The comfortable world Australia built its budgets around is gone.

The International Energy Agency warns the energy crisis caused by the latest middle east conflict is even more severe than the oil shocks of the 1970s, with bigger disruptions across both oil and gas. Back then, inflation surged to around 17%, Australia tipped into a recession, and unemployment more than doubled as the oil shock ripped through the economy.

This external upheaval is becoming more frequent because the geopolitical stability that has underpinned our economic policy for a generation is fracturing. On top of all of this, the accelerating AI revolution is driving enormous new demand for energy, digital infrastructure and capital. A more dangerous and more technologically competitive world will demand stronger defence, tougher supply chains and deeper economic resilience. None of it will come cheaply.

Australia’s fiscal position is becoming as uncomfortable as the world around us. Between 2007 and 2023 Australian state and federal governments collectively recorded the fastest growth in debt as a share of GDP in the OECD. It has pushed us from third to thirteenth place in overall global debt ranking. We are no longer a low debt country, and our public finances are now being shaped as much in Macquarie Street, Spring Street and George Street as they are in Canberra. State governments carry around half of Australia’s total public debt and sustainability across the federation cannot be achieved if accountability remains narrowly focused on the Commonwealth.

New analysis by e61, prepared for McKinnon, makes the scale of the challenge impossible to ignore. For much of the past 25 years, economic growth and government spending broadly moved in step. Since around 2011, they have not. GDP growth has averaged about 2.5 per cent a year, while spending at both state and federal levels has continued to rise closer to 3 per cent.

Individually, those differences appear modest. Over time, they compound. The result is structural deficits embedded in how budgets are set. On current projections, Australia is on track for close to two decades of state and federal budget deficits by the end of this decade.

One of the clearest consequences of this is our growing interest bill. When state and federal debt are combined, Australia now spends around $48 billion a year in interest to service that debt. It is two and a half times what we spend on policing across the country, it is more than we spend on aged care, it is enough money to upgrade the Bruce Highway six times, build three Westconnex motorways or three Melbourne Metros each and every year. It is money that is locked away before a single hospital is staffed, a classroom funded or a submarine built.

For decades, Australians have reasonably expected governments to deliver more, more services, faster infrastructure, broader support, often without confronting the long-term costs involved.

This is not an argument for lower ambition. It is an argument for honesty. Sustainable government means being clear about trade-offs, prioritising what delivers the greatest public value, and acknowledging that not every demand can be met without consequence.

If we continue to promise everything, we risk delivering less of what matters most.

That is why McKinnon is proposing the introduction of a Treasurer’s Fiscal Statement to precede annual budgets at both state and federal levels. These Statements would reset how governments explain their financial position and the consequences of their decisions to the public.

Australia already has Intergenerational Reports, soon to be released every three years by the Commonwealth with a 40-year horizon. They are valuable, but their timeframes are so distant that they struggle to inform day-to-day policy choices, and too often invite the assumption that the hardest problems will be dealt with by future governments.

Treasurer’s Fiscal Statements would bridge that gap. They would provide clear, plain-English accounts of a government’s financial health, bringing together debt, deficits and interest costs in one place, while extending the focus beyond the standard four-year budget cycle to a tangible 10-year outlook. Crucially, it would show how each government’s budget would either strengthen or weaken the long-term trajectory, translating future risks into today’s terms.

In practical terms, it would answer a simple but vital question: are today’s policy choices and budget strategy improving or undermining our capacity to fund services and manage pressures over the next decade?

By making the medium-term consequences of fiscal decisions visible, Treasurer’s Fiscal Statements would improve decision-making, support more informed public debate, and force greater honesty about trade-offs between present benefits and future costs. Fiscal comfort today is rarely free, and governments should be required to explain who ultimately pays for it.

It is important to note that Budget pressures are not the responsibility of any one institution, government or generation. They are a shared national challenge that cuts across elections, jurisdictions and economic cycles. Meeting that challenge will require everyone to play a role and in a spirit that is about what is needed for the Country not Instagram or Tik Tok.

Australia still has time on its side. In Japan, France and the United States, government debt now exceeds the size of the economy. The United Kingdom is moving in the same direction, and globally sovereign debt has roughly quadrupled between the eve of the global financial crisis and the end of 2023. By contrast, Australia’s consolidated public debt is projected to approach around 40 per cent of GDP by the end of this decade. Recent events underline that our relative position should not be mistaken for immunity.

Once higher debt and interest costs become embedded, reversing course becomes far harder, particularly as demographic pressures intensify. The lesson from other advanced economies is not that debt is inevitable, but that delay steadily narrows the choices available.

As we move towards the most important Federal Budget in decades, there must be an understanding from all states and territories that Australia is running out of easy fiscal options. Waste, duplication and poorly prioritised projects are no longer affordable. In a world defined by energy shocks, geopolitical instability and rising strategic competition, every dollar misspent today is a dollar we do not have when it matters most.