Former Australian Treasurer Peter Costello warned on Tuesday that because of four years of bad budget under a Labor government Australia is at the risk of taking the same road as Europe which has led to a sovereign debt crisis.

The bleak scenario could take place if the federal government would fail to curb spending. Mr Costello said that the government should not use the income from the current resources boom to fund unsustainable government spending. He added that current efforts to reduce spending were not enough.

"If all we have got is government debt then we would have completely wasted this (mining boom)," Mr Costello said over radio.

"If the journey keeps continuing at the rate in the years ahead that it did in the last three or four years, it won't be too long before we start experiencing European-type problems," the former treasurer said.

Mr Costello's commend came at about the same time that a report by ANZ analysts forecast an average 6 per cent yearly drop in Commonwealth and state investment over the next four years based on updated government budget forecasts.

"This could be the weakest period of government investment since the Australian national accounts data began in 1960, and weaker than the three years of investment falls from 1995-96 to 1997-98," the Herald Sun quoted the report.

Katie Dean, ANZ head of Australian economics, explained the decline in public investments partly to the end of the federal stimulus programme started during the 2008 global financial crisis. She added that the Commonwealth's scaled-back investment plans are in response to lower revenue growth that is a reflection by the government to differentiate Australia from industrialised nations that are suffering from the failure caused by earlier poor fiscal control.

Mr Costello added that the reduced spending would be a threat to Australian's shaky employment outlook and place more pressure on the private sector to support the country's economy at a critical point.

Both the World Bank and the International Monetary Fund (IMF) have downgraded their global growth forecasts for 2012 and 2013. Current Treasurer Wayne Swan said that twin growth forecast cuts should serve as a warning to all governments that serious threats continue to loom over the global economy.

"The IMF's update also serves as a timely reminder that, while Australia is not immune, our region is much healthier and our economic fundamentals are among the strongest in the world," Mr Swan said in a statement.

"While no country can expect to be immune from the global threats identified by the IMF, Australia has solid growth, unemployment at half the levels of Europe, a massive investment pipeline, contained inflation and very low government debt," he added.

Mr Swan pointed to Australia's receiving the AAA credit rating from the three major global rating agencies as a reflection of the very strong economic fundamentals amid rating downgrades for the U.S. and many European nations.

RELATED STORIES