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1.2 Outlook for spending

In the current financial year, the Commonwealth Government will spend around $409 billion, including $95 billion in distributions to the States.

Of total Commonwealth spending in 2013-14 only 12 per cent (or just under $50 billion) is categorised as agency and departmental spending. The remaining 88 per cent or some $360 billion is classified as ‘administered’ payments. The vast majority of ‘administered’ payments are governed by legislation and established eligibility rules which mean there is little discretion as to whether they are made.

Looking ahead 10 years, any outlook for the Commonwealth’s finances will necessarily be inexact. It is difficult to estimate spending and revenue accurately in the near term, let alone out to 2023-24.

Nonetheless on the spending side it is possible to obtain a reasonable approximation of likely trends on the basis of what we know about expected population growth, demographic changes, the formulas used to increase payments each year and likely take-up rates for certain programmes.

Over the next 10 years Commonwealth spending is projected to increase by some $280 billion to $690 billion in nominal terms. Around 70 per cent of the projected increase in spending over this period is accounted for by growth in 15 major programmes (Chart 1.1).

The pace of spending growth is expected to accelerate considerably from 2017-18 onwards due largely to a step up in the rate of growth of Australia’s foreign aid programme and very substantial increases in expenditure in education and disability funding.

Annex B to this report outlines in detail the assumptions and methodology underpinning the projections. They involve assessments and judgements about various drivers of payments and are based on assumptions around economic growth and inflation that are reasonable and sensible.