necessary to make unpopular cuts to Commonwealth expenditures, which is why I’ve been supportive of the GP co-payment and higher education deregulation, among other policies. My previous posts on the budgetary challenges facing the Commonwealth Government include:

Good Budget strategy, but a mix of good and bad policy measures

 ABC radio interview on the debt tax and paid parental leave

Grattan report shows need for permanent budget measures, not temporary debt levy

Higher education reform important in improving budget balance