Former Treasurer Peter Costello has warned the Turnbull government not to do anything in the upcoming financial statement or budget that would endanger a return to surplus.
Mr Turnbull has spoken of tax cuts in May budget, funded by what is likely to be an improved budget position in the mid year budget update to be released next week.
In a forward to a Centre for Independent Studies report on budget policy to be released on Monday Mr Costello says since he signed off as Treasurer in John Howard's Coalition government in 2007 Australia has had ten years of budget deficits. Before that it had had ten years of surpluses.
All of the debt that he paid off as Treasurer "has been borrowed again".
"People often ask whether it was worth paying off the debt given that subsequent governments have gone out and borrowed it all back," he writes. "The only answer I can give is to say: just imagine where we would be if we hadn't paid off that debt?
"Sure, subsequent governments have piled on debt, but if we hadn't got the Commonwealth debt-free, they would have piled debt on pre-existing debt rather than debt against a strong asset position."
The Centre for Independent Studies report by Senior Fellow Robert Carling concludes that the goal of achieving a balanced or surplus budget on average over the economic cycle "is clearly not being achieved".
"Expenditure policy amounts to little more than governments spending more; and any strategic purpose and reform theme in tax policy has given way to piecemeal and politically opportunistic tax increases," it says.
Australia is not alone in retreating from fiscal reforms, but it should draw comfort from international comparisons.
The report echos concerns expressed in a Parliamentary Budget Office analysis released last week that the budget is too fragile to justify giveaways such as potentially unfunded tax cuts.
It says the government's projections are based on the untested assumption that economic growth will climb to around 3 per cent and stay there indefinitely.
"The potential rate of economic growth over the medium-term is heavily dependent on productivity growth as labour force participation is unlikely to continue to contribute to growth," it says.
Mr Costello said the days of balanced budgets were remembered "not as a horror time, but as a period of great success".
"That experience should encourage those now engaged in the argument that the public will support a well-designed program and it can be successful."
Peter Martin is economics editor of The Age.
