Pre-Election 'Spendathon' By Labor And Coalition Risks Deepening Australia's Debt, Economist Warns

Australia's two major political parties are engaging in what has been dubbed a pre-election "spendathon" that may do little to reduce the national debt or improve living standards, a top economist has warned.

AMP chief economist Shane Oliver criticized both Labor and the Coalition for offering big-ticket items such as tax cuts, fuel subsidies, and housing initiatives that, he argued, provided little lasting benefit for Australians.

"These are mostly just band-aid solutions," Oliver said.

Debt on the rise

The economist warned that the policies from both sides would only deepen Australia's growing debt burden.

The national debt is projected to reach AU$940 billion -- or 33.7% of GDP -- by 2024-25. Budget forecasts suggest the debt could increase above AU$1.2 trillion, or 36.8% of GDP, by 2028-29, News.com reported.

He added that the billions of dollars in campaign spending pledges from both major parties were set to deepen Australia's already projected decade-long stretch of budget deficits and mounting public debt.

Housing promises under scrutiny

Both parties have made housing announcements, but Oliver remains skeptical about their long-term effectiveness.

Labor has promised to assist first-home buyers by reducing the required deposit to just 5% and waiving lenders mortgage insurance. It also committed AU$10 billion to construct 100,000 homes targeted at first-home buyers.

The Coalition, meanwhile, has offered to make interest payments on the first AU$650,000 of a new home mortgage tax deductible for eligible buyers. Additionally, it pledged to allow superannuation members to withdraw up to AU$50,000 for a home deposit and has committed AU$5 billion to fast-track essential infrastructure, aimed at supporting 500,000 new homes.

Both parties have also vowed to impose a two-year ban on foreign property buyers.

Costly and complicated tax reforms

Oliver warned the Coalition's tax deduction for mortgage interest could end up being more expensive than estimated. He also raised concerns about increased defense spending from the Coalition, details of which remain unclear, suggesting both parties were likely to contribute similarly to future deficits and debt.

Oliver also criticized both parties for stepping away from "fundamental tax reform," and added that the Coalition's policy would further complicate the income tax system.

However, Oliver acknowledged that both sides have proposed some economically sound policies. He highlighted Labor's move to address bracket creep and the Liberal party's commitment to cutting unnecessary red tape as examples of rational policy-making amidst the broader spending frenzy.