Wayne Swan says the Budget has taken a $7.5b hit.
Wayne Swan says the Budget has taken a $7.5b hit. Kari Bourne

Australia faces decade of deficits as budget takes $7.5b hit

A DECADE of successive government budget deficits of about $60 billion is likely if major changes are not made to the federal budget, a Grattan Institute report has revealed.

The report highlighted long-standing problems with the way the Commonwealth's budget operated, with the biggest contributor to future deficits health spending.

It comes just two days after Treasurer Wayne Swan revealed the government's fiscal position had eroded by $7.5 billion since the October mid-year budget update.

While Mr Swan said the problem was due to falling revenues, Opposition Leader Tony Abbott said it was due to too much spending.

Mr Abbott said the Coalition would be "slimming" the public service because there were 20,000 more bureaucrats now than five years ago.

While he refused to commit to delivering a surplus, he said the Coalition's plans for the National Broadband Network were $60 billion cheaper than Labor's.

Report author, institute chief executive John Daley, said turning around projected budget deficits of 4% of GDP for the next 10 years was an "alarming but not impossible task".

He said there was a need for "courageous leaders" to step forward, to make tougher choices, rather than being tempted to raise voter expectations and spend money.

Mr Daley said governments of both political stripes had squibbed on the hard decisions on the budget, alluding to the political implications of raising taxes and cutting government spending.

The report found health spending had risen by nearly $42 billion in the past decade, and was the largest contributor to sustained growth in government spending.

But it found rather than being attributable to the nation's ageing population, it was due to more people going to the doctor more often, having more tests and operations and taking more prescription drugs.

"On published figures, government budgets are close to balanced. But this masks significant problems," the report reads.

While the report made the case for sustainable budget surpluses, it said the main problems were to do with the structure of the current tax system and the political penchant for making big spending promises to the public.

The institute said it would publish another report on the issue examining what options could be taken to prevent the decade of deficits.